In late April DTF released Accounting and Financial Reporting Bulletin (AFRB) 39 - 'Accounting for Contributed Capital', which provides guidance and clarification for Victorian Government Entities on UIG Abstract 38 'Contributions by Owners to Wholly-Owned Public Sector Entities'.
The bulletin prescribes:
- The public sector entities that can apply UIG Abstract 38
- The nature of the transactions that are allowed to be treated as contributed capital
- The designation required for transactions to be classified as contributed capital
Public sector entities that can apply UIG Abstract 38
The AFRB39 bulletin lists the current wholly owned public sector entities that can apply UIG Abstract 38 and guidelines contained in AFRB 39. The general criteria for inclusion on this list is entities that are required to complete the 6 monthly whole of government reporting, Mid Year Financial Report (MYFR) and Annual Financial Report (AFR).
Specifically all public hospitals are required to apply the pronouncements of the bulletin, with the exception of Denominational Hospitals.
Transactions that are allowed to be treated as contributed capital
Under AFRB 39 only certain transactions are allowed to be treated as contributed capital. Only transactions that fit the definition of contributions by owners contained in AAS 15 Revenue can be treated as contributed capital transactions, provided they have been appropriately designated (explained next section).
There are 2 types of transactions generally undertaken between wholly owned government entities, these being:
- On-passing appropriation as payments from Departments to Agencies
- Transfers of assets and liabilities, either as a consequence of restructure or for no consideration
On-passing appropriation as payments from Departments to Agencies
There are 3 types of payments to agencies:
- Provision of outputs (casemix funding and most other grants) are to be recorded and reported as revenue.
- Additions to net asset base (ATNAB) (specific payments for assets that are seen to increase throughput/outputs capacity) are to be treated as contributed capital (provided the source appropriation to DHS is ATNAB - see Capital Grants below).
- Payments on behalf of the state (POBOS) are generally to be recorded as revenue but in rare cases can be contributed capital.
DHS receives 99% of its appropriations for the provision of outputs, which will be recorded as revenue, and as such when received by hospitals must also be recorded as revenue.
Transfers of assets and liabilities
Transfer of assets and liabilities between wholly owned public sector entities are to be treated as contributed capital, either injection or distribution, subject to appropriate designation.
Designation required for transactions to be classified as contributed capital
For the allowable transactions to be classified as contributed capital they need to be formally designated on or before the time of the transaction. This formal designation can take 2 forms:
- For appropriations and their on passing through departments to other agencies the formal designation occurs with the approval and release of the state budget.
- For any other transaction the portfolio Minister (Minister for Health) will designate the transaction as contributed capital and notify the Minister for Finance of the designation. The Minister for Finance has the power to veto this treatment where it may lead to inconsistent reporting or possible audit qualifications.
Actions required by agencies and specifically public hospitals
With the introduction of contributed capital accounting, DTF has decreed that all agencies for which AFRB 39 applies will need to create an opening contributed capital position. AFRB 40 dictates the requirements for the creation of opening balances of contributed capital. To create the opening balances all agencies will need to transfer their Accumulated Surpluses as at 30 June 2001 to Contributed Capital. This will have the effect of clearing Accumulated Surpluses as at 1 July 2001. A letter to this effect is being sent to each CFO, which will require a confirmation reply.
Due to the complexity of the appropriation funding to DHS, no hospital will be able to treat capital grants as contributed capital unless notified in writing by DHS. This is due to nearly all capital funding coming to DHS as Output funding not ATNAB. As the nature of the original appropriation must be maintained to the recipient wholly owned entity, hospitals cannot choose to treat their capital grants as contributed capital. This is also extremely important for whole of government reporting and eliminations, and to the possible effect on each hospital's operating statements.
Transfer of Assets and Liabilities
Due to the requirement for formal designation, and of whole of government reporting and eliminations, any transfer of assets between entities will need to be notified to DHS prior to the transaction occurring and with adequate notice to arrange formal designation. The detail requirements of this notification are not yet available as they are currently being prepared by DTF and are awaiting approval.
To summarise the above for hospitals:
- Transfer of opening accumulated surpluses to contributed capital needs to occur.
- No capital grant revenues should be recorded as contributed capital unless notified in writing by DHS.
- Any transfers of assets and liabilities between wholly owned government entities will require notification to be sent to DHS prior to the transaction occurring.
For any remaining queries that you may have please contact Duncan McColl, Manager Financial Reporting on 9616-8316 or email email@example.com
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