Part E - Financial statements relating to the GFS framework

There are four key output statements in the broader GFS framework. Each is made up of financial data from the Department of Finance, state and territory treasuries, local governments, universities, and control not further defined units that contain data classified by relevant classifications in the GFS framework. The primary financial statements relating to the GFS analytical framework are the:

• Statement of operations - this statement (formerly known as the GFS operating statement) records GFS revenues, GFS expenses, and the net acquisition of non-financial assets.
• Statement of sources and uses of cash - this statement (formerly known as the Cash Flow Statement) records cash inflows and outflows during the accounting period.
• Balance sheet - this statement records the stock positions of government assets, liabilities and equity.
• Statement of stocks and flows - this statement records the opening stocks of assets and liabilities, the transactions in these, the value of holding gains and losses (revaluations) and other volume changes, and the closing stocks of assets and liabilities.

The statement of operations (formerly known as the GFS operating statement) is a summary of the transactions (except transactions in financial assets and liabilities) of a sector or subsector in a given reporting period. It records transactions that increase or decrease net worth such as revenues and expenses, the net investment in non-financial assets, the net acquisition of financial assets, and the net incurrence of liabilities during the reporting period. This statement also facilitates the derivation of key GFS derived items such as the net operating balance and the net lending (+) / net borrowing (-) position, net acquisition of non-financial assets and gross fixed capital formation. The GFS data items that make up the statement of operations are further discussed in Chapter 5 of this manual.

The statement of sources and uses of cash (formerly known as the cash flow statement) records cash inflows and outflows during the reporting period.

The balance sheet records the stock positions of assets, liabilities and the net worth of the sector or subsector at the end of the reporting period. The classification of assets and liabilities is further discussed in Chapter 8, Chapter 9 and Chapter 10 of this manual.

The statement of stocks and flows records the opening stocks, transactions, revaluations, other volume changes and closing stocks of assets and liabilities, and contains three analytical items, GFS net worth, net debt and net financial worth.

The statement of operations records transactions in revenue, expenses, and non-financial assets. Transactions are classified according to whether they increase net worth (revenue), decrease net worth (expense), or change the stocks of non-financial assets. A broad outline of the statement of operations is given in Table 4.8 below, and the full details can be found in Chapter 5 of this manual.

The GFS statement of operations includes two balancing items. The first of these is the net operating balance (NOB) which is used to measure the fiscal effects of government operations, and is derived as total revenue less total expenses. Revenues and expenses are increases or decreases in GFS net worth resulting from transactions. Certain exchange transactions, such as the acquisition of non-financial produced assets for cash, do not change net worth but simply change the composition of assets, liabilities or equity. The net operating balance is equal to the change in net worth due to transactions.

The net operating balance is measured as revenue minus expense (other than depreciation ETF 124). The gross operating balance may be used if depreciation is unknown. However, the net operating balance is preferred because it captures all of the cost of government operations during the reporting period.

The second analytical balance in the GFS statement of operations is the GFS net lending (+) / net borrowing (-). This measures the public sector's financing requirements and is derived as the net operating balance less transactions in non-financial assets. The GFS net lending (+) / net borrowing (-) is equal to the change in net financial worth due to transactions. The GFS statement of operations is further discussed in Chapter 5 of this manual.

The statement of sources and uses of cash (formerly known as the cash flow statement in Australian GFS) records the net cash inflows from government operating activities, the net increase / (decrease) in cash held and the GFS cash surplus / cash deficit. The statement of sources and uses of cash records when cash is received by the government and cash is paid by the government during an accounting period and is important for assessing the liquidity of the general government and public sectors.

Paragraph 4.34 of the IMF GFSM 2014 recommends that statistics on cash-based monetary flows should reflect transactions as close to the payment stage as possible. In GFS, the cash-based data recorded in the statement of sources and uses of cash are complementary to the data in the accrual GFS statements and form an integral part of the complete GFS framework. Table 4.9 below shows a broad outline of the elements that make up the GFS statement of sources and uses of cash.

The cash flows from operating activities is a net measure representing the cash receipts arising from operating activities less cash payments arising from operating activities. Operating activities in this context indicates the types of activities that are recorded in the statement of operations. Cash flows from operating activities include cash receipts from taxation, sales of goods and services, grants and subsidies, property income, and all other revenue earning activities recorded in the statement of operations. The item also includes cash payments for employee expenses, including cash contributions to superannuation schemes, purchases of goods and services, and payment of subsidies and grants, current and capital transfers, property expenses and all other expense-incurring activities recorded in the statement of operations.

