Notes to and forming part of the Financial Statements - Note 1

Note 1. Summary of Significant Accounting Policies

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1.1 Objectives of the Department

The department is an Australian Public Service organisation.

The department is structured to meet one outcome—sound and well coordinated government policies, programmes 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 and Industry Policy;
  • Output Group 1.2: Social Policy;
  • Output Group 1.3: International and National Security Policy; and
  • Output Group 1.4: Support Services for government operations.

The continued existence of the department in its present form and with its present programs is dependent on Government policy and on continuing appropriations by Parliament for the department’s administration and programmes.

1.2 Basis of preparation of the financial report

The Financial Statements and notes are required by clause 1(b) of Schedule 1 to the Financial Management and Accountability Act 1997 and are a General Purpose Financial Report.

The Financial Statements and notes have been prepared in accordance with:

  • Finance Minister’s Orders (FMOs) for reporting periods ending on or after 01 July 2006; and
  • Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that apply for the reporting period.

The financial report has been prepared on an accrual basis and is in accordance with historical cost convention, except for certain assets at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The Financial Report is presented in Australian dollars and values are rounded to the nearest thousand dollars unless disclosure of the full amount is specifically required.

Unless an alternative treatment is specifically required by an Accounting Standard or the FMOs, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow to the Entity 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 unrealised are reported in the Schedule of Commitments and Contingencies (other than unquantifiable or remote contingencies, which are reported at Note 10).

Unless alternative treatment is specifically required by an accounting standard, revenues and expenses are recognised in the Income Statement when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

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 1.21.

1.3 Significant accounting judgements and estimates

In the process of applying the accounting policies listed in this note, the department has made the following judgments that have the most significant impact on the amounts recorded in the financial statements:

  • The fair value of land and buildings has been taken to be the market value of similar properties as determined by an independent valuer. The department’s administered buildings are unique and may in fact realise more or less in the market.

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.

1.4 Statement of compliance

Australian Accounting Standards require a statement of compliance with International Financial Reporting Standards (IFRSs) to be made where the financial report complies with these standards. Some Australian equivalents to IFRSs and other Australian Accounting Standards contain requirements specific to not-for-profit entities that are inconsistent with IFRS requirements. The department is a not for profit entity and has applied these requirements, so while this financial report complies with Australian Accounting Standards including Australian Equivalents to International Financial Reporting Standards (AEIFRSs) it cannot make this statement.

Adoption of new Australian Accounting Standard requirements

No accounting standard has been adopted earlier than the effective date in the current period.

The department is required to disclose Australian Accounting Standards and Interpretations which have been issued but are not yet effective that have not been early adopted by the Agency. The following adopted requirements have resulted in a change to the department’s accounting policies or have affected the amounts reported in the current or prior periods or are estimated to have a financial affect in future reporting periods.

Other effective requirement changes

The following amendments, revised standards or interpretations have become effective but have had no financial impact or do not apply to the operations of the department.

Amendments:

  • 2005-1 Amendments to Australian Accounting Standards [AASBs 1, 101, 124]
  • 2005-4 Amendments to Australian Accounting Standards [AASB 139, AASB 132, AASB 1, AASB 1023 and AASB 1038]
  • 2005-5 Amendments to Australian Accounting Standards [AASB 1 & AASB 139]
  • 2005-6 Amendments to Australian Accounting Standards [AASB 3]
  • 2005-9 Amendments to Australian Accounting Standards [AASB 4, AASB 1023, AASB 139 & AASB 132]
  • 2006-1 Amendments to Australian Accounting Standards [AASB 121]
  • 2006-3 Amendments to Australian Accounting Standards [AASB 1045]

Interpretations:

  • UIG 4 Determining whether an Arrangement contains a Lease
  • UIG 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
  • UIG 7 Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies
  • UIG 8 Scope of AASB 2
  • UIG 9 Reassessment of Embedded Derivatives

UIG 4 might have impacts in future periods, subject to existing contracts being renegotiated.

Future Australian Accounting Standard requirements

The following new standards, amendments to standards or interpretations have been issued by the Australian Accounting Standards Board but are effective for future reporting periods. It is estimated that the impact of adopting these pronouncements when effective will have no material financial impact on future reporting periods.

