1.1 Objectives of the department
The department’s objective is sound and well coordinated government
policies,
programs and decision making processes.
The department is structured to meet one outcome.
The department’s activities contributing to these outcomes are classified
as either
departmental or administered. Departmental activities involve the use of assets,
liabilities, revenue and expenses controlled or incurred by the department
in its own
right. Administered activities involve the management and oversight by the
department
on behalf of the government of items controlled or incurred by the government.
The department’s activities are identified under the following outputs:
- Output group 1.1: Economic policy advice and coordination;
- Output group 1.2: Social policy advice and coordination;
- Output group 1.3: International policy advice and coordination;
and
- Output group 1.4: Support services for government operations.
1.2 Basis of accounting
The financial statements are required by section 49 of the Financial
Management and
Accountability Act 1997 and are a general purpose financial report.
The statements have been prepared in accordance with:
- Finance Minister’s Orders (FMOs), being the Financial
Management and Accountability
Orders (Financial Statements for reporting periods ending on or after 30
June 2004);
- Australian Accounting Standards and Accounting Interpretations
issued by the
Australian Accounting Standards Board (AASB); and
- Consensus Views of the Urgent Issues Group.
The statements have also been prepared having regard to the Explanatory
Notes to
Schedule 1 of the FMOs and Finance Briefs.
The Statements of Financial Performance and Financial Position have
been prepared on
an accrual basis and are in accordance with historical cost principles
except for certain
assets, which, as noted, are at valuation. Except where stated, no allowance
is made for
the effect of changing prices on the results or the financial position.
Assets and liabilities are recognised in the Statement of Financial
Position when and
only when it is probable that future economic benefits will flow and
the amounts of the
assets or liabilities can be reliably measured. However, assets and liabilities
arising
under agreements equally proportionately unperformed are not recognised
unless
required by an Accounting Standard. Liabilities and assets that are unrecognised
are
reported in the Schedule of Commitments and the Schedule of Contingencies.
Revenues and expenses are recognised in the Statement of Financial
Performance when
and only when the flow or consumption or loss of economic benefits
has occurred and
can be reliably measured.
The continued existence of the department in its present form, and
with its present
outcome programmes, is dependent on government policy and on continuing
appropriations by Parliament for the department’s administration and
programs.
Administered revenues, expenses, assets and liabilities and cash flows
reported
in the Schedule of Administered Items and related notes are accounted
for on the
same basis and using the same policies as for departmental items, except
where
otherwise stated at Note 1.23.
1.3 Changes in accounting policy
The accounting policies used in the preparation of these financial
statements are
consistent with those used in 2002–03.
Property plant and equipment assets are valued at fair value from 1
July 2003 as
explained in Note 1.14. Revaluations up to 30 June 2002 were done on a ‘deprival’ basis;
since that date revaluations have been prepared on a fair value basis. Revaluation
increments and decrements arising on adoption of fair values at 1 July 2003
were taken
directly to accumulated results in accordance with the transitional provisions
of AASB
1041 Revaluation of Non-current Assets.
In 2002–03, the Finance Minister’s Orders introduced
an impairment test for agency non-current
assets carried at cost and which were not subject to AAS 10 Recoverable
Amount of Non-Current Assets. In 2003–04 no software was written down under
this policy.
In 2003–04, the impairment test provisions of the
FMOs have been extended to cover
non-current assets carried at deprival values. There were no indications
of impairment
for these assets.
1.4 Official gifts
Official gifts brought to account in the Financial Statements include
official gifts
purchased by the department for presentation by the Governor-General,
Prime Minister,
Ministers or approved parliamentary delegations.
1.5 Revenue
Revenues from government
Amounts appropriated for departmental outputs appropriation for the year (less
any
current year savings and reductions) are recognised as revenue, except for
certain
amounts that relate to activities that are reciprocal in nature, in which case
revenue is
recognised only when it has been earned.
Savings are amounts offered up in Portfolio Additional Estimates Statements.
Reductions are amounts by which appropriations have been legally reduced
by the
Finance Minister under Appropriation Act No 3 of 2003–04.
Appropriations receivable are recognised at their nominal amounts.
