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Note 8: Managing Uncertainties

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

8.1 Contingent assets and liabilities

8.1A: Departmental contingent assets and liabilities

2021

2020

Claims for damages

$'000

$'000

Contingent assets

Balance from previous period

99

32

New contingent assets recognised

70

91

Re-measurement

2

(17)

Assets realised

(5)

(2)

Rights expired

(8)

(5)

Total contingent assets

158

99

Contingent liabilities

Balance from previous period

(145)

(1)

New contingent liabilities recognised

(73)

(145)

Re-measurement

1

Liabilities realised

120

Obligations expired

25

Total contingent liabilities

(73)

(145)

Net contingent assets

85

(46)

Quantifiable contingencies
The department estimates $73,000 in contingent liabilities in respect of claims for damages/costs (2020: $145,000). 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 $158,000 in contingent assets in respect of claims for damages/costs (2020: $99,000). 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.

8.1B: Administered contingent assets and liabilities

2021

2020

Claims for damages

$'000

$'000

Contingent assets

Balance from previous period

91,629

35,806

New contingent assets recognised

Re-measurement

35,938

169,506

Assets realised

(46,530)

(113,683)

Total contingent assets

81,037

91,629

Contingent liabilities

Balance from previous period

(20,900)

(34,591)

New contingent liabilities recognised

Re-measurement

1,131

13,691

Total contingent liabilities

(19,769)

(20,900)

Net contingent assets

61,268

70,729

Quantifiable Administered Contingencies
Fair Entitlements Guarantee (FEG)
The contingent assets and liabilities in the table above refer to estimated recoveries and payments under the FEG program.

Unquantifiable administered contingencies
Fair Entitlements Guarantee (FEG)
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

8.2A: Categories of financial instruments

2021

2020

Notes

$'000

$'000

8.2A: Categories of financial instruments

Financial assets at amortised cost

Cash and cash equivalents

6.1A

10,463

16,271

Goods and services receivables

6.1B

43,407

40,470

Total financial assets at amortised cost

53,870

56,741

Total financial assets

53,870

56,741

Financial liabilities

Financial liabilities measured at amortised cost

Trade creditors

6.3A

5,302

3,370

Accrued payables

6.3A

9,517

12,432

Total financial liabilities

14,819

15,802

8.2B: Net gains or losses on financial assets

Financial assets at amortised cost

Impairment

4.2C

554

1,134

Net gains/(losses) on financial assets at amortised cost

554

1,134

8.2C: Net gains or losses on financial liabilities

No gains for losses were incurred on the department's financial liabilities during 2020–21 (2020: 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:

  • financial assets at fair value through profit or loss;
  • financial assets at fair value through other comprehensive income; and
  • 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

8.3A: Categories of financial instruments

2021

2020

Notes

$'000

$'000

8.3A: Categories of financial instruments

Financial assets at amortised cost

Cash and cash equivalents

7.1A

2

1

Goods and services receivables

7.1B

11,401

13,692

Personal benefit receivables

7.1B

5,679

5,200

Other receivables

7.1B

6

2

Total financial assets at amortised cost

17,088

18,895

Financial assets at fair value through other comprehensive income (investments in equity instruments)

Equity accounted investments

7.1C

769,258

569,641

Total financial assets at fair value through other comprehensive income (investments in equity instruments)

769,258

569,641

Total financial assets

786,346

588,536

Financial liabilities

Financial liabilities measured at amortised cost

Trade creditors

7.3A

4,129

1,240

Accrued payables

7.3A

8,425

9,599

Personal benefits payable

7.3B

760

157

Grants payable

7.3C

305

Subsidies payable

7.3D

10,869

13,086

Total financial liabilities measured at amortised cost

24,488

24,082

Financial liabilities at fair value through other comprehensive income

Comcare payable

7.3E

2,049,685

2,094,027

Total financial liabilities through other comprehensive income

2,049,685

2,094,027

8.3B: Net gains or losses from financial assets

2021

2020

$'000

$'000

8.3B: Net gains or losses from financial assets

Financial assets at amortised cost

Interest revenue

5.2C

2

-

Impairment of personal benefit recoveries

5.1F

(6)

-

Net gains/(losses) on financial assets at amortised cost

(4)

-

Investments in equity instruments at fair value through other comprehensive income (designated)

Gains/(losses) recognised in equity

199,617

(178,579)

Net gains/(losses) on investments in equity instruments at fair value through other comprehensive income (designated)

199,617

(178,579)

Net gains/(losses) on financial assets

199,613

(178,579)

8.3C: Net gains and losses on financial liabilities

Financial liabilities at fair value through other comprehensive income

Gains recognised in equity

44,342

98,015

Net gains on financial liabilities

44,342

98,015