Part C - The time of recording revenue
In GFS, revenue is recorded on an accruals basis in the period in which it occurs rather than when payment is received. Consequently, all economic activities, transactions, or other events, are recorded at the point in time when they create an unconditional claim for the government unit or public corporation to receive the revenue.
Under an accruals basis of reporting, the time period between the moment when a revenue transaction occurs and payment is received is bridged by an account receivable. However, in the case of the receipt of pre-payments of revenue that cover two or more reporting periods into the future, paragraph 5.13 of the IMF GFSM 2014 indicates that the pre-payment is taken to be a financial advance that is made to a public sector unit by the payee and constitutes a liability of the public sector unit and an asset of the payee. The receipt of pre-payments of revenue to a public sector unit covering two or more periods should be recorded as transactions in liabilities - accounts payable (ETF 3211, TALC 552, SDC). The accounts payable liability is extinguished as the revenue falls due in the future periods. This treatment should be used to record advances for the provision of goods and services that will be delivered in the future, capital grants received for the construction of non-financial produced assets over a number of years, and other deferred revenues covering two or more reporting periods into the future.
In the GFS statement of sources and uses of cash, cash receipts from operating activities are recorded when the cash is received or paid.
Timing adjustments to revenue
Recording revenue data on an accruals basis can create difficulties if there is a delay between the time that the economic activity occurs and the time that payment is received, especially in the quarterly GFS series. In Australian GFS, revenue may not be reported on an accruals basis by treasuries, the Department of Finance and local governments for various reasons such as:
- Financial data may be uploaded by individual government agencies to a central system on an annual or biannual basis;
- Revenue collection and billing cycles are annual or biannual; or
- Appropriate closing and other journal entries have not been made to properly accrualise the data for the period in question, i.e. a raw dump of the ledger has been provided.
In most cases, the receipt of revenue from land tax is recorded on an annual basis by State Revenue Offices, however, use of the land for economic activity occurs continuously throughout the year. Where data relating to continuous economic activity are reported on an annual or biannual basis, the ABS practice is to proportion the reported data equally over four financial quarters (in consultation with the relevant state or territory treasury, the Department of Finance, or local governments) to better represent the spread of the economic activity. Generally, this is done by pro-rating the data across the four quarters while aligning to the reported year-to-date figures.
There are other revenue items which may attract timing adjustments by the ABS, but which are less frequent. These include the under or over estimation of taxation revenue or royalty income from rents received from natural resources, or for the amendment of data errors. The timing adjustment to data reported for these three issues are discussed below.
Under or over estimation of taxation revenue
Taxation revenue may further require timing adjustments in cases where taxes on income may be under or over stated. This can sometimes occur if there are delays between the generation of income tax under a Pay-As-You-Earn (PAYE) system and the lodging of an income tax return by an individual or corporation. For example, an individual may earn income in the current period but not lodge their tax return until a future period. This means the government cannot record the taxation revenue until a tax return is lodged by the individual and a tax assessment is made by the Australian Taxation Office, and this may lead to under or over estimation in taxation revenue.
Adjustments to taxation revenue may also occur due to reassessments of taxation liabilities through a court case or other such investigation. Paragraph 5.20 of the IMF GFSM 2014 states that if transactions are recorded for taxes (and other revenue) that overestimate the amount of revenue receivable, an adjustment should be recorded in the GFS framework to reduce taxation revenue with a corresponding reduction in transactions in financial assets - accounts receivable (ETF 3111, TALC 452, SDC).
Paragraph 3.79 of the IMF GFSM 2014 notes that contested tax assessments (as part of an active court case or other investigation) are treated as contingent liabilities and are excluded from taxation revenue. If a new tax liability is assessed after a court case or other investigation has concluded, then the new amount of taxation revenue is recorded in the usual way. Adjustments for under or over reporting of taxation revenue is made by the ABS in consultation with the relevant state or territory treasury or the Department of Finance
Under or over estimation of royalty income
Royalty income refers to rents received for the use of government owned non-produced assets such as minerals, fossil fuels, and other natural resources. Extractors of natural resources usually make royalty rent payments to the government on an annual or biannual basis even though the production that gives rise to the royalty rent payments may occur continuously throughout the year. As is the case of under or over estimated taxation revenue, if an under or over estimation of royalty income is recorded, then an adjustment is recorded in the period that it is detected. Any adjustments to royalty income (ETF 1135, SDC) (especially for the quarterly GFS series) is undertaken by the ABS in consultation with the relevant state or territory treasury, the Department of Finance, or local governments.
Adjustments for the amendment of data errors
Where quarterly data are volatile and result in large movements that do not have a plausible economic explanation, the ABS may apply timing adjustments to better represent the underlying economic activity rather than the financial reporting of the activity. This often means a reduction to the relevant revenue item with a corresponding reduction transactions in financial assets - accounts receivable (ETF 3111, TALC 452, SDC) for over estimations, or vice versa for under estimations for revenue received. In all cases, adjustments for under or over reporting of revenue are made by the ABS in consultation with the relevant state or territory treasury, the Department of Finance, or local government.