Financial instrument disclosure

AASB 7 Financial Instruments: Disclosures is effective for reporting periods beginning on or after 1 January 2007 (the 2007–08 financial year) and amends the disclosure requirements for financial instruments. In general AASB 7 requires greater disclosure than that presently. Associated with the introduction of AASB 7 a number of accounting standards were amended to reference the new standard or remove the present disclosure requirements through 2005–10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038]. These changes have
no financial impact but will effect the disclosure presented in future financial reports.

Other

The following standards and interpretations have been issued but are not applicable to the operations
of the department.

  • AASB 1049 Financial Reporting of General Government Sectors by Governments
  • UIG 10 Interim Financial Reporting and Impairment

1.5 Revenue

Revenue from Government

Amounts appropriated for departmental outputs appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue, except for certain amounts that relate Amounts appropriated for departmental outputs appropriations for the year (adjusted for any formal additions 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.

Appropriations receivable are recognised at their nominal amounts.

Other Types of Revenue

Revenue from the sale of goods is recognised when:

  • The risks and rewards of ownership have been transferred to the buyer;
  • The seller retains no managerial involvement nor effective control over the goods;
  • The revenue and transaction costs incurred can be reliably measured; and
  • It is probable that the economic benefits associated with the transaction will flow to the department.

Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:

  • The amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
  • The probable economic benefits with the transaction will flow to the department.

The stage of completion of contracts at the reporting date is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the transaction.

Receivables for goods and services, which have 30 day terms, 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 collectability of the debt is no longer probable.

Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.

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).

1.6 Gains

Resources Received Free of Charge

Resources received free of charge are recognised 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 resources is recognised as an expense.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another Government Agency or Authority
as a consequence of a restructuring of administrative arrangements (Refer to Note 1.7).

Resources received free of charge are recorded as either revenue or gains depending on their nature ie whether they have been generated in the course of the ordinary activities of the Entity.

Sale of Assets

Gains from disposal of non-current assets is recognised when control of the asset has passed to the buyer.

1.7 Transactions with the government as owner

Equity injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) are recognised directly in Contributed Equity in that year.

Restructuring of Administrative Arrangements

Net assets received from or relinquished to another Australian Government 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.

1.8 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.

1.9 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 ‘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 at 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 2007. 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. As the department recognises a provision for termination when it 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 2007 the provision was nil (nil in 2005–06).

Superannuation

Staff of the department are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).

The CSS and PSS are defined benefit schemes for the Australian Government. 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.

The department makes employer contributions to the Employee Superannuation Scheme 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 department accounts for the contributions as if they were contributions to defined contribution plans.

From 1 July 2005, new employees are eligible to join the PSSap scheme.

The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.

1.10 Leases

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.

Where a non-current asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the lease property or, if lower, the present value of minimum lease payments at the inception of the contract 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 2007 (nil in 2005–06).

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

1.11 Borrowing costs

All borrowing costs are expensed as incurred.

1.12 Cash and cash equivalents

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. The department has revised its accounting treatment for appropriation recievable. Appropriation receivable has been reclassified as cash equivalent, as it is available for the department to use when needed, and retitled to Cash at the Official Public Account (OPA).

1.13 Financial risk management

The department’s activities expose it to normal commercial financial risk. As a result of the nature of the department’s business and internal and Australian Government policies, dealing with the management of financial risk, the department’s exposure to market, credit, liquidity and cash flow and fair value interest rate risk is considered to be low.

1.14 Impairment of financial assets

Financial assets are assessed for impairment at each balance date.

Financial Assets held at Amortised Cost

If there is objective evidence that an impairment loss has been incurred for loans and receivables or held to maturity investments held at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Income Statement.

Financial Assets held at Cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because it cannot be reliably measured, or a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate for similar assets.

Available for Sale Financial Assets

If there is objective evidence that an impairment loss on an available for sale financial asset has been incurred, the amount of the difference between its cost, less principal repayments and amortisation, and its current fair value, less any impairment loss previously recognised in expenses, is transferred from equity to the Income Statement.

