This section analyses how the Attorney-General's Department manages financial risk within its operating environment.

8.1: Contingent assets and liabilities

Quantifiable contingencies

The department estimates $145,000 of contingent liabilities in respect of claims for damages/costs (2019: $1,000). This amount represents an estimate of the department's liability based on precedent in such cases. The department is defending the claims.

The department estimates $99,000 of contingent assets in respect of claims for damages/costs (2019: $32,000). This amount represents the department's estimate of claims against persons/organisations based on ongoing cases. The estimate is based on precedent in such cases.

Unquantifiable contingent liabilities

The department is party to a number of civil litigation matters arising out of its statutory duty to administer the laws for which it is responsible. As at the date of this report there are no matters where costs have been awarded against the department.

Unquantifiable contingent assets

The department, like any other party to civil litigation may be entitled to recover costs arising out of such litigation if it is successful. There are no matters at the date of this report where the department reasonably expects to have an award of costs in its favour.

Future compensation claims

The Scheme for Compensation for Detriment caused by Defective Administration (CDDA) allows agencies to provide compensation to persons who have been adversely affected by their maladministration, but who have no legal means to seek redress, such as a legal claim. It is not possible to estimate the value of future CDDA claims.

Accounting Policy

Contingent liabilities and contingent assets are not recognised in the statement of financial position 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 asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

Quantifiable Administered Contingencies

Fair Entitlements Guarantee

The contingent assets and liabilities in the table above refer to estimated recoveries and payments under the Fair Entitlements Guarantee program.

Unquantifiable administered contingencies

Fair Entitlements Guarantee

It is known that there are employers with outstanding employee entitlements that have been placed into liquidation. The amounts are unable to be quantified as no claim forms have been received.

Native Title Costs and Agreements (access to geospatial data)

Under the Native Title Act 1993 (the NTA) and the Native Title Amendment (Indigenous Land Use Agreements) Act 2017, Schedule 1 s. 13(3), the Commonwealth will be liable for any compensation found to be payable in respect of compensable acts for which the Commonwealth is responsible.

The Australian Government has entered into agreements with State and Territory Governments to access their geospatial land tenure data, which is essential to support the National Native Title Tribunal in achieving its outcomes. Under these agreements the Australian Government provides indemnities against third-party claims arising from errors in the data.

At balance date the department is unable to reliably measure the future value of potential claims, and no provision for these claims has been recognised.

Future compensation claims

The Scheme for Compensation for Detriment caused by Defective Administration (CDDA) allows agencies to provide compensation to persons who have been adversely affected by their maladministration, but who have no legal means to seek redress, such as a legal claim. It is not possible to estimate the value of future CDDA claims.

8.2 Financial instruments

8.2C: Net gains or losses on financial liabilities

No gains for losses were incurred on the department's financial liabilities during 2019-20 (2019: nil).

Accounting Policy

Financial assets

With the implementation of AASB 9 Financial Instruments for the first time in 2019, the department classifies its financial assets in the following categories:

1. financial assets at fair value through profit or loss;
2. financial assets at fair value through other comprehensive income; and
3. financial assets measured at amortised cost.

The classification depends on both the department's business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when the department becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

Financial assets at amortised cost

Financial assets included in this category need to meet two criteria:

1. the financial asset is held in order to collect the contractual cash flows; and
2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective interest method

Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Financial assets at fair value through other comprehensive income (FVOCI)

Financial assets measured at fair value through other comprehensive income are held with the objective of both collecting contractual cash flows and selling the financial assets and the cash flows meet the SPPI test.

Any gains or losses as a result of fair value measurement or the recognition of an impairment loss allowance is recognised in other comprehensive income.

Financial assets at fair value through profit or loss (FVTPL)

Financial assets are classified as financial assets at fair value through profit or loss where the financial assets either doesn't meet the criteria of financial assets held at amortised cost or at FVOCI (i.e. mandatorily held at FVTPL) or may be designated.

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest earned on the financial asset.

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period based on expected credit losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12‐month expected credit losses if risk has not increased.

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a derecognition event where the writeoff directly reduces the gross carrying amount of the financial asset.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

Financial liabilities at amortised cost

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

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).

8.3 Administered - financial instruments