Queensland Treasury Financial Reporting Requirements (FRRs) for 2019–20 are available on Queensland Treasury’s website: www.treasury.qld.gov.au/resource/financial-reporting-requirements-queensland-government-agencies/.
While only departments and statutory bodies, including hospital foundations, are required to comply with the FRRs, they are a good resource that may provide useful guidance to other public sector entities, particularly when it comes to applying the accounting standards in a public sector environment. Such entities include local governments and universities.
FRR 1A includes guidance for addressing potential financial reporting and financial statement impacts arising from the COVID-19 pandemic. Illustrative disclosures for significant financial transactions are included in the appendix. For more information on COVID-19 issues, refer to our blog article Financial reporting considerations in uncertain times.
Revenue, tax, fee waivers and other concessions
Some entities have a legislative requirement, or business practice, of providing concessions from their revenue—for example pensioner discounts. For these situations, they should only recognise the net revenue, as that is the amount the entity has an enforceable right or entitlement to receive. They should not recognise the discount as an expense.
The COVID-19 guidance in FRR 1A provides relevant guidance for the wider range of concessions being provided in the current environment, including refunds, waivers and deferrals.
Additional disclosure of $1,250 one-off employee payments
All state agencies that have made any one-off $1,250 payments to employees in 2019–20 will need to include this disclosure in their 2019–20 financial statements. The required disclosure should be made as a footnote to the Employee Expenses note.
New accounting standards this year
The accounting requirements and guidance on adopting the new accounting standards (previously located in Part 1A) is now included in Parts 3B and 4B of the FRRs. This includes:
- guidance on applying AASB 15 Revenue, AASB 1058 Income for Not‑for-Profit Entities, AASB 16 Leases—including assessing whether an arrangement is ‘sufficiently specific’ for deferred revenue recognition under AASB 15
- transitional requirements for the new standards mandated by Treasury.
Part 6A (Sunshine Note G5) and Part 6B (Future Bay Regional Health Foundation (Tier 2)) have illustrative disclosures on the effect of the new accounting standards. You can consider these for inclusion in your financial statements. However, you will need to tailor them to reflect your entity’s specific circumstances.
QAO expects that the transition policies that will be the most helpful in easing implementation costs for you are:
- not retrospectively restating 2018–19 results on commencement of AASB 15, AASB 1058 and AASB 16
- measuring, on a lease-by-lease basis, the carrying value of the right-of-use lease asset on transition as being either based on the lease liability or a recalculation from when the lease commenced
- using cost and not revaluing the right-to-use lease asset for leases.
One of the main areas to focus on for transition is the opening balance adjustment for agreements where revenue is deferred under AASB 15 and capital grants under AASB 1058. Treasury’s transition policy affects the calculation for completed contracts (under AASB 15 or AASB 1058 definitions).
When determining opening balances on transition at 1 July 2019, you will need to consider arrangements that had performance obligations at transition even if you had already recognised the full revenue amount by 30 June 2019 under the old standards. These opening balances include a contract liability (unearned revenue) and possibly a contract asset (unbilled revenue).
An example is sufficiently specific grants an entity received in advance that have outstanding performance obligations at 30 June 2019. The entity recognised revenue for these grants on receipt under the old standards. Under Treasury’s transition policy, the entity will need to recognise a contract liability as at 1 July 2019 and re-recognise that amount as revenue as performance obligations are satisfied.
Changes and clarifications for this year
The FRRs web page includes a Summary of Noteworthy Changes. We would like to highlight some areas to focus on:
- Pass-through grants—Treasury has updated FRR 2E ‘Controlled and Administered Items, Trust Transactions and Agency Arrangements’ on how to treat pass-through grants (transfer payments). Departments will continue to treat these as administered items. If a department’s administered items are material, solely due to the quantum of those payments, then separate administered financial statements are not required.
- Appropriations payable—Treasury has changed FRR 3B ‘Income’ to require that entities recognise appropriation returns (and appropriations payable) as a reduction of appropriation revenue, and not as an expense. This aligns with Tridata accounting. No adjustment is required to the 2018–19 comparatives.
- Agency funded fit-outs under the Queensland Government Accommodation Office’s (QGAO) arrangements—as we have previously discussed in our blog article, Do you have any 'lease agreements' that are not leases, or any hidden leases?, arrangements under the QGAO framework are not leases under AASB 16. FRR 4B ‘Assets’ includes guidance to continue to recognise agency funded fit-outs on balance sheet.
- Accounting for grant expenses—under the new accounting standards, recipients of grants that meet the ‘sufficiently specific’ requirements may accrue for revenue to be received in arrears for performance between grant milestone payments. Some entities have asked whether grantors should recognise grant expenses on a similar basis, that is, accrue for grant expenses between grant milestone payments. In the absence of an accounting standard on the topic, Treasury’s policy is not to use ‘mirror’ accounting. Refer to FRR 3E ‘Distinction Between Grants and Procurement’ and the additional guidance in FRR 3D.2 ‘Grants and Subsidies Expenses’. This is not a change in policy.
Considerations for other entities
As we mentioned above, if you do not have to follow the FRRs (that is, you are a local government or university) they are still a good resource with useful guidance.
When considering the FRRs, you should pay attention to the transition policies for the new accounting standards—you will need to select your own transition policies. Those adopted in the FRRs are a good starting point to identify the policies you need to make, even if you make a different choice.