Resources received free of charge
Services received free of charge are recognised in the Statement
of Financial
Performance as revenue when and only when a fair value can be
reliably determined
and the services would have been purchased if they had not been
donated. Use of those
services is recognised as an expense.
Contributions of assets at no cost of acquisition or for nominal
consideration are
recognised as revenue at their fair value when the asset qualifies
for recognition, unless
received from another government agency as a consequence of a restructuring
of
administrative arrangements. (Refer to note 1.6).
Other revenue
Revenue from rendering of services is recognised by reference
to the stage of
completion of contracts or other agreements to provide services.
The stage of
completion is determined according to the proportion of costs
incurred to date.
Receivables for services are recognised at the
nominal amounts due less any provision
for bad and doubtful debts. Collectability of debts is reviewed
at balance date.
Provisions are made when collection of the debt is judged to
be less rather than more
likely.
Interest revenue is recognised on a time proportional basis that
takes into account the
effective yield on the relevant asset.
Revenue from disposal of non-current assets is recognised
when control of the asset has
passed to the buyer.
1.6 Transactions with the government as owner
Equity injections
Amounts appropriated which are designated as ‘equity injections’ (less
any savings
offered up in Portfolio Additional Estimates) are recognised directly in Contributed
Equity at 1 July or later date of effect of the appropriation.
Restructuring of administrative arrangements
Net assets received from or relinquished to another Commonwealth
agency or authority
under a restructuring of administrative arrangements are adjusted
at their book value
directly against contributed equity.
Other distributions to owners
The FMOs require that distributions to owners be debited
to contributed equity unless in
the nature of a dividend.
1.7 Grants
The department applies a uniform policy for all grants. Grant liabilities
are recognised
to the extent that (i) the services required to be performed by the grantee
have been
performed or (ii) the grant eligibility criteria have been satisfied, but payments
due
have not been made. A commitment is recorded when the government enters into
an agreement to make these grants but services have not been performed or criteria
satisfied. Where grants moneys are paid in advance of performance or eligibility,
a
prepayment is recognised.
1.8 Employee benefits
Liabilities for services rendered by employees are recognised at
the reporting date to
the extent that they have not been settled.
Liabilities for wages and salaries (including non-monetary benefits)
annual leave are
measured at their nominal amounts. Other employee benefits expected to be settled
within 12 months of the reporting date are also measured at their nominal amounts.
The nominal amount is calculated with regard to the rates expected
to be paid on
settlement of the liability.
All other employee benefit liabilities are measured as the present
value of the estimated
future cash outflows to be made in respect of services provided by employees
up to the
reporting date.
Leave
The liability for employee benefits includes provision for annual leave
and long service
leave. No provision has been made for sick leave as all sick leave is non-vesting
and the
average sick leave taken in future years by employees of the department is
estimated to
be less than the annual entitlement for sick leave.
The leave liabilities are calculated on the basis of employees’ remuneration,
including
the department’s employer superannuation contribution rates to the extent
that the
leave is likely to be taken during service rather than paid out on termination.
The liability for long service leave has been determined by reference
to the work of an
actuary as at 30 June 2002. The estimate of the present value of the liability
takes into
account attrition rates and pay increases through promotion and inflation.
Separation and redundancy
Provision is made for separation and redundancy benefit payments. The
department
has developed a detailed formal plan for the terminations and has informed
those
employees affected that it will carry out the terminations.
Superannuation
Staff of the department are members of the Commonwealth Superannuation
Scheme
(CSS), the Public Sector Superannuation Scheme (PSS) and other superannuation
schemes held outside the Commonwealth. The liability for staff CSS
and PSS
superannuation benefits is recognised in the financial statements of
the Australian
Government and is settled by the Australian Government in due course.
The department makes employer contributions to the Australian Government
at rates
determined by an actuary to be sufficient to meet the cost to the government
of the
superannuation entitlements of the department’s employees.
The liability for superannuation recognised as at 30 June represents
outstanding
contributions in relation to salaries accrued as at 30 June.
1.9 Leases
A distinction is made between finance leases which effectively transfer
from the lessor
to the lessee substantially all the risks and benefits incidental to ownership
of leased
non-current assets and operating leases under which the lessor effectively
retains
substantially all such risks and benefits.
