Financial accounts reflect expenses when they are incurred and revenue when it is earned, regardless of when the actual cash transactions take place. As well, all assets and liabilities are accounted for on a balance sheet. For these reasons, accrual-based financial reports and budgets give a more complete picture of financial activity during a reporting period and of the overall financial position of an organisation than is provided by cash accounting alone. Personnel costs are the highest proportion of operating expenses. These costs are driven higher by the significant training load associated with high attrition rates which have been climbing since 1994.
Personnel is also an area where there is little flexibility to absorb changes in funding levels.
The operating component includes such items as fuel, equipment maintenance and spare parts, and other consumables such as food and clothing. Capital is a significant component of the costs because of the large amounts of military equipment, supporting infrastructure and inventory held by the Defence Force. The other expense associated with capital investment is a capital charge that is assessed to reflect the cost to Government of its capital investment in Defence. These fixed costs include personnel costs, capital charge, depreciation and the operating costs associated with significant equipment and property holdings which cannot be disposed of easily. The costs that can be changed in the short term are those consumables associated with training activities such as ammunition, fuel, rations, travel costs, and repairs and maintenance.