Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. The financial report includes separate financial statements for The Australian National University (the University) as an individual entity and the consolidated entity consisting of the University and its subsidiaries (the Group). The term "the University" in this context covers all aspects of total operations of the University excluding subsidiaries (see Note 6.4 Subsidiaries), and includes funds from a number of sources that can only be applied to restricted purposes. These funds are separately identified at Note 2.1D Investments.

Basis of preparation of the Financial Statements

The University is a non-profit Corporate Commonwealth entity and is required under Section 46 of the Public Governance, Performance and Accountability Act 2013 to provide the responsible Minister with an annual report including annual financial statements. The financial statements are general purpose financial statements.

The statements have been prepared in accordance with the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (the Rule) (for reporting periods on or after 1 July 2017), Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period and Financial Statements Guidelines for Higher Education Providers for 2019 issued in accordance with Section 19-10(2)(a) of the Higher Education Support Act by the Department of Education.

The University has applied the following exemptions that are permissible under the Rule and granted by the Finance Minister:

1. The Finance Minister has granted an exemption from the requirements of Section 12 of the Rule to enable the University to align the presentation of the Income Statement and Statement of Comprehensive Income with that prescribed within the “Financial Statement Guidelines for Higher Education Providers” issued by the Department of Education; and
2. Section 24(2) of the Rule provides the University with an exemption from presenting oncosts as employee benefits in the financial statements, and can instead report its oncosts in accordance with the “Financial Statement Guidelines for Higher Education Providers”.

The University applies Tier 1 reporting requirements.

The Financial Statements have been authorised for issue on 3 April 2020.

The Income Statement, Statement of Comprehensive Income and Statement of Financial Position have been prepared on an accrual basis and are in accordance with historical cost convention, except for certain assets and liabilities, which as noted, are at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

1. Critical accounting estimates and judgements

The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the University's accounting policies. The estimates and underlying assumptions are reviewed on an ongoing basis.

b. Compliance with Australian Accounting Standards

The Financial Statements and Accompanying Notes of the Group comply with Australian Accounting Standards, including the Interpretations, some of which contain requirements specific to not-for-profit (NFP) entities that are inconsistent with International Financial Reporting Standards (IFRS) requirements. The main NFP entity provisions, adopted by the Group, are in respect of the following:

• Accounting for Government grants. AASB 1058 Income of Not-for-Profit Entities requires contributions received or receivable to be recognised immediately as income when there is an enforceable right to obtain the cash, unless the funds received are for the construction or acquisition of a recognisable, non-financial asset. In this case, income is recognised as the asset is constructed or acquired.
• Impairment of assets. Under AASB 136 Impairment of Assets, a NFP entity is entitled to recognise any impairment loss on a revalued asset directly against the available revaluation reserve in respect of the same class of asset; and
• Assets received at nil or nominal value. Under AASB 102 Inventories, AASB 138 Intangible Assets, AASB 140 Investment Properties, and AASB 116 Property, Plant and Equipment, a NFP entity is entitled to recognise an asset, acquired at no cost or nominal cost, at its fair value as at the date of acquisition.

Accounting policies and changes in accounting estimates

Apart from the adoption of AASB 15 Revenue from Contracts with Customers (AASB 15), AASB 1058 Income of Not-for-Profit Entities (AASB 1058) and AASB 16 Leases (AASB 16) (refer ‘Initial application of AAS’ section of this Overview for details), there have been no material adjustments or changes in accounting policies and accounting estimates in 2019.

Basis of consolidation

a. Subsidiaries

​The consolidated financial report is prepared in accordance with AASB 10 Consolidated Financial Statements. The financial report includes the accounts of the University, and the accounts of the wholly and beneficially owned subsidiary companies ANU Enterprise Pty Ltd incorporated in Australia (including its wholly owned subsidiaries Australian Scientific Instruments Pty Ltd, Social Research Centre Pty Ltd, ANU Limited (PNG)) and ANU (UK) Foundation incorporated in the United Kingdom.

Subsidiaries are all those entities (including structured entities) over which the Group has control. The Group has control over an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Power over the investee exists when the Group has existing rights that give it current ability to direct the relevant activities of the investee. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Returns are not necessarily monetary and can be only positive, only negative, or both positive and negative.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Separate financial reports are also prepared by the University's controlled entities as at 31 December 2019 and are audited by the Australian National Audit Office (except for the ANU (UK) Foundation).