Where a non-current asset is acquired by means of finance
lease, the asset is capitalised
at the present value of minimum lease payments at the beginning of the lease
term
and a liability is recognised at the same time and for the same amount. The
discount
rate used is the interest rate implicit in the lease. Leased assets are amortised
over the
period of the lease. Lease payments are allocated between the principal component
and
the interest expense.
Operating lease payments are expensed on a basis which is representative
of the
pattern of benefits derived from the leased assets.
The department entered into a sale and operating leaseback of certain
information
technology equipment in July 1999. This transaction was recognised
as a finance lease
in accordance with accounting standard AAS17: Leases, for the first time as
at 30 June
2001, with the assets being recognised at their fair value at that date.
Lease incentives taking the form of ‘free’ leasehold improvements
and rent holidays
are recognised as liabilities. These liabilities are reduced by allocating
lease payments
between rental expense and reduction of the liability.
1.10 Borrowing costs
All borrowing costs are expensed as incurred except to the extent
that they are directly
attributable to qualifying assets, in which case they are capitalised. The
amount
capitalised in a reporting period does not exceed the amounts of cost incurred
in that
period.
1.11 Cash
Cash means notes and coins held and any deposits held at call with
a bank or financial
institution. Cash is recognised at its nominal amount.
1.12 Other financial instruments
Trade creditors
Trade creditors and accruals are recognised at their nominal amounts, being
the
amounts at which the liabilities will be settled. Liabilities are recognised
to the extent
that the goods or services have been received (and irrespective of having been
invoiced).
Contingent liabilities and contingent assets
Contingent liabilities (assets) are not recognised in the Statement
of Financial Position
but are discussed in the relevant schedules and notes. They may arise from
uncertainty
as to the existence of a liability (asset), or represent an existing liability
(asset) in
respect of which settlement is not probable or the amount cannot be reliably
measured.
Remote contingencies are part of this disclosure. Where settlement becomes
probable,
a liability (asset) is recognised. A liability (asset) is recognised when
expense (revenue)
is confirmed by a future event, settlement becomes probable or reliable
measurement is
possible.
1.13 Acquisition of assets
Assets are recorded at cost on acquisition except as stated below.
The cost of
acquisition includes the fair value of assets transferred in exchange and liabilities
undertaken.
Assets acquired at no cost, or for nominal consideration, are initially
recognised as
assets and revenues at their fair value at the date of acquisition, unless
acquired as a
consequence of restructuring of administrative arrangements. In the latter
case, assets
are initially recognised at the amounts at which they were recognised in the
transferor
agency’s accounts immediately prior to the restructuring.
1.14 Property, plant and equipment
Asset recognition threshold
Purchases of property, plant and equipment are recognised initially at cost
in the
Statement of Financial Position, except for purchases costing less than $2,000,
which
are expensed in the year of acquisition (other than where they form part of
a group of
similar items which are significant in total).
Revaluations
Basis
Land, buildings, plant and equipment are carried at valuation. Revaluations
undertaken
up to 30 June 2002 were done on a deprival basis; revaluations since that
date are
at fair value. This change in accounting policy is required by Australian
Accounting
Standard AASB 1041, Revaluation of Non-Current Assets.
Fair and deprival values for each class of asset are determined as shown
below.
Under both deprival and fair value, assets, which are surplus to requirements,
are
measured at their net realisable value.
All departmental and administered assets were revalued by an independent
valuer as at
1 July 2002 on a fair value basis. The financial effect of this change in
accounting policy
related to those assets recognised at fair value for the first time at 1
July 2002 where the
measurement basis for fair value was different to that previously used for
deprival value.
The financial effect of the change is given by the difference between fair
values obtained
for these assets as at 1 July 2002 and deprival-based values recognised at
30 June 2002.
The financial effect of this change by class at 30 June 2003 was
as follows:
Frequency
The FMOs require that all property, plant and equipment assets
be measured at up-to-date
fair values from 30 June 2005 onwards, with formal valuations to be undertaken
at
least every five years. The current formal valuation cycle commenced on 1
July 2003 and
the next formal valuation is scheduled for 30 June 2007.
Conduct
All formal revaluations are conducted by an independent qualified
valuer.
Depreciation
Land, being an asset with an unlimited useful life, is not depreciated.
