Introduction

Departmental assets, liabilities, revenue and expenses are those items that an entity has control over and include ordinary operating costs and associated funding, salaries, employee entitlements and operational expenses.

Statement of comprehensive income ($’000)

Statement of financial position ($’000)

Statement of changes in equity ($’000)

The AOFM is not aware of any quantifiable or unquantifiable departmental contingencies as of the signing date that may have a significant impact on its operations.

Statement of cash flows ($’000)

Note A: Expenses

The below table sets out the CEO’s actual remuneration (on an accruals basis).

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. The Chief Executive Officer (CEO), the Secretary to the Treasury and the Treasurer have been determined to be key management personnel for the AOFM. The CEO only is remunerated by the AOFM.

Accounting policy

Receivables are measured at fair value on initial recognition and at amortised cost on subsequent measurement.

Appropriations receivable are recognised at their nominal amounts. Appropriations receivable are appropriations controlled by the AOFM but held in the OPA under the government’s ‘just in time’ drawdown arrangements.

No receivable is overdue. All receivables are with related entities.

Asset recognition threshold on acquisition

Purchases of leasehold improvements are recognised initially at cost except for purchases costing less than $10,000 which are expensed at the time of acquisition. For leasehold improvements the estimated cost of removal and restoring the leased premises to their original condition is included in the initial cost of leasehold improvements.

AASB 16 Leases became operational for annual periods beginning on or after 1 January 2019. The AOFM has applied the Standard from 1 July 2019. AASB 16 sets out the rules for recognition, measurement and disclosure of leases and requires most leases to be recognised under a single lease model, removing the distinction between finance and operating leases. It requires a lessee to recognise a “right of use asset” and a lease liability on its balance sheet.

On 1 July 2019, the AOFM recognised as a lease liability its obligations arising from the lease of its office premises within the Treasury Building for the expected remaining term. The lease term ends on 21 December 2025 and there are two 5‑year extension options exercisable by the AOFM (which the AOFM is planning to exercise). A right of use asset was initially recognised on 1 July 2019 and measured at a value equivalent to the lease liability. The right of use asset is subsequently depreciated using the straight line method to the end of the expected lease term. Comparatives have not been restated with the adoption of AASB 16.

Purchases of plant and equipment are recognised initially at cost except for purchases costing less than $1,000 which are expensed at the time of acquisition.

Revaluations

Following initial recognition at cost, those items of property, plant and equipment whose fair value can be measured reliably are valued with sufficient frequency to ensure that the carrying amounts of assets do not materially differ from fair value as at the reporting date. Fair value is determined by depreciated replacement cost for leasehold improvements and by secondary market information for plant and equipment.

A valuation was conducted by an independent valuer, Jones Lang LaSalle, as at 31 March 2020. A revaluation gain of $390,064 was recorded for leasehold improvements, of which $10,502 was recognised as revenue in the Statement of Comprehensive Income (to reverse revaluation decrements recognised as expenses in previous reporting periods), and $379,562 was recognised in an Asset Revaluation Reserve in Equity. A revaluation loss of $17,450 was recorded for plant and equipment, and recognised as an expense in the Statement of Comprehensive Income. As at 30 June 2020, the AOFM had cumulative net revaluation losses of $81,065 for plant and equipment which were recognised as expenses in the Statement of Comprehensive Income in this reporting period and previous reporting periods.

Right of use assets are retained at cost and are not subject to periodic revaluation.

No indicators of impairment were identified for property, plant and equipment.

Depreciation

Leasehold improvements are depreciated using the straight line method over the expected lease term.

The right of use asset is depreciated using the straight line method over the expected lease term.

Plant and equipment is depreciated using the straight line method, on the basis of the following useful lives.

Useful lives are assessed annually and revised if necessary to reflect current estimates of an asset’s useful life to the AOFM. Revisions in useful life affect the rate of depreciation applied for the current period and future periods.

The useful lives of leasehold improvements and furniture and fittings were reassessed in 2019‑20. This has resulted in reduced depreciation expenses of $58,000 for 2019‑20 (2018‑19: nil).

Asset recognition threshold on acquisition

Purchases of computer software are recognised initially at cost except for purchases costing less than $10,000 which are expensed at the time of acquisition.

An item of software represents a software licence granted for greater than 12 months; or a developed software application.

Developed software is recognised by capitalising all directly attributable internal and external costs that enhance software’s functionality and therefore service potential. Software assets are retained at cost and are not subject to periodic revaluation.