1.15 Supplier and other payables

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

1.16 Contingent liabilities and contingent assets

Contingent Liabilities and Contingent Assets are not recognised in the Balance Sheet but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Remote contingencies are part of this disclosure. Contingent assets are reported when settlement is probable, and contingent liabilities are recognised when settlement is greater than remote.

1.17 Acquisition 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. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

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 as contributions by owners at the amounts at which they were recognised in the transferor Agency’s accounts immediately prior to the restructuring.

1.18 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).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘makegood’ provisions in accommodation leases for former Governors-General taken up by the department. These costs are included in the value of the department’s departmental and administered property, plant and equipment with a corresponding provision for the ‘makegood’ taken up.

Revaluations

Fair values for each class of asset are determined as shown below:

Asset class Fair value measured at:
Land Market selling price
Buildings exc. Leasehold improvements Market selling price
Leasehold improvements Depreciated replacement cost
Plant & equipment Market Selling Price
Heritage and cultural assets Market Selling Price

Note that the department only holds administered land and buildings.

Following initial recognition at cost, property plant and equipment are carried at fair value less accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised through surplus and deficit. Revaluation decrements for a class of assets are recognised directly through surplus and deficit except to the extent that they reverse a previous revaluation increment for that class.

Revaluations are undertaken annually and are conducted by an independent qualified valuer. Formal valuations for all assets are undertaken every three years (most recent being 2006–07) and a desk top valuation for all assets in the other years.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Heritage Assets

The formal revaluation of “Kirribilli House” Kirribilli NSW and “The Lodge” Canberra ACT undertaken by Preston Rowe Paterson NSW Pty Ltd in May 2007 resulted in the reclassification of the properties as heritage assets and the useful life of the assets revised to 100 years.

Kirribilli House and (Kirribilli House) Garden and Grounds are listed on Local, State, National and Commonwealth Heritage Listings.

The Lodge, including garden and grounds, are listed on National and Commonwealth Heritage Listings.

Work in progress—One National Circuit

The fit out costs for the department’s new accommodation at One National Circuit are not yet finalised and the balance of costs cannot be reliably quantified. All current fit out costs contained in work in progress that are not separately identifiable assets have been recorded on the asset register as one asset. The asset is depreciated from the date of commission, being the date the occupancy certificate was issued (February 2007) and possession taken of One National Circuit. In 2007–08, when the balance of costs of fit out costs are recognised, the total value of the fit out (ie the costs capitalised in 2006–07 plus the costs incurred in 2007–08) will be recorded as separate components in the department’s asset ledger.

Depreciation

Land, being assets with an unlimited useful life, are not depreciated.

Depreciable property plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the department using, in all cases, the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

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

2007
2006
Departmental Assets
Leasehold improvements Lease term Lease term
Plant and Equipment
4 to 10 years
4 to 10 years
Administered Assets
Buildings on freehold land 100 years 150 years
Plant and Equipment 4 to 50 years 4 to 50 years

Impairment

All assets were assessed for impairment at 30 June 2007. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the department were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

1.19 Intangibles

The department’s intangibles comprise internally developed 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 lives of the department’s software are 4 to 5 years (2005–06: 4 to 5 years).

All software assets were assessed for indications of impairment as at 30 June 2007.

1.20 Taxation

The Agency is exempt from all forms of taxation except fringe benefits tax (FBT) 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.

1.21 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 departmental items, including the application of Australian Accounting Standards.

Administered Cash Transfers to and from the Official Public Account

Revenue collected by the department for use by the Government rather than the Agency 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 appropriation 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 Administered Reconciliation Table in Note 18. 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 course of ordinary activities performed by the Agency on behalf of the Australian Government.

Commission—Media Commissions Special Account

Administered revenue is derived from a four per cent levy on all government campaign advertising (excluding party political advertising) and 1.5 per cent on government non-campaign advertising. Funds are used to transfer media commissions through the central advertising system to advertising agencies. 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. Allowances are made when collection of the debt is judged to be less rather than more likely.

Former Governors-General allowances

The department has administrative responsibility for the payment of allowances (pensions) to former
Governors-General. The liability in relation to these allowances is based on actuarial assessments.
Disclosures relating to the allowances are made at Note 17D.

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Last Updated: 21 January, 2008