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1.Overview

1.1 Objectives of the Entity

The entity is a corporate not for profit Australian Commonwealth controlled entity. The entity is structured to meet the following outcome:

Outcome 1: Improved quality and consistency of school education in Australia through a national curriculum, national assessment, data collection and performance reporting system.

The continued existence of the entity in its present form and current programs is dependent on Education Council policy, and on continued funding by Commonwealth, State and Territory governments.

1.2 Basis of Preparation of the Financial Report

The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013.

The financial statements and notes have been prepared in accordance with:

  Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and

  Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets and liabilities 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 statements are presented in Australian dollars and values and are rounded to the nearest thousand dollars unless otherwise specified.

1.3 Critical Estimates and Judgements

Due to the impacts of covid-19, it is the opinion of management that ACARA would not take up the option of the Perth lease extension from December 2022. This differs from the opinion held by management on the 1st July 2019, upon adoption of the new AASB 16 lease accounting standard. The impact of the new lease standard on adoption is noted in section 1.4.

1.4 New Australian Accounting Standards

No accounting standard has been adopted earlier than the application date as stated in the standard. All new/revised/amending standards and/or interpretations that were issued prior to the sign-off date and are applicable to the current reporting period, and had a material effect on the entity’s financial statements, have been disclosed below.

Standard/Interpretation

Nature of change in accounting policy, transitional provisions, and adjustment to financial statements

AASB 15 Revenue from Contracts with Customers / AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities and AASB 1058 Income of Not-For-Profit Entities

AASB 15, AASB 2016-8 and AASB 1058 became effective 1 July 2019. AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. AASB 1058 is relevant in circumstances where AASB 15 does not apply. AASB 1058 replaces most of the not-for-profit (NFP) provisions of AASB 1004 Contributions and applies to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable the entity to further its objectives, and where volunteer services are received. The details of the changes in accounting policies, transitional provisions and adjustments are disclosed below and in the relevant notes to the financial statements.

AASB 16 Leases

AASB 16 became effective on 1 July 2019. This new standard has replaced AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases—Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. AASB 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases where the lease term is 12 months or less, or where the underlying asset is of low value. AASB 16 substantially carries forward the lessor accounting in AASB 117, with the distinction between operating leases and finance leases being retained. The details of the changes in accounting policies, transitional provisions and adjustments are disclosed below and in the relevant notes to the financial statements.

Application of AASB 15 Revenue from Contracts with Customers / AASB 1058 Income of Not-For-Profit Entities

The Entity adopted AASB 15 and AASB 1058 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated, that is, it is presented as previously reported under the various applicable AASBs and related interpretations.

Under the new income recognition model, the Entity shall first determine whether an enforceable agreement exists and whether the promises to transfer goods or services to the customer are ‘sufficiently specific’. If an enforceable agreement exists and the promises are ‘sufficiently specific’ (to a transaction or part of a transaction), the Entity applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, the Entity shall consider whether AASB 1058 applies.

In relation to AASB 15, the Entity elected to apply the new standard to all new and uncompleted contracts from the date of initial application. The Entity is required to aggregate the effect of all of the contract modifications that occur before the date of initial application.

In terms of AASB 1058, the entity is required to recognise volunteer services at fair value, if those services would have been purchased if not provided voluntarily, and the fair value of those services can be measured reliably.

Impact on Transition

1-Jul-19

The impact on transition is summarised below:

$’000

Assets

Receivables

0

Total assets

0

Liabilities

Grants in Advance - Contributions States and Territories

-719

Grants in Advance - Contributions Commonwealth

-900

Total liabilities

-1,619

Total adjustment recognised in retained earnings

-1,619

Set out below are the amounts by which each financial statement line item is affected as at and for the year ended 30 June 2020 as a result of the adoption of AASB 15 and AASB 1058. The first column shows amounts prepared under AASB 15 and AASB 1058 and the second column shows what the amounts would have been had AASB 15 and AASB 1058 not been adopted:

AASB 15/ AASB 1058

Previous AAS

Increase / (decrease)

Transitional disclosure

$’000

$’000

$’000

Revenue

Revenue from Jurisdictions – States and Territories

11,930

12,649

-719

Other revenue – Projects

10,321

8,743

1,578

Total Revenue

22,251

17,274

859

Assets

Receivables

0

0

0

Total Assets

0

0

0

Liabilities

Grants in Advance (deferred revenue)

1,003

3,481

-2,478

Total Liabilities

1,003

3,481

-2,478

Retained earnings

4,284

2,525

1,759

FY2019

FY2020

Total

Transitional disclosure

$’000

$’000

$’000

Revenue

Revenue 2019 Adjustment

1,619

-719

900

Revenue 2020 Adjustment

1,578

1,578

Total Revenue Adjustment

1,619

859

2,478

Application of AASB 16 Leases

The Entity adopted AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings in July 2019. Accordingly, the comparative information presented for 2019 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

The Entity elected to apply the practical expedient to not reassess whether a contract is, or contains a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under AASB 117 were not reassessed. The definition of a lease under AASB 16 was applied only to contracts entered into or changed on or after 1 July 2019.

AASB 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Entity applied the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:

  Exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if AASB 16 had been applied since the commencement date,

  Reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under AASB 136 Impairment of assets as at the date of initial application, and

  Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.

As a lessee, the Entity previously classified leases as operating, or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, the Entity recognises right-of-use assets and lease liabilities for most leases. However, the Entity has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less. On adoption of AASB 16, the Entity recognised right-of-use assets and lease liabilities in relation to leases of office space, which had previously been classified as operating leases.

The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Entity’s incremental borrowing rate as at 1 July 2019. The Entity’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied for the Sydney Lease was 0.979%, and 1.007% for the Perth lease.

Impact on Transition

On transition to AASB 16, the Entity recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below:

Sydney lease

Perth lease

1-Jul-19

Departmental

$’000

$’000

$’000

Right-of-use assets – property, plant and equipment

6,116

715

6,831

Lease Liability

-6,116

-715

-6,831

Retained earnings

0

0

0

The following table reconciles the Departmental minimum lease commitments disclosed in the entity's 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019:

1-Jul-19

$’000

Minimum operating lease commitment at 30 June 2019

1,147

Plus: effect of extension options reasonably certain to be exercised

6,042

Undiscounted lease payments

7,189

Less: short term operating leases

-50

Less: effect of discounting using the incremental borrowing rate as at the date of initial application

-308

Lease liabilities recognised at 1 July 2019

6,831

Lease note: Later in the financial year, there was a change in circumstance when assessing the future lease renewals of ACARA, and a decision was made to limit exposure. The Perth lease extension and related assets, liabilities, and expenses were derecognised, and the final balance sheet reflects this.

1.5 Taxation

The entity is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

1.6 Events after Reporting Period

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the results of the financial statements as at 30 June 2020.