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Overview

APRA’s mission is to establish and enforce prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by institutions APRA supervises are met within a stable, efficient and competitive financial system. APRA also acts as a national statistical agency for the Australian financial sector and plays a role in preserving the integrity of Australia’s retirement incomes policy. In performing and exercising its functions and powers, APRA needs to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing these objectives, is to promote financial system stability in Australia. APRA is a not-for-profit entity.

APRA's activities contributing toward these outcomes are classified as either ‘departmental’ or ‘administered’. Departmental activities involve the use of assets, liabilities, revenues and expenses controlled or incurred by APRA in its own right. Administered activities involve the management or oversight by APRA, on behalf of the Government, of items controlled or incurred by the Government.

APRA's continued existence in its present form and with its present programs is dependent on Government policy and on continuing appropriations from Parliament.

Basis of preparation of the financial statements

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

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

  • the 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 in accordance with the historical cost convention, except for certain assets and liabilities that are recognised 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.

New Accounting Standards

AASB 15 & 16 came into effect from 1 July 2019 and were applicable to the current reporting period and had a material effect on APRA’s financial statements:

AASB 15 Revenue from Contracts with Customers

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.

APRA adopted AASB 15 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 accounting standards and related interpretations.

Under the new income recognition model APRA shall first determine whether an enforceable agreement exists and whether the promises to transfer 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), APRA applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, APRA shall consider whether AASB 1058 applies.

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

Impact on transition

The impact on transition is summarised below:

Departmental

1 July 2019

$’000

Liabilities

Other payables

888

Total liabilities

888

Total adjustment recognised in retained earnings

(888)

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. The first column shows amounts prepared under AASB 15 and the second column shows what the amounts would have been had AASB 15 not been adopted:

AASB 15

Previous Accounting Standard

Increase / (Decrease)

$’000

$’000

$’000

Revenue

Other revenue

631

350

281

Total Revenue

631

350

281

Net contribution by services

631

350

281

Assets

Cash and cash equivalents

350

350

-

Total assets

350

350

-

Liabilities

Other payables

281

-

(281)

Total liabilities

281

-

(281)

Retained earnings

(631)

(350)

281

AASB 16 Leases

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.

APRA 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 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

APRA 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. APRA 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, APRA 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. Operating leases were previously accounted for on a straight-line basis. Under AASB 16, APRA recognises Right-of-Use assets (RoU) and lease liabilities for most leases. However, APRA has elected not to recognise RoU assets and lease liabilities for some leases of low value or for short-term leases with a lease term of 12 months or less.

On adoption of AASB 16, APRA recognised RoU assets and lease liabilities in relation to leases of office space which had previously been classified as operating leases. APRA has adjusted the RoU assets at the date of initial application by the amount of any provision for onerous leases recognised immediately before the date of application.

The lease liabilities were measured at the present value of the remaining lease payments, discounted using APRA’s incremental borrowing rate as at 1 July 2019. APRA'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 1.9%.

The RoU assets were measured as follows:

  • Office space: measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

Impact on transition

On transition to AASB 16, APRA recognised additional Right-of-Use assets and additional lease liabilities, recognising the difference in retained earnings. Previous lease incentive liabilities under AASB 117 were written off to retained earnings on initial adoption of AASB16. The overall impact on transition is summarised below:

1 July 2019

$’000

Assets

Right of Use - property, plant and equipment

57,782

Total assets

57,782

Liabilities

Payables

Other payables - Minimum lease liabilities

(13,753)

Other payables - Lease incentives

(11,043)

Interest bearing liabilities

Leases

57,782

Total liabilities

32,986

Total adjustment recognised in retained earnings

24,796

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

1 July 2019

$’000

Minimum operating lease commitment at 30 June 2019

67,737

Less: short-term leases not recognised under AASB 16

(255)

Less: lease GST not recognised under AASB 16

(6,191)

Plus: effect of extension options reasonably certain to be exercised

143

Undiscounted lease payments

61,434

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

(3,652)

Lease liabilities recognised at 1 July 2019

57,782

Taxation

APRA is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and 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. These administered items are distinguished from departmental items throughout these financial statements by background shading.

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.

Events after the reporting period

Departmental

There were no significant events occurring after the statement of financial position date that have the potential to significantly affect the ongoing structure or financial activities of APRA.

Administered

There were no significant events occurring after the statement of financial position date that have the potential to significantly affect the administered activities of APRA.