Objectives of Australian Financial Security Authority

Australian Financial Security Authority (AFSA) is an Australian Government not for profit entity and operates on a cost recovered basis. AFSA is an executive agency with the objective of facilitating improved and equitable financial outcomes for consumers, business and the community through excellence in service delivery.

For the financial year ended 30 June 2020, AFSA was structured to meet the following outcome:

Outcome 1: Maintain confidence in Australia’s personal insolvency and personal property securities systems through delivering fair, efficient and effective trustee and registry services, and risk-based regulation.

AFSA operates two programs to achieve this outcome – Personal Insolvency and Trustee Services and Operation of a National Register of Security Interests in Personal Property.

The continued existence of AFSA in its present form and with its present programs is dependent on Government policy.

AFSA’s activities contributing towards this outcome are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by AFSA in its own right.

Administered activities involve the management or oversight by AFSA on behalf of the Government of items controlled or incurred by Government. AFSA’s departmental and administered activities include:

Regulation and enforcement

• regulating personal insolvency practitioners
• investigating alleged Bankruptcy Act 1966 and Personal Property Securities Act 2009 (PPS Act) offences and, where appropriate, referring for prosecution.

Insolvency and trustee services

• acting on behalf of the Official Trustee (OT) for personal insolvency administrations
• acting as trustee pursuant to court orders, particularly under the proceeds of crime legislation
• acting as special trustee for government
• providing practical information about options to deal with unmanageable debt
• preserving the security and integrity of a large volume of personal insolvency records.

Personal property securities

• operation of an online register of security interests in personal property
• making administrative decisions to resolve disputes between secured parties and grantors
• exercising discretion in response to applications made under the PPS Act
• providing sector-specific information to help users to effectively use the Personal Properties Securities Register
• preserving the security and integrity of a large volume of economically significant registration data

The Basis of Preparation

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

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.

Significant Accounting Judgements and Estimates

Significant accounting judgements and estimates are used for impairment assessment on proceeds of crime related receivables. There is risk that material adjustments to carrying amounts of assets may occur in future accounting periods in the event that these judgements and estimates change.

No other 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.

New Australian Accounting Standards

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

Application of AASB 15 Revenue from Contracts with Customers

AFSA 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 various applicable AASBs and related interpretations.

Under the new income recognition model AFSA 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), AFSA applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, AFSA shall consider whether AASB 1058 applies.

In relation to AASB 15, AFSA elected to apply the new standard to all new and uncompleted contracts from the date of initial application. AFSA 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, AFSA 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 of AASB 15

AFSA commissioned an external consultant to review material revenue streams in preparation for transition to AASB 15. For each of the revenue streams assessed it was determined that the enforceable agreement and performance obligation occur simultaneously. Therefore there is no change to the way AFSA recognises revenue on transition to AASB 15.

AFSA has also determined pursuant to AASB 1058 that the volunteer services received during the year (secondments) would not have been purchased if not provided voluntarily.

Application of AASB 16 Leases

AFSA adopted AASB 16 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 was not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

AFSA 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. AFSA applied the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:

• Apply a single discount rate to a portfolio of leases with reasonable similar characteristics,
• 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, AFSA 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, AFSA recognises right-of-use assets and lease liabilities for most leases. However, AFSA has elected not to recognise right-of-use assets and lease liabilities for 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, AFSA 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 AFSA’s incremental borrowing rate as at 1 July 2019. AFSA’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 was 1.07%.

The right-of-use office space assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

Impact on Transition of AASB 16

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

Taxation

AFSA is exempt from all forms of taxation except fringe benefits tax (FBT) and the goods and services tax (GST).

Reporting of Administered Activities

Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules 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.

Trustee Roles

Official Receiver

Courts occasionally make orders which require the Official Receiver (OR) to take control of and administer real or personal property in accordance with orders, such as under the Child Support Assessment Act 1989.

Details of monetary and non-monetary assets held in trust are reported at Note 8.2.

Official Trustee

The Official Trustee acts as trustee for assets vested in the Commonwealth under the Bankruptcy Act 1966, Customs Act 1901, Mutual Assistance in Criminal Matters Act (1987) and Proceeds of Crime Act (1987) and Proceeds of Crime Act (2002) legislation (forfeited and restrained matters).
Details of monetary and non-monetary assets held in trust are reported at Note 8.2.

Events After the Reporting Period

There are no significant events that occurred after balance date that warrant disclosure, or must be brought to account in the financial statements.

Breach of Section 83 of the Constitution

Section 83 of the Constitution provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation made by law.

AFSA annually completes a risk assessment of payments made from special appropriations, including Special Accounts, long service leave and goods and services tax to identify if there are any matters upon which to report. AFSA reviews of special appropriations, Special Accounts and goods and services tax transactions in 2019–20 did not identify any breaches of statutory conditions.

AFSA engaged a third party to undertake a review of long service leave transactions in the 2019–20 year. The review did not identify any breaches of statutory conditions.

Explanation of major budget variances

AASB 1055: Budgetary Reporting requires explanations of major variances between the original budget as presented in the 2019–20 PBS. The variance commentary that appears in face statements should be read in the context of the following:

1. It should be noted that the original budget was prepared before AFSA’s 2018–19 final results were known. As a consequence, the opening balance of the Statement of Financial Position needed to be estimated and in some cases variances between the 2019–20 final results and budget estimates can be at least in part attributed to unanticipated movement in the prior year period figures. Variances attributable to factors which would not reasonably have been identifiable at the time of the budget preparation, such as revaluation or impairment of assets or reclassifications of asset reporting categories have not been included as part of the analysis.
2. AFSA considers that major variances are those greater than 10% of the original estimate. Variances below this threshold are not included unless considered significant by their nature. Variances relating to cash flows are a result of the factors detailed under expenses, own source income, assets or liabilities. Unless otherwise individually significant or unusual, no additional commentary has been included.
3. The Budget is not audited.

Impact of COVID-19

AFSA is a cost recovered agency and as such is exposed to fluctuations in revenue. In the current financial year COVID-19 caused AFSA to seek approval for an operating loss from the Department of Finance for 2019–20 of $0.97m, attributable to reduced revenues from PPSR registrations and searches. AFSA has also notified the Department of Finance of an estimated operating loss in 2020–21 of $3.06m, related to the expected continued impacts of COVID-19 in addition to increased bankruptcy rates but declining asset values which may mean that relevant fees and charges become non-recoverable.

In preparing AFSA’s financial statements, the impacts of COVID-19 have been considered in the assumptions and estimates used in impairment testing of financial and non-financial assets, fair value measurements and other areas of the financial statements such as the recognition of provisions. Although there have been events and conditions related to COVID-19 that have impacted AFSA, they do not culminate in material uncertainty about AFSA’s ability to continue as a going concern. AFSA will continue to monitor this assessment as changes occur in its operating environment.