The ANU (UK) Foundation is incorporated in the United Kingdom and is entitled to an exemption from the requirement to have an audit in the United Kingdom under the provisions of Section 477 of the Companies Act (UK) 2006. The financial report of the Foundation has been prepared in accordance with the Special Provisions relating to companies subject to the small companies regime within Part 15 of the Companies Act (UK) 2006. The accounts of the Foundation are not audited by the Auditor-General as the Foundation is not an Australian based entity.

b. Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the University financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (refer to Note 2.1E Investments Accounted for Using the Equity Method).

The Group’s share of its associates’ post acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

c. Joint arrangements

Joint operations

The assets, liabilities and expenses of a joint operation have been incorporated in the financial statements under the appropriate headings.

Joint ventures

The interest in a joint venture entity is accounted for in the consolidated financial statements using the equity method and is carried at cost by the University. Under the equity method, the share of the profits or losses of the entity is recognised in the income statement, and the share of movements in reserves is recognised in reserves in the statement of comprehensive income and the statement of changes in equity. Details relating to the entities are set out in Note 2.1E Investments Accounted for Using the Equity Method.

Foreign currency translation

a. Functional and presentation currency

The financial report is presented in Australian dollars.

b. Foreign currency transactions

Transactions denominated in a foreign currency are converted at the rate of exchange prevailing at the date of the transaction. At balance date, amounts receivable and payable in a foreign currency are translated at the exchange rate prevailing at that date and any exchange differences are brought to account in the Income Statement.

Rounding of amounts

Amounts in the financial report have been rounded off to the nearest thousand dollars, or in certain cases, the nearest dollar.

Comparative figures

When required by Accounting Standards comparative figures have been adjusted to conform to changes in presentation for the current financial year. Comparatives are adjusted for reclassified items in the financial statements.

Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

Future Australian Accounting Standard requirements

The following new standards, amendments to standards or interpretations, considered to be applicable to the Group, have been issued by the Australian Accounting Standards Board but are effective for future reporting periods.

The adoption of the following pronouncements may have a financial impact on future reporting periods. The quantum is still being assessed by the Group.

AASB 1059 Service Concession Arrangements (effective date 2020)

This standard requires grantors to recognise a service concession asset and in most cases a corresponding liability on the balance sheet where it ‘controls’ the asset. On transition the grantor must apply the Standard retrospectively.

Initial application of AAS

Adoption of AASB 15, AASB 1058 and AASB 16 is made in accordance with the transitional provisions applicable to each standard. The nature and effect of the changes as a result of
adoption of these new accounting standards is described below.
The following interpretations and amending standards have also been adopted with no material impact to the financial statements:

AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities

The University adopted AASB 15 and AASB 1058 using the modified retrospective method of transition, with the date of initial application of 1 January 2019. In accordance with the provisions of this transition approach, the University recognised the cumulative effect of applying these new standards as an adjustment to opening retained surplus at the date of initial application. Consequently, the comparative information presented has not been restated and continues to be reported under the previous standards on revenue and income. In addition, the University has applied the practical expedient and elected to apply these standards retrospectively only to contracts and transactions that were not completed contracts at the date of initial application.

The new accounting policies for revenue and other income for NFP in accordance with AASB 15 and AASB 1058 respectively are provided in Note 1.1F.

Under the new income recognition model applicable to NFP entities, the University first determines 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 University applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, the University considers whether AASB 1058 applies.

The nature and effect of the changes as a result of adoption of AASB 15 and AASB 1058 are in the tables below. Consolidated figures are not shown, as ANUE adopted AASB 15 in 2018 and the impact on the Group’s financial statements is immaterial.

Changes as a result of adoption of AASB 15/AASB 1058

Set out on the next page are the amounts by which each financial statement line item is affected for the year ended 31 December 2019 as a result of the adoption of AASB 15 and AASB 1058. The adoption of AASB 15 did not have a material impact on Other Comprehensive Income or operating, investing and financing cash flows. 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.

