The financial statements give a structured representation of a government’s financial condition. They provide information about revenue
and expenses, current and capital expenditure
and receipts, cash flow, and assets and liabilities. The set of financial statements recommended by the HAM2 comprises a statement
of financial performance (SoPERF
), of capital expenditure (SoCAPEX), of financial position
(SoPOS), and of cash flow, along with notes providing additional financial and non-financial explanations.
Taken together, the SoPERF and the SoCAPEX
form the ‘administrative statement’ in HAM1. This
designation demonstrates that all current or capital expenditure
granted by a budgetary appropriation
must be recorded in this dedicated group of statements. It also demonstrates that all spending items recorded in the ‘administrative statement’ are accordingly submitted to the political supervision of the council of the executive
branch and of the
15.4.1 Statement of Financial Performance
The SoPERF (i.e. income statement, Erfolgsrechnung, Compte de résultats) provides
about the government’s operating costs and the degree to which revenue
covers the charges. It indicates whether revenue
—notably tax revenue—is sufficient to cover the costs of the services provided. Ideally, the income statement must be balanced, if not annually, then at least in the medium term.
The SoPERF also lists the budgetary appropriations for current expenditures granted by a Parliament when it approves a budget plan. In the (end-of-the-year) financial statements, this makes it possible to control the level of use of these credits.
This makes the SoPERF a key element of the government’s financial management system. Indeed, its total is targeted by the fiscal
rules in all cantons and in most municipalities, which is why SoPERF is usually located at the beginning of the report on the budget plan and the financial statements. Furthermore, in both documents most of the pages are dedicated to the SoPERF.
The HAM2 introduced a three-level structure in the SoPERF, replacing what had been only a single level statement (see Fig. 15.1).
The first level isolates operating revenue
and operating expenses to show the operating result
(Ergebnis aus betrieblicher Tätigkeit; Résultat d’exploitation). Operating revenue
revenue, royalties and concessions, revenue
from exchange transactions, or transfer revenue
. Operating expenses include notably personnel expenses, purchases of goods and services, depreciations of administrative
assets, or transfer expenses.
The second level isolates financial revenue
(e.g. interest income) and expenses
(e.g. interest expense) to show the financial result (Ergebnis aus Finanzierung; Résultat financier). Together the operating result
and the financial result
form the ordinary result
(Operatives Ergebnis; Résultat opérationnel).
The third level isolates extraordinary revenue
and extraordinary expenses to show the extraordinary result
(Ausserordentliches Ergebnis; Résultat extraordinaire). Extraordinary items correspond to unpredictable and beyond-anyone’s-control events, like natural catastrophes. They also include various political
finessing operations (see below).
The overall result
is obtained by summing the ordinary result
and the extraordinary result
, or in other words, shows the difference between all revenues and all expenses. A surplus increases the net worth in the SoPOS
, while a deficit reduces the net worth. The ordinary result
is that which best reflects financial performance since it excludes the extraordinary elements and those relevant to political
expenses must be registered and classified according to their nature, meaning following an economic classification. In addition, they must be classified by functional purpose, such as health, education or social protection. Both classifications are standardized in the HAM2 chart of accounts, easing inter-government comparisons. The functional classification is compatible with the UN’s Classification of Functions of Government (COFOG). Governments may use a third classification reflecting how their organization is designed, which is essential for monitoring how budgetary appropriations are used by various ministries or departments. However, since governmental organizations differ, this classification cannot be standardized.
15.4.2 Statement of Capital Expenditure
(Investitionsrechnung, Compte des investissements) is a particular
characteristic of the HAM. It comes in addition to the statement required by the IPSASs
and is nonetheless compatible with them.
Any expenditure that creates an asset used by the government over several years in providing legally required public services must be recorded in the SoCAPEX, together with the corresponding receipts (e.g. capital grants). Such assets are labeled administrative
assets (Verwaltungsvermögen, Patrimoine administratif).
Some expenditures do not create administrative
assets. For instance, the government may use an asset as a yield-producing investment vehicle (e.g. by-to-let properties or securities; Geldanlage, Placements). Such yield-producing expenditure creates
non-administrative assets (Finanzvermögen, Patrimoine financier). These assets are directly recorded in the SoPOS
. All other expenditures are current expenditures and do not create any assets. These latter are registered in the SoPERF instead.
The distinction between the three kinds of expenditures (current, capital, and yield-producing) is important from a legal perspective. Current and capital expenditures depend on budgetary appropriation
and thus on parliamentary decisions. Yield-producing expenditures, on the other hand, are in principle the prerogative of the executive
branch council and are exempt from parliamentary approval.
In this way, the SoCAPEX provides information on the government’s equipment and infrastructure efforts. On average, capital expenditures are equivalent to about 10% of current expenditures. The balance of the SoCAPEX shows net capital expenditures after deducting capital receipts. Expenditures are usually larger than receipts except when grants are not received in the same accounting period when expenditure are recognized. When closing the account, the administrative
assets created are recognized as such in the
Capital expenditures can take various forms. They include expenditures to buy, build, or improve tangible and intangible fixed assets, like land, civil engineering work, building construction, plant and equipment, software or patents. They also include contributions or loans provided to other entities or governments, which are meant to create assets for the provision of public services required by law.
