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Notes to and forming part of the financial statements

FOR THE YEAR ENDED 30 JUNE 2020

Overview

Objectives of the Australian Securities and Investments Commission (ASIC)

ASIC is an independent Commonwealth Government body operating under the Australian Securities and Investments Commission Act 2001 (ASIC Act) to administer the Corporations Act 2001, and other legislation, throughout Australia. ASIC is a not-for-profit entity and our objectives, outlined in s1(2) of the ASIC Act, include:

  • the promotion of confident and informed participation of investors and consumers in the financial system;
  • the maintenance, facilitation and improvement in the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
  • to administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements.

ASIC collects and administers revenue under the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 and prescribed fees set by the Corporations (Fees) Act 2001, the Corporations (Review Fees) Act 2003, the National Consumer Credit Protection Act 2009, the Business Names Registration (Fees) Regulations 2010 and the Superannuation Industry (Supervision) Act 1993. In addition, ASIC collects taxation revenue under the ASIC Supervisory Cost Recovery Levy Act 2017, and the ASIC Supervisory Cost Recovery Levy Regulations 2017. This revenue is not available to ASIC and is remitted to the Official Public Account (OPA). Transactions and balances relating to these fees are reported as administered items. Administered items are distinguished by shading in these financial statements.

ASIC is structured to deliver a single outcome, and the result is in the Statement of Comprehensive Income:

Improved confidence in Australia’s financial markets through promoting informed investors and financial consumers, facilitating fair and efficient markets and delivering efficient registry systems.

The continued existence of ASIC in its present form and with its present programs is dependent on Government policy and on continuing funding by Parliament for ASIC’s administration and programs.

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 the:

  • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
  • Australian Accounting Standards – Reduced Disclosure Requirement 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 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 are rounded to the nearest thousand dollars unless otherwise specified.

New Accounting Standards

From 1 July 2019, AASB 15, AASB 16, AASB 1058 and AASB 2016-8 became effective. The following outlines interpretation, financial disclosure and change implications in the application of these new standards. All other accounting standards, amendments to standards and interpretations that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect and are not expected to have a future material effect on ASIC’s financial statements.

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 / AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities

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

In relation to AASB 15, ASIC 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, ASIC 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.

The bulk of ASIC’s revenue comes from appropriations, fees and fines, which are accounted for under AASB 1058. Revenue from contracts with customers is accounted for under AASB 15. However, the contracts are short term (generally, point of sale) and therefore the application of these standards has had no impact on ASIC’s revenue recognition.

Application of AASB 16 Leases

ASIC 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.

ASIC 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. ASIC 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 reasonably similar characteristics;
  • Exclude initial direct costs from the measurement of Right of Use (ROU) assets at the date of initial application for leases where the ROU 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 ROU assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.

As a lessee, ASIC 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, ASIC recognises ROU assets and lease liabilities for most leases. However, ASIC has elected not to recognise ROU 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, ASIC recognised ROU 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 ASIC’s incremental borrowing rate as at 1 July 2019. ASIC’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 0.0882%.

The ROU assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments and lease incentives.

Impact on transition

On transition to AASB 16, ASIC recognised additional ROU assets and additional lease liabilities. The impact on transition is summarised below:

Departmental

1 July 2019

ROU assets – property, plant and equipment

$80.420m

Lease liabilities

$80.420m

Retained earnings

$19.028m

The following table reconciles the Departmental minimum lease commitments disclosed in ASIC’s 30 June 2019 annual 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

95,447

Less: short-term leases not recognised under AASB 16

(11,732)

Less: low value leases not recognised under AASB 16

-

Plus: effect of extension options reasonable certain to be exercised

-

Undiscounted lease payments

83,715

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

(3,295)

Lease liabilities recognised at 1 July 2019

80,420

Taxation

ASIC 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, 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

There were no events occurring after balance date that had a material effect on the Departmental or Administered financial statements.