The nature of the adjustments as at 1 January 2019 and the reasons for the significant changes in the income statement for the year ended 31 December 2019 and the statement of financial position as at 31 December 2019 are described below:

(a) Research and other contract revenue

Before adoption of AASB 15, research and other contract revenue from customers was generally recognised upon cash receipt. When applicable, revenue under AASB 15 is now recognised when or as the University satisfies a performance obligation. Consequently, for unmet performance obligations as at 1 January 2019, this has resulted in recognition of Contract liabilities of $46,147,000, deferral of associated expenditure within Other non-financial assets of $2,511,000, and a decrease in Retained surplus of $43,636,000.

As at 31 December 2019, the University has recognised a reduction in revenue under AASB 15 of $9,201,000 and a reduction in expenditure of $2,675,000, as a result of recognising deferred expenditure within Other non-financial assets of $5,186,000, and deferred revenue within Contract liabilities of $55,348,000.

For any contracts where the University is entitled to recover funds for expenditure already incurred, a contract asset has been recognised. As at 1 January 2019, this has resulted in the recognition of Contract assets of $2,229,000 and an increase in Retained surplus of $2,229,000.

For the year ended 31 December 2019, the University has recognised net additional revenue of $1,895,000 as a result of increasing the Contract assets balance to $4,124,000.

Under AASB 1058, for contracts where the University is entitled to recover funds for expenditure already incurred, a grant receivable has been recognised. For the year ended 31 December 2019, the University has recognised additional revenue and grant receivable of $1,667,000.

(b) Research and other contract revenue with variable consideration

Some research and other contracts provide for a return of unspent funds. Prior to the adoption of AASB 15, the University recognised revenue when received, and reduced revenue upon the return of any unspent funds at the time the funds were returned. Under AASB 15, the consideration received from the customer is variable as the University is required to return to the funding provider any amounts received under a grant that were not spent on eligible expenditure.

As at 1 January 2019, the University estimated the amount of funds expected to be returned as a refund liability within Other payables of $73,000, and a decrease in Retained surplus of $73,000.

As at 31 December 2019, this provision has increased to $129,000, reducing revenue by $56,000.

(c) Construction of non-financial asset

In 2018, the University received funds for the construction of a non-financial asset, specifically the super computer grant. Following the adoption of AASB 1058, the University is required to recognise income as the non-financial asset is constructed; therefore the revenue received in 2018 has been derecognised. As at 1 January 2019, the University recognised deferred income within Other payables of $69,200,000 and decreased Retained surplus of $69,200,000.

For the year ended 31 December 2019, the University recognised $49,911,000 as Australian Government financial assistance, reducing the Other payables balance by the same amount. During 2019, the University received an additional $2,245,000 for the construction of other non-financial assets. $1,100,000 of this has been recognised as revenue and $1,145,000 has been recognised as deferred income within Other payables.

AASB 16 Leases

The University has adopted AASB 16 using the modified retrospective method of transition, with the date of initial application of 1 January 2019. Under the modified approach, the University has chosen, on a lease-by-lease basis, to measure the related right-of-use asset at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application. Consequently, the comparative information presented has not been restated and continues to be reported under the previous standards on leases – AASB 117 Leases and AASB Interpretation 4 Determining whether an arrangement contains a lease (Interpretation 4). The new accounting policies for leases in accordance with AASB 16 are provided in Note 2.2B and Note 2.4B.

The nature and effect of the changes as a result of adoption of AASB 16 are as described below:

Definition of lease

Previously, the University determined at contract inception whether an arrangement is or contains a lease under Interpretation 4. Under AASB 16, the University will continue to assess at contract inception whether a contract is, or contains, a lease but now uses the new definition of a lease.

On transition to AASB 16, the University elected to apply the practical expedient to grandfather the assessment of which transactions are or contain leases. This means that for arrangements entered into before 1 January 2019, the University has not reassessed whether they are, or contain, a lease in accordance with the new AASB 16 lease definition. Consequently, contracts existing prior to 1 January 2019 which were assessed per the previous accounting policy described below in accordance with AASB 117 and Interpretation 4 as a lease will be treated as a lease under AASB 16. In addition, contracts previously not identified as a lease have been reassessed to determine whether they would meet the new definition of a lease in accordance with AASB 16. Therefore, the University applied the recognition and measurement requirements of AASB 16 only to contracts that were previously identified as leases, and does not apply AASB 16 to contracts that were previously not identified as leases. The new definition of lease under AASB 16 will only be applied to contracts entered into or modified on or after 1 January 2019.