The GFS cash surplus (+) / GFS cash deficit (-) reflects the level of cash available to governments to either increase financial assets or decrease liabilities. When GFS cash surplus (+) / GFS cash deficit (-) is positive, it indicates there are additional cash funds resulting from the net cash inflow from operating activities and the cash outflow from own account capital formation and investment in other non-financial assets. This residual value reflects the cash available to governments to either increase financial assets or decrease liabilities.

When GFS cash surplus (+) / GFS cash deficit (-) is negative, it indicates that there is a shortage of residual cash funds as a result from the net cash inflow from operating activities and the cash outflow from investment in non-financial assets. This identifies the extent to which a government needs to run down its financial assets or borrow in order to finance the cash shortfall.

The net cash flows from other financing activities is a net measure representing the cash flows from advances received, borrowing, deposits received, and other financing.

The net change in the stock of cash measures the change in the stock of cash by adding the cash surplus (+) / cash deficit (-) to the net cash inflows from financing activities.

The statement of sources and uses of cash is further discussed in Chapter 12 of this manual.

The balance sheet records the stock positions of assets and liabilities at the beginning of a reporting period and at the end of a reporting period. The balancing item of the balance sheet is GFS net worth which represents the total value of assets minus the total value of liabilities. Table 4.10 shows a broad outline of the elements that make up the GFS balance sheet.

The assets that are included in the GFS balance sheet are economic assets. These are defined as resources over which ownership rights are enforced by institutional units and from which economic benefits may be derived by holding them, or using them over a period of time. Assets that are not owned and controlled by a reporting unit or sector, and assets that have no economic value are excluded from the balance sheet. In the GFS balance sheet, assets are recorded as either non-financial assets or financial assets.

Non-financial assets are all economic assets other than financial assets. Non-financial assets comprise all of the elements in the type of asset and liability classification (TALC) that classifies non-financial assets (TALC 1, 2 and 3). These include non-financial fixed produced assets in the form of buildings and structures (TALC 11); machinery and equipment (TALC 12); cultivated biological resources (TALC 13); intellectual property products (TALC 14) and weapons systems (TALC 15). Also included as non-financial assets are other non-financial produced assets in the form of inventories (TALC 21); valuables (TALC 22); and other produced assets (TALC 23). Further included as non-financial assets are non-financial non-produced assets in the form of tangible non-produced assets (TALC 31); intangible non-produced assets (TALC 32) and other non-produced assets (TALC 33).

Financial assets are assets in the form of financial claims on other economic units. They are the counterparts of the liabilities of the units on which the claims are held (except in the case of monetary gold) and so are often referred to together in GFS. Financial assets comprise all of the elements in the type of asset and liability classification (TALC) that classifies financial assets (TALC 4). These include currency and deposits (TALC 41); securities and related assets (TALC 42); loans and placements (TALC 43); insurance, superannuation and standardised guarantee schemes (TALC 44); and other financial assets (TALC 45).

Liabilities are defined as the obligation to provide funds or other resources of economic value to another unit. Liabilities are the counterparts of financial assets in GFS (with the exception of monetary gold in the form of gold bullion held as reserves). Liabilities comprise all of the elements in the type of asset and liability classification (TALC) that classifies liabilities (TALC 5). These include currency and deposits (TALC 51); securities and related liabilities (TALC 52); loans and placements (TALC 53); insurance, superannuation, and standardised guarantee schemes (TALC 54); and other liabilities (TALC 55).

The GFS balance sheet also contains several memorandum items. These record additional information of analytic interest on specific items for GFS purposes. Memorandum items in GFS differ to those in commercial accounting in that they are mandatory rather than optional. The memorandum items to the GFS balance sheet are recorded as part of the supplementary information in GFS, and include implicit transfers (ETF 711); liabilities in arrears and related charges (ETF 712); and non-performing loans (ETF 713). Memorandum items are further discussed in Appendix 1 Part B of this manual.

Further discussion on the GFS balance sheet and the elements that comprise it can be found in Chapter 8, Chapter 9, Chapter 10, Chapter 15, and Appendix 1 Part A of this manual.

