Transcript Slide 1

The Impact of Changing Accounting Requirements
on Australian Government Agencies
National Accountants Conference 2005
Allan Gaukroger
Chief Financial Officer
23 November 2005
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
The Impact of Changing Accounting Requirements
on Australian Government Agencies
- the DAFF Experience
• Profile of the Department of Agriculture, Fisheries and
Forestry (DAFF)
• Impact of the 1999 Government Financial Reforms
– Accrual Accounting, Balance Sheet Management, skills sets
• Impact of the 2003 Budget Estimates and Framework
Review
– Improved timeliness and accuracy in reporting
• Accountability for Performance
• Implementation of AEIFRS
• Questions
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
The Department of Agriculture, Fisheries
and Forestry (DAFF)
• Nine separate divisions
• 4000 staff across Australia
• Quarantine, export certification, natural resource
management, pest and animal disease prevention,
agricultural, fisheries, forestry and food policy,
economic and scientific research, market access.
• Departmental revenue > $AUD500 million per annum
• 60% revenue appropriation, 40% cost recovered
• Administered program expenses in excess of $AUD1.7
billion per annum
• 13 separate agencies in DAFF portfolio
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
1999 Government Financial Reforms
• Budget estimates process decentralised from
Department of Finance and Administration to agencies
• Accrual budgeting and monthly accrual reporting
implemented
• Outputs and Outcomes framework established
• Decentralised banking arrangements put in place
• Market testing of selected corporate services
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Like successfully riding a wave, the
implementation of accrual accounting required
total commitment at the take-off
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
What changed as a consequence of the
1999 reforms?
• New financial management information systems that
catered for accrual accounting
• Greater ownership of budget estimates by agencies
• Managing the balance sheet
• Increased demand for staff/new skill sets
• CFO became a key support player in managing the
affairs of agencies
• Changing 100 years of a cash culture to one where
financial performance was measured in both accrual
and cash terms was a difficult transition
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Managing the balance sheet
• Capital expenditure budgeting and justification
– Consequences of decisions now impact over the life of the
asset not just the first year (through depreciation)
– Focus on reducing fixed asset holdings where possible
– Managers accountable for fixed assets in their control
– No more year-end “spend-up” on capital items
– Lack of understanding by some line managers remains
regarding the difference between capital and expense
• Focus on managing recreation and long service leave
balances
– Staff encouraged to take leave as it falls due
– Impact of leave creep directly flows to individual budgets
• Better managing creditors and debtors that flowed into
more positive cash flows
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
New skill sets required
• DAFF and Centrelink – good blend of quality finance
staff – from both the public and private sector assisted
in the transition
• Educating line managers in the vernacular (theirs and
ours) in financial performance presentations and
training
• Early removal of dual cash/accrual systems operating
in line management areas. Cash management was
centralised from the start
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Rise of the CFO in agencies
• Chief Executives now have greater accountability for
managing the affairs of their respective agencies
• CFO a vital support role in financial management of
agencies
• Best practice CFO guidelines issued by Department of
Finance and Administration 2 years ago to help
accelerate a more prominent role for CFOs in agencies
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
2003 Budget Estimates and Framework Review
• Objective to improve accuracy and timeliness of
estimates for government
• DAFF reports program information (cash and accrual)
to Department of Finance and Administration by 10th
calendar day following month-end
– Resulted in more timely monthly information where
variations from planned performance are explained in
detail for each program. Processes changed to suit.
• Audited Financial Statement clearance dates reduced
(eg 2004-05 audit-cleared statements by 30 July 2005)
– Project planning commences after signing the last set of
statements
– Emphasis at DAFF placed on a ‘hard-close’ at March to
reduce amount of work required at year end including
audit work
– More timely production of year-end information
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Budget Estimates and Framework Review
(cont.)
• Strict deadlines on all budget and financial reporting
milestones. Any slippage reported to government, and
agencies required to furnish a ‘please explain’
– DAFF has achieved 100% deadline compliance to date.
– DAFF required to render account on all significant
variations between actuals and estimates provided at all
stages of the budget process
• DAFF now required to monitor financial performance of
small agencies within its portfolio
– Main focus on operating result, cash on hand and Current
Ratio. Any significant financial issues reported to Dept of
Finance
– Accountability for performance remains with Chief
Executives in each of those agencies
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Accountability for Performance
• Increased governance mechanisms
– Audit Committee and Finance Sub-Committee
– Monthly reporting to Executive and Dept of Finance
– Chief Executive Instructions
– Executive Budget Committee
– Periodic Division Business Performance Reviews
• Assessing what is good, bad or indifferent financial
performance
– Stewardship of funds a key business goal for DAFF
– Operating result goal of break-even or better (range 0-2%
of appropriation revenue
– Solvency – Current Ratio 1.0-2.0
– Program delivery – on time and within budget
– “What gets measured gets done”
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Divisional Performance Reviews
• Held by DAFF once every 4 months
• Division Heads required to render account to DAFF
Chief Executive on business performance for past
period and likely outcomes for remainder of financial
year
• Performance covers financial, people, and division
delivery of agreed programs/services
• Financial Performance
– Separate profit and loss for each Division
– Corporate costs allocated on estimated resource usage
using predefined cost drivers
– All divisions required to break-even or better
– Divisions render account on what happened, why it
happened, remedial action required (if any), and risks and
mitigation strategies to the expected year end result.
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Implementation of IFRS
• Move to AEIFRS not as disruptive or complex as
originally feared
• Reflected incremental rather than seismic changes
• Few changes required to financial systems
• Some issues (eg intangibles), originally thought to be
significant, have turned out to be non-events
• Requirements of AASB 116 Property, Plant and
Equipment – requirement to revalue relevant items to
fair value – already in line with moves in this direction
in recent years
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Issues that have required changes to
financial systems and reporting practices
• All property, plant and equipment to be tested for
impairment annually
• More detailed tests prescribed for recognition of
provisions, contingent liabilities and contingent assets
• Minor changes required to cater for AASB5 Non-current
assets held for Sale and discontinued operations
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Areas where we are keeping a watching
AEIFRS brief
• AASB 128 Investments in Associates.
– We are hoping this does not require DAFF to equity
account for its portfolio bodies. Advice to date
encouraging.
• Repeal of Statement of Accounting Concepts 4
– Previously provided valuable guidance for treatment of
items not specifically covered by the accounting standards
eg industry income equalisation reserves
– Framework for new AEIFRS Preparation and presentation
of financial statements important for ensuring current
accounting treatments under SAC4.
• Interpretations during 2005-06 following specific
applications of the new standards
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
Some final comments………..
• Agility and adaptability to rapid change is a way of life
these days
• DAFF managed in a more “business-like” approach
• Business is about managing trade-offs – you can’t have
every thing you want.
• Implementation of a customer-focussed culture in the
DAFF Corporate Finance area means we are a vital
support arm within DAFF
• Greater accountability for results – both internal and
external – timeliness, quality and accuracy
• Contemporary accrual-based financial information
systems in place with supporting financial policies,
procedures and controls to help ensure delivery of
results
• DAFF is now managed with a short term and longer
term perspective.
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y
QUESTIONS ??
D E PA R T M E N T O F A G R I C U LT U R E , F I S H E R I E S A N D F O R E S T R Y