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Budgetary Variance Reporting

Notes to and forming part of the financial statements

B. Budgetary Variance Reporting

The following are explanations of events that have impacted on Finance's operations and activities for the year that were not provided for in the budget or otherwise included against relevant note disclosures. Users should note that a number of these items have been included in subsequent budgets. Budget numbers are sourced from Finance’s PBS for 2017-18 and are provided to the right of primary statements in italics to clearly distinguish them from actual results. Budgeted numbers are not audited.

Major variances are those deemed relevant or most significant to an analysis of Finance's performance by management, not focussed merely on numerical differences between the actual and budgeted amounts. A note reference is included against the relevant primary statement/schedule line item which corresponds to the explanations provided below and elsewhere in the financial statements.

When providing explanations, Finance has identified the financial impact in relation to those key aggregates relevant to Finance's performance. Users should be aware that there will be consequential impacts on related statements i.e. a variance in the Statement of Comprehensive Income is likely to have consequential impacts in the Statement of Financial Position and the Cash Flow Statement.

The Statement of Financial Position budget for 2017-18 was prepared based on 2015-16 financial results, with adjustments for predicted or known movements at that time.

Note Reference

Affected line Items

Variance Reporting

B1: Consultants and contractors

Consultants and contractors

Budget variances due to the deferral of expenditure relating to new policy proposals for major infrastructure projects including delivering Inland Rail and Western Sydney Airport, and departmental investment activity from the Public Service Modernisation Fund.

B2: General insurance activities

Insurance claims expense

Outstanding insurance claims

Insurance liabilities are subject to uncertainty in the estimation process as the ultimate outcome of claims is subject to events that have not yet occurred. Finance takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures, with estimates and judgements regularly updated based on historical experience and other factors.

Lower claims expenses for 2017-18 is due to the absence of large Property claims where the budget is set with a long term view and is not indicative of a loss in an individual year.

B3: Property

Gains

Land

Buildings

Investment properties

Return of equity - special accounts

Other provisions

Asset revaluation reserves

Proceeds from sale

The Commonwealth's domestic property portfolio has budget variances due to:

  • revaluation gains for land, buildings mainly due to the Commonwealth Law Courts;
    • revaluation gains in investment properties (some write-downs were expected but did not eventuate);
    • gains from the divestment of properties in the Parliamentary triangle, with the proceeds returned to the Consolidated Revenue Fund (CRF) (reflected in 'Return of equity - special accounts');
    • reclassification of assets as held for sale resulting from the Commonwealth's continued divestment strategy;
    • transfer of the Prime Minister's official establishments to the Department of the Prime Minister and Cabinet (PM&C); and
  • new policy for remediation work on the Wagait shire tip site.

B4: Superannuation

Superannuation expense

Superannuation Provision

Budget variances are due to differences in the discount rates used for budgeting and financial reporting.

The budgeted superannuation provision and expense use the discount rate in the Long Term Cost Reports to reduce volatility that would occur if the long-term government bond rate, which is required by Australian Accounting Standards for financial reporting, was applied.

Any change in the rates used for budget and financial reporting purposes significantly impacts on the superannuation provisions and superannuation expense.

B5: Investment Funds

Distribution to portfolio special accounts

Investment fund earnings1

Net assets2

Due to the volatile nature of investment markets it is difficult to predict the final outcomes and values of some individual line items such as foreign exchange gains and loss. For budgeting of net asset balances, earnings and expenditure, Finance forecasts at an aggregated level.

The net asset balance for the investment funds are higher than originally budgeted for due to:

  • ongoing negotiations on the National Partnership Agreement for the DisabilityCare Australia Fund. As a consequence, only partial reimbursements were provided to States in 2017-18 and no reimbursement was provided to the Commonwealth;
  • cessation of the Building Australia Fund and Education Investment Fund not occurring due to delays in the passage of the enabling legislation through Parliament; and
  • better than expected financial performance of the funds.

1 Comprised of Investment funds - interest on term deposits, Investment fund - dividends, Investment funds - gain on financial instruments offset by Investment funds - foreign exchange losses.

2 Comprised of Investment funds - loans and receivables, Investment funds - financial assets at FVPL offset by Investment funds - financial liabilities and derivative liabilities.

Visit

https://www.transparency.gov.au/annual-reports/department-finance/2018/part-5-financial-statements/budgetary-variance-reporting