As with the GFS balance sheet (see Chapter 8 of this manual), the statement of stocks and flows records assets and liabilities and GFS net worth. However, the statement of stocks and flows also records the opening stocks, transactions, revaluations, other volume changes and closing stocks of the assets and liabilities, with the analytical items shown as GFS net worth, net debt and net financial worth. Table 4.11 shows a broad outline of the elements that make up the GFS statement of stocks and flows.

In parallel to the GFS balance sheet, the assets that are included in the statement of stocks and flows are recorded as either financial assets or non-financial assets. Financial assets are assets in the form of financial claims on other economic units, and they appear in the statement of stocks and flows as currency and deposits; advances paid; investments, loans and placements; other non-equity assets; equity; and other financial assets. In GFS, financial assets are the counterparts of the liabilities of the units on which the claims are held (for further information (see Chapter 8 and Chapter 10 of this manual for further information).

Non-financial assets are all assets other than financial assets, and they appear in the statement of stocks and flows as non-financial produced assets, inventories, valuables, land, other non-produced assets, and other non-financial assets (see Chapter 8 and Chapter 9 of this manual for further information).

The liabilities recorded in the statement of stocks and flows include deposits held, advances received; borrowing; unfunded superannuation and other employee entitlements; and other non-equity liabilities (see Chapter 8 and Chapter 10 of this manual for further information).

Also recorded as part of the statement of stocks and flows are net debt and net financial worth. Further detail of the elements that make up the statement of stocks and flows may be found in Chapter 15 of this manual.

There are six other output statements in GFS whose compilation is required for international statistical reporting purposes, and are published as output by the ABS. These are:

• The statement of total changes in net worth;
• The statement of contingent liabilities;
• The statement of stocks and flows of financial assets and liabilities by source; and
• Gross public sector debt and other liabilities at market value by level of government subsector;
• Net public sector debt and other liabilities at market value by level of government subsector; and
• The presentation of debt instruments by market value by maturity.

The statement of total changes in net worth combines elements of the statement of operations and the statement of stocks and flows in the one statement, and serves to highlight the total changes in net worth of government. Paragraph 4.46 of the IMF GFSM 2014 notes that the statement of total changes in net worth provides a clear statistical explanation of the factors causing the change in the net worth of government. It explains the sources of changes in assets and liabilities from one reporting period to another in terms of transactions in revenue and expense and other economic flows. For further information please see Chapter 15 of this manual.

The summary statement of explicit contingent liabilities and net implicit obligations for future social security benefits records explicit contingent liabilities such as one-off guarantees, and implicit contingent liabilities such as the present value of implicit obligations for future social security benefits in the one statement. In this context, social security benefits relate to the international concept of the social security schemes. At the time of writing, there are no such social security schemes in Australia. For further information please see Chapter 15 of this manual.

The classification of stocks and flows by financial asset and liabilities by source records the opening stocks of financial assets and liabilities, the transactions, holding gains and losses (revaluations), other economic flows and the closing stocks. In this classification, financial assets and liabilities are split into domestic and foreign financial assets / liabilities and whether these are bank or non-bank items. The ABS records the classification of stocks and flows by financial asset and liabilities by source as an indicator of default risk. For further information please see Chapter 15 of this manual.

Gross public sector debt and other liabilities at market value by level of government subsector records debt instruments at their current market value, and by level of government subsector on the gross basis. In this statement, the market value debt instruments are recorded for the Commonwealth general government, total general government sector, total public non-financial sector and total public financial sector on the gross basis. For further information please see Chapter 15 of this manual.

Net public sector debt and other liabilities at market value by level of government subsector records debt instruments at their current market value, and by level of government subsector on the net basis. In this statement, the market value debt instruments are recorded for the Commonwealth general government, total general government sector, total public non-financial sector and total public financial sector on the net basis. For further information please see Chapter 15 of this manual.

The presentation of debt instruments at market value by maturity records government debt instruments at market value into:

• Short term debt by original maturity;
• Long term debt by original maturity - with payment due in one year or less;
• Long term debt by original maturity - with payment due in more that one year (long term debt by remaining maturity); and
• Short term debt by remaining maturity.

The ABS records debt instruments at market value by maturity to provide data that assists in managing liquidity risk. For further information please see Chapter 15 of this manual.