Financial Statements

• Note 1. summary of significant accounting policies
  • 1.1 Objectives of the department
  • 1.2 Basis of accounting
  • 1.3 Statement of compliance
  • 1.4 Revenue
  • 1.5 Gains/losses
  • 1.6 Transactions with the government as owner
  • 1.7 Grants
  • 1.8 Employee benefits
  • 1.9 Leases
  • 1.10 Finance costs
  • 1.11 Cash
  • 1.12 Trade creditors
  • 1.13 Contingent liabilities and contingent assets
  • 1.14 Acquisition of assets
  • 1.15 Property, plant and equipment
  • 1.16 Intangibles
  • 1.17 Taxation
  • 1.18 Foreign currency
  • 1.19 Insurance
  • 1.20 Comparatives
  • 1.21 Rounding
  • 1.22 Reporting of administered activities

Note 1. Summary of significant accounting policies

1.1 Objectives of the department

The department is structured to meet one outcome—sound and well coordinated government policies, programs and decision making processes.

The department's activities contributing to this outcome 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 Output Groups:

• Output Group 1.1: economic policy advice and coordination;
• Output Group 1.2: Social policy advice and coordination;
• Output Group 1.3: International and National Security 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 1 July 2005);
• Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period; and
• Interpretations issued by the AASB and Urgent Issues Group (UIG) that apply for the reporting period.

The statements have also been prepared having regard to the explanatory Notes to Schedule 1 of the FMOs and Finance Briefs.

The Balance Sheet and Income Statement 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 Balance Sheet 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 Income Statement 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 1.22.

Significant Accounting Judgments and estimates

No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period.

1.3 Statement of compliance

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AEIFRS).

Australian Accounting Standards require the department to disclose Australian Accounting Standards that have not been applied, for standards that have been issued but are not yet effective.

The AASB has issued amendments to existing standards, these amendments are denoted by year and then number, for example 2005-1 indicates amendment 1 issued in 2005.

The table below illustrates standards and amendments that will become effective for the department in the future. The nature of the impending change within the table, has been out of necessity abbreviated and users should consult the full version available on the AASB's website to identify the full impact of the change. The expected impact on the financial report of adoption of these standards is based on the department's initial assessment at this date, but may change. The department intends to adopt all of standards upon their application date.

* Application date is for annual reporting periods beginning on or after the date shown

1.4 Revenue

Revenue represents the gross inflow of economic benefits resulting from the ordinary activities of the department; including the sale of goods and services. Revenue excludes items such as gains from the sale of property, plant and equipment, reversals of asset write downs or impairment losses etc., which are disclosed separately on the income statement. The measurement of Revenues from Government, Resources Received Free of Charge and Other Revenue is detailed below.

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 2005–06.

Appropriations receivable are recognised at their nominal amounts.

Other Revenue

Revenue from the sale of goods is recognised upon the delivery of goods to customers.

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.

Commission—Campaign Advertising Special Account

Revenue is derived through the imposition of a 1.5 per cent levy on all government campaign advertising (does not include party political campaigning).

1.5 Gains/losses

Resources Received free of Charge

Services received free of charge are recognised in the Income Statement as gains 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

Net gains made and losses incurred on activities not considered to be in the department's normal course of business are disclosed separately on the income statement.

Gains/losses from the disposal of non-current assets are 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

As required by the Finance Minister's Orders, the department has early adopted AASB 119 employee Benefits as issued in December 2004.

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.

Liabilities for 'short-term employee benefits' (as defined in AASB 119) and termination benefits due within twelve months of balance date are 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 2006. 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. As at 30 June 2006 the provision was nil (nil in 2004–05).

Superannuation

Staff of the department are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the Public Sector Superannuation Accumulation Plan (PSSap) and other superannuation schemes held outside the Commonwealth.

The CSS and PSS are defined benefit schemes for the Commonwealth. The PSSap is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course.

For the CSS and PSS 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 and at 15.4% for PSSAP.

The liability for superannuation recognised as at 30 June represents outstanding contributions in relation to salaries accrued as at 30 June. As at 30 June 2006 the liability was nil (nil in 2004–05).

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 fair value or, if lower, 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. The department had no finance leases as at 30 June 2006 (nil in 2004–05).

Operating lease payments are expensed on a basis, which is representative of the pattern of benefits derived from the leased assets.

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. As at 30 June 2006 the liability was nil (nil in 2004–05).

1.10 Finance costs

All finance costs are expensed as incurred except to the extent that they are directly attributable to qualifying assets, in which case they are capitalised.

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 Trade creditors

Trade creditors and accruals are recognised at their nominal amounts, being the amounts at which the liabilities will be settled which represent their fair value. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

1.13 Contingent liabilities and contingent assets

Contingent liabilities (assets) are not recognised in the Balance Sheet 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.

1.14 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 transferrer agency's accounts immediately prior to the restructuring.

1.15 Property, plant and equipment

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, 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 their fair value.

Note that the department only holds administered land and buildings.

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 2006 and the next formal valuation is scheduled for 30 June 2007.

Conduct

All formal revaluations are conducted by an independent qualified valuer.

Depreciation/Amortisation

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/amortised on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.

Depreciation/amortisation 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/amortisation rates applying to each class of depreciable asset are based on the following useful lives:

The aggregate amount of depreciation/amortisation allocated for each class of asset during the reporting period is disclosed in Note 4D.

Impairment of Non-Current Assets

Non-current assets are reviewed at balance date for internal and external indications of impairment. Where indications of impairment are identified for an asset, its recoverable amount is determined and where lower than its carrying amount, written down to that amount.

Recoverable amount is the higher of 'value in use' and fair value less costs to sell. 'Value in use' for non-cash generating assets of not for profit entities is depreciated replacement cost, where the entity would replace the future economic benefits from the assets if deprived of them. In other cases, value in use is the present value of expected future cash flows.

1.16 Intangibles

The department's intangible assets comprise purchased computer software for internal use. These assets are carried at cost.

Computer software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the department's software are 4 to 5 years (2004–05: 4 to 5 years).

All computer software assets were assessed for indications of impairment as at 30 June 2006. No impairment write-down was required (2004–05: nil).

1.17 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.

1.18 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.

1.19 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.

1.20 Comparatives

Changes in accounting policies under AEIFRSs are applied retrospectively as if the policy had always applied. This requires changing comparative information and restating the opening balance of the comparative year for each affected component of equity.

1.21 Rounding

Amounts have been rounded to the nearest $1,000 except in relation to the following notes:

• Appropriations;
• Special accounts;
• executive remuneration;
• remuneration of auditors; and
• compensation and debt relief in special circumstances.

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