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7. Managing uncertainties

This section analyses how the ACIAR manages financial risks within its operating environment.

7.1 Contingent assets and liabilities

7.1.A. Contingent assets and liabilities

Quantifiable contingencies
At 30 June 2020, ACIAR had no quantifiable contingencies (2019: $Nil).

Unquantifiable contingencies
At 30 June 2020, ACIAR had no unquantifiable contingencies (2019: $Nil).

7.1.B. Administered - Contingent assets and liabilities

Quantifiable contingencies
At 30 June 2020, ACIAR had no quantifiable contingencies (2019: $Nil).

Unquantifiable contingencies
At 30 June 20120, ACIAR had no unquantifiable contingencies (2019: $Nil).

Accounting policy
Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position, but are reported in the 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.

7.2 Financial instruments

7.2A Categories of financial instruments

Categories of financial instruments

2020

2019

$'000

$'000

Financial assets at amortised cost

Cash and cash equivalents

12

12

Trade and other receivables

21

-

Total financial assets at amortised cost

33

12

Financial liabilities

Financial liabilities measured at amortised cost

Trade creditors

209

327

Other payables

11

502

Total financial liabilities at amortised cost

220

829

7.2B Net losses on financial liabilities

Net losses on financial liabilities

2020

2019

$'000

$'000

Financial liabilities measured at amortised cost

Exchange losses

1

-

Net losses on financial liabilities measured at amortised cost

1

-

Accounting policy

Financial assets

ACIAR classifies its financial assets as financial assets measured at amortised cost.

The classification depends on the ACIAR business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when ACIAR 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.

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 write-off directly reduces the gross carrying amount of the financial asset.

Financial liabilities

Financial liabilities are classified as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

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).

7.3. Administered - financial instruments

7.3A Categories of financial instruments

Categories of financial instruments

2020

2019

$’000

$’000

Financial assets at amortised cost

Cash on hand or on deposit

7,519

8,861

Trade and other receivables

10

1,626

Total financial assets at amortised cost

7,529

10,487

Financial liabilities

Financial liabilities measured at amortised cost

Trade creditors

1,830

2,645

Unearned income1

7,353

-

Total financial liabilities at amortised cost

9,183

2,645

1Refer to the Overview section for accounting policy on AASB 15 Revenue from Contracts with Customers

7.4. Fair value measurement

Accounting policy

ACIAR engaged the service of Jones Lang LaSalle (JLL) to conduct a desktop review of carrying amounts for all buildings (excluding right of use assets) and plant and equipment assets at 30 June 2020. An annual assessment is undertaken to determine whether the carrying amount of the assets is materially different from the fair value. ACIAR conducted a comprehensive valuation, including physical inspection as at 30 June 2016 and annual desktop valuations from 30 June 2017 through to 30 June 2019. Consistent with AASB 116 ACIAR intended to conduct a comprehensive valuation as at 30 June 2020. However due to Health Orders and travel restrictions implemented to combat COVID-19 the agency decided that a desktop review would be undertaken for 30 June 2020. This was on the basis that ACIAR assets are ordinary assets and they do not have any unique elements that makes them volatile or difficult to value. JLL has provided written assurance to ACIAR that the models developed are in compliance with AASB 13.

The methods utilised to determine and substantiate the unobservable inputs are derived and evaluated as follows:

Physical Depreciation and Obsolescence - Assets that do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence have been measured utilising the Depreciated Replacement Cost approach. Under the Depreciated Replacement Cost approach the estimated cost to replace the asset is calculated and then adjusted to take into physical depreciation and obsolescence. Physical depreciation and obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration. For all Leasehold Improvement assets, the consumed economic benefit / asset obsolescence deduction is determined based on the term of the associated lease.

ACIAR policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

Fair value measurements at the end of the reporting period

2020

2019

Non-financial assets1

Valuation method

$'000

$'000

Buildings2

Depreciated replacement cost

793

859

Plant and equipment

Depreciated replacement cost

819

596

1No non-financial assets were measured at fair value on a non-recurring basis as at 30 June 2020 (2019: Nil).

2Excluding right of use assets.

ACIAR assets are held for operational purposes and not held for the purposes of deriving a profit. The current use of all non-financial asset's is considered their highest and best use.