No indicators of impairment were identified for computer software.

Amortisation

Software assets are amortised using the straight line method over their anticipated useful lives, being three to ten years (2018‑19: three to ten years).

Leave

The liability for employee benefits includes provisions for annual leave and long service leave. No provision has been made for sick leave as sick leave is non vesting and the average sick leave taken in future years by employees of the AOFM is estimated to be less than the annual entitlement for sick leave.

Long service leave and annual leave are measured at the present value of the estimated future payments to be made. In determining the present value, the AOFM commissions a periodic actuarial assessment.

Superannuation

The AOFM contributes to defined benefit superannuation schemes (the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme) and accumulation plans (defined contribution schemes) on behalf of staff.

The AOFM accounts for its superannuation contributions as if they were defined contribution plans, i.e. it has no ongoing liability to report. The superannuation benefits payable to an employee upon termination of employment with the Australian Government from defined benefit schemes is recognised in the financial statements of the Department of Finance and is settled by the Australian Government in due course.

An on cost liability is recognised for superannuation contributions payable on accrued annual leave and long service leave as at the end of the financial year.

Accounting policy

AASB 16 Leases became operational for annual periods beginning on or after 1 January 2019. The AOFM has applied the Standard from 1 July 2019. AASB 16 sets out the rules for recognition, measurement and disclosure of leases and requires most leases to be recognised under a single lease model, removing the distinction between finance leases and operating leases. It requires lessees to recognise a “right of use asset” and a lease liability on its balance sheet. On 1 July 2019, the AOFM recognised as a lease liability its obligations arising from the lease of its office premises within the Treasury Building for the expected remaining term. The lease liability is initially measured at the present value of the estimated future lease payments as at 1 July 2019, discounted at the Australian Government’s borrowing rate. The lease liability is subsequently measured at amortised cost using the effective interest method. Comparatives have not been restated with the adoption of AASB 16.

Note G: Other provisions

Other provisions are for the restoration costs of the AOFM’s leasehold premises on expiry of its lease. The AOFM lease for its office premises ends on 21 December 2025, there are two 5 year extension options exercisable at AOFM’s discretion.

Note H: Cash flow reconciliation

The following table reconciles the AOFM’s operating cash flows as presented in the Statement of Cash Flows to its net cost of services presented in the Statement of Comprehensive Income.

Note I: Appropriations

The following table outlines appropriations for the period and the amount of appropriations utilised for the period.

The variance in departmental appropriations available to appropriations applied (spent) is explained by lower than planned staff and supplier costs, including from the implementation and management of the Australian Business Securitisation Fund (the ABSF).

The following table outlines the unspent balance of appropriations available to the AOFM as at the end of the reporting period.

Note J: Budgetary report to outcome comparison

The Budget figures shown in the primary financial statements represent the original Budget released in April 2019. The Budget figures are not audited.

Judgement is applied when determining variances requiring explanation. Considerations include the value of the variance, the nature of the item and its usefulness in analysing financial performance.

Significant variances in the Departmental financial statements

AASB 16 Leases became operational on 1 July 2019. At that time the AOFM recognised a ‘lease liability’ and a ‘right of use asset’ for $4.8 million in relation to the lease on its office premises. This had the effect of grossing up the AOFM’s balance sheet. In addition, from 1 July 2019 the AOFM recognised interest charges on the lease liability and depreciation on the right of use asset. In accordance with instructions from the Department of Finance, the impact of AASB 16 Leases was not incorporated into the 2019‑20 Budget (in April 2019). The 2019‑20 Budget was prepared under AASB 117, whereby the lease on AOFM’s office premises was recognised as an operating lease. Operating leases recognised lease payments as expenses and did not recognise a lease liability or a right of use asset.

On 31 March 2020, the AOFM conducted a revaluation of its property, plant and equipment assets. Also at that time the AOFM conducted a re‑measurement of $41,800 to the make‑good liability on its leasehold premises. As a result of the re‑measurements, the AOFM recorded a net gain of $337,762 to an Asset Revaluation Reserve, an expense of $17,450 and income of $10,502. The revaluation was not forecast in the Budget.