15.4.3 Statement of Financial Position
The SoPOS (Bilanz, Bilan) is less important in
the financial statements of Swiss governments than it is in the statements of private companies. In the private
sector it comes first, but in the public
sector, it typically comes at the end of the financial statements. Nevertheless, the purpose is similar: the SoPOS offers an inventory of assets and shows to what extent they have been financed by borrowing (i.e. liabilities) or through equity (i.e. accumulated surpluses). The statement is a static picture of the financial condition, typically on 1 January or 31 December. It is thus unlike the other statements, which give information about flows throughout the year showing the flow of expenses and revenue
, of capital expenditure
and receipts, and of cash.
In the inventory, the HAM2 distinguishes between administrative
assets stemming from capital expenditure
and non-administrative assets stemming from yield-producing investment vehicles. The distinction is not required by the IPSASs
nor is it encountered in the private
sector. It is based upon the alienability principle, a notion introduced in HAM1 but no longer included in HAM2. Besides being justified by the regulation of appropriations, the distinction makes it possible to figure out which assets may not be sold (e.g. administrative
assets without which a legally required public service
could not be provided) and which assets can be sold without endangering existing public services (i.e. non-administrative
Non-administrative assets are split between current and fixed assets (Fig. 15.2). The HAM2 requires that they be measured and reported at their fair value and, if available, at their market value. By providing governments with a common measurement basis and a unified principle to separate them from administrative
assets, the HAM2 dramatically increases the comparability of net debt between governments. The government’s net debt is defined as the difference between liabilities and non-administrative assets, since the latter can be sold freely and converted into cash to pay back the debt. Although a comparison of Swiss governments based on net debt is thereby made possible, this is not the case between countries, which is why international comparisons are almost always based on gross debt. This approach involves a risk of bias. Indeed, a variable part of the public debt can be contracted to finance yield-producing investment vehicles. Yet contracting a debt for this reason should be analyzed from a fundamentally different perspective compared to when the debt is contracted to finance administrative
assets that the law forbids from selling.
In terms of administrative
assets, HAM2 stipulates that they should be measured and reported at their depreciated historical cost, meaning at the cost incurred upon their acquisition and subsequent enhancement less a reduction for depreciation to date. Year after year, over their useful life, their reported amount is gradually reduced by recognizing the depreciation that represents their wear and tear and obsolescence. For each accounting period, depreciation is recorded in the
The liability side is structured in the same way as in the private
sector, with a subdivision between liabilities and net worth (Fig. 15.3). Liabilities are measured at their fair value and classified according to their nature and time period (short or long term). Net worth is split between various components, including the accumulated annual surpluses and deficits and various types of reserves (dedicated to the financing of future capital projects or future fiscal policy measures).
15.4.4 Interactions Between the Three Statements: Financial Performance, Capital Expenditure and Financial Position
The amounts presented in the SoPOS
beginning and the end of the year because of transactions recognized in the SoCAPEX
and in the SoPERF
. As shown in Fig. 15.4, capital expenditures increase the overall amount of the administrative
assets, while depreciations reduce this amount. The net worth increases or decreases depending on whether the SoPERF
reports a surplus or a deficit.
Figure 15.4 also shows the embryonic cash
flow statement introduced by the HAM1. Net capital expenditure, the cash drain from the difference between capital expenditure and receipts, may be financed either with the cash flow originating in the transactions recorded in the SoPERF
, or by issuing debt. To simplify, this cash flow is considered equal to the surplus (or the deficit) added to the depreciations, or in other words, to the difference between cash flow generated by revenue
and cash drain generated by expense. It is the difference between current receipts and expenditures. A depreciation expense typically does not involve cash. Instead, it reduces the surplus without reducing the cash account in the SoPOS
. Thus the difference between expense and current expenditure is mainly due to
There are other scenarios. In case the cash flow is larger than net capital expenditure, the government pays back its debt (liabilities). In case the deficit is larger than the depreciations, the cash flow becomes negative and debt must be issued not only to finance capital expenditure but also to cover current expenditure.
15.4.5 Cash Flow Statement
The HAM2 introduced a fully fledged cash
flow statement (Geldflussrechnung, Tableau des flux de trésorerie), providing information on how the government raises the cash required to finance its activities over the reporting period and how this cash was used. The information is classified according to the various activities, following the IPSASs
, and thus listing operating, investing and financing activities. The only specifically Swiss element here is that within investment activities, a distinction is made between the activities triggered by capital expenditure
and those triggered by yield-producing investments. In the end, the statement sheds light on the reasons for changes in cash (and cash equivalents) between the beginning and the end of the year, as shown in the
15.4.6 Notes to the Financial Statements
The notes (Anhang, Annexe) give
information about the accounting policy. A government whose financial statements do not comply with all HAM2 requirements must explicitly mention in which manner they diverge. The notes must also provide additional information regarding changes in equity, provision, equity participation, guarantees, and tangible assets. Finally, the notes must include any additional information explaining the development of net assets, financial position, and the result
of operations. The requirements regarding the content of the notes are similar to those contained in