Depreciable property, plant and equipment assets are written-off
to their estimated
residual values over their useful lives to the department using,
in all cases, the straight-line
method of depreciation. Leasehold improvements are depreciated
on a straight-line
basis over the lesser of the estimated useful life of the improvements
or the unexpired
period of the lease.
Depreciation rates (useful lives) and methods are reviewed at each
reporting date and
necessary adjustments are recognised in the current, or current and
future reporting
periods, as appropriate. Residual values are re-estimated for a change
in price only when
assets are revalued.
Depreciation rates applying to each class of depreciable asset are
based on the
following useful lives:
The aggregate amount of depreciation allocated for each class of asset
during the
reporting period is disclosed in Note 4D.
Impairment of Non-Current Assets
Non-current Assets carried at up-to-date fair value at the time of
reporting are not
subject to impairment testing.
Non-current assets at cost have been assessed for indications of
impairment, where
indications of impairment existed, the carrying amount of the
asset is compared to the
higher of its net selling price and depreciated replacement cost. No
impairment write-down was required (2003: nil).
1.15 Intangibles
The department’s intangible assets comprise purchased software
for internal use. These
assets are carried at cost.
Software is amortised on a straight-line basis over its anticipated
useful life. The useful
life of the department’s software is 4 to 5 years (2002–03: 4 to
5 years).
All software assets were assessed for indications of impairment as
at 30 June 2004. No
impairment write-down was required (2003: nil).
1.16 Inventories
Inventories being gifts received by the Australian Government are
not held for resale
and are valued at fair value based on current market value.
1.17 Former Governors-General allowances
The department has administrative responsibility for the payment
of former Governors-
General allowances. The revised actuarial assessment of the liability in relation
to these
allowances was made as at 30 June 2004.
1.18 Taxation
The department is exempt from all forms of taxation except fringe
benefits tax and the
goods and services tax (GST).
Revenues, expenses and assets are recognised net of GST:
- except where the amount of GST incurred is not recoverable
from the Australian
Taxation Office; and
- except for receivables and payables.
1.19 Foreign currency
Transactions denominated in a foreign currency are converted at the
exchange rate at
the date of the transaction. Foreign currency receivables and payables are
translated at
the exchange rates current as at balance date. Associated currency gains and
losses are
not material.
1.20 Insurance
The department has insured for risks through the government’s
insurable risk managed
fund, called ‘Comcover’. Workers compensation is insured through
the government’s
Comcare Australia.
1.21 Comparatives
Comparative figures have been adjusted to conform with changes in
presentation in
these financial statements where practicable.
1.22 Rounding
Amounts have been rounded to the nearest $1,000 except in relation
to the following:
- act of grace payments and waivers;
- remuneration of executives;
- remuneration of auditors; and
- appropriations.
1.23 Reporting of Administered activities
Administered revenues, expenses, assets, liabilities and cash flows
are disclosed in the
Schedule of Administered Items and related Notes.
Except where otherwise stated below, administered items are accounted
for on the
same basis and using the same policies as for Agency items, including the application
of Accounting Standards, Accounting Interpretations and UIG Consensus Views.
Administered cash transfers to and from the Official Public Account
Revenue
collected by the department for use by the Government rather than the
department is Administered Revenue. Collections are transferred to the
Official Public Account (OPA) maintained by the Department of Finance
and Administration.
Conversely, cash is drawn from the OPA to make payments under Parliamentary
appropriations on behalf of Government. These transfers to and from the
OPA are
adjustments to the administered cash held by the department on behalf of
the Government and reported as such in the Statement of Cash Flows
in the Schedule
of Administered Items and in the Reconciliation Table in Note 16. Thus
the Schedule
of Administered Items largely reflects the Government’s transactions,
through the
department, with parties outside the Government.
Revenue
All administered revenues are revenues relating to the core operating
activities
performed by the department on behalf of the Commonwealth.
Administered revenue is derived from the media commissions payable
to the
Commonwealth for its advertising. Revenue is recognised on receipt
of confirmation of
placement of advertisements with advertising agencies. It is recognised
at its nominal
amount due less any provision for bad or doubtful debts. Collectability
of debts is
reviewed at balance date. Provisions are made when collection of the debt
is judged to
be less rather than more likely.
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