Employee expenses were lower than forecast at Budget by $0.8 million. During 2019‑20 the AOFM sought to increase its staffing levels for the purposes of implementing and administering the Australian Business Securitisation Fund (the ABSF). Whilst the AOFM establishment size increased by 7 full time equivalents from 30 June 2019 (37) to 30 June 2020 (44), the average staffing level for 2019‑20 was 39 against forecasts of 47. A range of external advisory services have also been utilised in place of staff. This resulted in lower than expected staff costs. During 2020‑21 the AOFM will increase its establishment size in response to ongoing commitments particularly in relation to the ABSF and the Structured Finance Support Fund (the SFSF).

Supplier expenses were lower than forecast at Budget by $3.1 million. During 2019‑20 the AOFM received additional appropriation funding to meet anticipated additional consultancy, legal, information technology, assurance and other administrative costs arising from implementing and managing the ABSF. The AOFM has underspent as compared to Budget forecasts in this regard.

Basis of preparation of the financial statements

The Australian Office of Financial Management is a listed entity under the Public Governance, Performance and Accountability Act 2013. The AOFM is a not‑for‑profit Australian Government entity.

These financial statements cover the AOFM as an administrative entity of the Commonwealth of Australia and are for the reporting period 1 July 2019 to 30 June 2020. They are required by section 42 of the Public Governance, Performance and Accountability Act 2013, and are general purpose financial statements prepared on a going concern basis.

The financial statements have been prepared in accordance with:

• the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
• Australian Accounting Standards that apply for the reporting period.

The financial statements have been prepared on an historical cost basis, except for certain assets and liabilities which are carried at fair value or on a discounted cash flow basis as required or allowable by relevant accounting standards.

The financial statements are presented in Australian dollars and values are rounded as indicated.

The continued existence of the AOFM in its present form, and with its present outcome and program, is dependent on government policy and on continuing appropriations by Parliament for the AOFM’s administration and activities.

New Australian Accounting Standards applicable to the reporting period

During 2019‑20 the AOFM adopted all applicable Australian Accounting Standards that became effective during the reporting period.

The AOFM adopted AASB 16 Leases for the first time on 1 July 2019. In accordance with the requirement of the Standard the AOFM has recognised a right of use asset and a lease liability for the lease of its office premises within the Treasury Building. Further disclosures are made at Note C and F of the Departmental Financial Statements. The liability represents the discounted known future lease payments. Previously, under AASB 117 Leases, the lease of the office premises was recognised as an operating lease.

New Australian Accounting Standards applicable in future reporting periods

A number of revised or new Australian Accounting Standards have been issued that are effective for future reporting periods. These are not expected to significantly impact the AOFM’s accounts.

Establishment of forbearance SPV

Since April 2020 the AOFM has been working on an initiative with the securitisation industry to develop a forbearance special purpose vehicle (SPV) to advance funds to eligible public and private securitisation vehicles seeking liquidity advances to compensate for a portion of the missed interest component of scheduled payments not received from borrowers who have received a payment moratorium due to the impact of coronavirus.

The AOFM appointed separate professional companies to perform the roles of trustee, manager and security trustee to operate the forbearance SPV. The AOFM also appointed a standby manager and a collateral verification agent to support the operations of the forbearance SPV.

The AOFM is the only senior financier of the forbearance SPV, and through the Structured Finance Support Fund acquires debt securities issued by the forbearance SPV. The proceeds raised by the issuance of debt securities to the AOFM, provides the forbearance SPV with the funding required to make liquidity payments (secured by an interest in underlying property) to eligible securitisation vehicles.

The forbearance SPV was established on 22 July 2020.

Litigation

On 22 July 2020 documents were filed with the Federal Court of Australia (FCA) bringing proceedings against the Commonwealth of Australia, the Secretary of the Department of the Treasury and the Chief Executive Officer of the AOFM. The statement lodged with the FCA states that the Applicant is the holder of and an investor in exchange‑traded Australian Government Bonds. The claim provides that the information statements published by the AOFM setting out information to potential investors about these financial products fail to disclose Australia’s climate change risks for investors. The Applicant further claims that as such the Commonwealth has breached its duties of disclosure under the Australian Securities and Investment Commission Act 2001, and the Treasury Secretary and the Chief Executive Officer of the AOFM have breached their duties under the Public Governance, Performance and Accountability Act 2013.

The Applicant has sought injunctive relief and is not making a claim for damages.

The Commonwealth rejects the claims and will be defending the claims in the legal action. Hearings are yet to commence.

ANAO audit opinion

The ANAO's audit opinion can be located here.