Assets in relation to make good provisions

Upon adoption of AASB 16, any make good provisions to existing leases have been included in the respective right-of- use assets

The University as a lessee

The University previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards incidental to ownership of the underlying asset to the University. Under AASB 16, this classification no longer exists for the University as a lessee. Instead, the majority of leases are now recognised on the statement of financial position as right-of-use assets with corresponding lease liabilities comprising all amounts which are considered to be lease payments (see Note 2.1J and 2.2D for the new lease policy).

Leases previously classified as operating leases under AASB 117

On transition to AASB 16, the University recognised lease liabilities for leases previously classified as operating leases by discounting the remaining lease payments using the incremental borrowing rate as at the date of initial application. The right-of-use assets were recognised at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application.

The University has applied the following practical expedients in transitioning existing operating leases:

1. Applied the exemption not to recognise right-of-use assets and lease liabilities where the remaining leases term is 12 months or less from the date of initial application
2. Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease
3. Excluded initial direct costs from the measurement of right-of-use asset at the date of initial application.

Leases previously classified as finance leases under AASB 117

On the date of initial application, right-of-use assets and lease liabilities continued to be recognised for leases previously classified as finance leases at the same carrying amounts of the leased assets and finance lease liabilities recognised in accordance with AASB 117 immediately before the date of initial application.

As a lessee, the weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on the date of initial application was 0.17%.

The difference between the operating lease commitments disclosed previously by applying AASB 117 and the value of the lease liabilities recognised under AASB 16 on 1 January 2019 is explained as follows:

Changes as a result of adoption of AASB 16

The University as a lessor

The University is not required to make any adjustments on transition to AASB 16 where it is a lessor, except for subleases.

Prior Period Restatement

The prior period error relates to a number of employees that had not been included in actuarial calculations for the provision for defined benefit obligations. This error has been corrected by restating the affected financial statement line items for prior periods. Refer note 4.1B for further details of the financial statements impact.

Events after the Reporting Period

Hail storm

On 20 January 2020 the Acton Campus was impacted by a hail event. Widespread damage was occasioned to over 220 buildings, associated infrastructure, ANU Fleet and Research projects. Whilst the amount of the claim cannot be reliably estimated at this time as detailed damage assessments are still being undertaken, ANU anticipates that all losses incurred during this event will be recoverable through insurance. The excess payable on the policy is $500,000.

Novel Coronavirus (COVID-19)

The COVID-19 outbreak is expected to have a significant impact on the financial performance and liquidity of the University in 2020. As at the time of completion of the 2019 Financial Statements, the University cannot reliably estimate the severity of the impact. There are a number of elements that contribute to this across the Income Statement and the Statement of Financial Position as follows:

Income Statement

a) Students currently have until the 8 May 2020 to withdraw from their currently enrolled 2020 subjects. There remains uncertainty as to how many students will choose to do so, given the move to online delivery and the broader environmental context;

b) The University’s ability to recruit international students for commencement in the second half of 2020 is dependent on the capacity of students to complete their current studies and other admissions requirements in their home countries. In many countries, the COVID-19 outbreak is affecting students’ abilities to meet these obligations. The duration of these restrictions remains unknown, creating uncertainty in the University’s ability to predict a second half-year intake;

c) The Government’s current travel restrictions, both internationally and domestically, create uncertainty in students’ ability to plan to either commence or continue their studies in Canberra. As there is no existing precedent for such extensive travel disruptions the University has significant uncertainty in predicting the impact on enrolments;

d) The University has always been focused on face to face on campus educational delivery. The majority of the University’s educational offerings have never been delivered online. There remains uncertainty regarding the extent to which all offerings can be transitioned which may affect student enrolments;

Statement of Financial Position

e) The significant widespread financial impacts of COVID-19 are creating uncertainty in determining the duration and magnitude of market volatility, particularly as it relates to the performance of the University’s investment portfolio, demand for higher education, capacity to fund studies and the capacity of employers and governments to sponsor students. Other assets, including property plant and equipment, may also be subject to impairment.

The University continues to monitor the financial and non- financial impacts and has measures in place to manage the position as the situation evolves and impacts become clearer.

No other matters or circumstances have arisen since 31 December 2019 that have significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years.