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Note 7. Managing uncertainties

This section describes how ASIC manages financial risks within its operating environment.

7.1 Contingent assets and liabilities

2020
$’000

2019
$’000

7.1: Departmental contingent assets

Claims for costs

Balance from previous period

9,638

6,239

New contingent assets

3,722

4,249

Re-measurement

1,663

2,064

Assets realised

(7,949)

Assets relinquished

(1,548)

(2,914)

Total contingent assets

5,526

9,638

Net contingent assets

5,526

9,638

Quantifiable contingencies (ASIC Departmental)

The above note contains 19 matters (2019: 20 matters) where a contingent asset is disclosed in respect of cases where ASIC has received an award of costs in its favour, however agreement with respect to the quantum payable to ASIC has not been reached. ASIC has estimated these matters represent a combined receivable of $5.526m (2019: $9.638m), which is disclosed as a contingent asset because realisation of this debt is not virtually certain.

Unquantifiable contingencies (ASIC Departmental)

ASIC is party to many civil litigation matters arising out of its statutory duty to administer and enforce laws for which it is responsible.

Like any corporate body, ASIC may from time to time be the subject of legal proceedings for damages brought against it or may receive notice indicating that such proceedings may be brought. In either case ASIC, like any other party to civil litigation, may be required to pay the other party’s costs if ASIC is unsuccessful.

Civil litigation brought, or threatened to be brought, against ASIC as a defendant

There are, at the date of this report, four matters of this type where proceedings are current. In these matters, ASIC denies liability and is of the view that, save for having to pay legal fees and other out-of- pocket expenses, it is likely that ASIC will:

  • successfully defend the actions instituted; and
  • not be required to pay any damages.

Conversely, ASIC, like any other party to civil litigation, may be entitled to recover costs arising out of such litigation if it is successful. In addition to the matters specifically referred to in this note, ASIC has legal action pending in a number of other matters, however, due to the uncertainty over the outcome of outstanding and pending court cases, duration of court cases and the legal costs of the opposing party, ASIC is unable to reliably estimate either its potential payments to, or potential cost recoveries from, opposing litigants. There may also be other matters where ASIC has received an award of costs in its favour, however no contingent asset has been disclosed as recovery of the debt is not probable. There may also be other matters where no contingency has been quantified because the costs awarded for or against ASIC are estimated to be less than $20,000 each.

Accounting Policy

Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position but are reported in this note. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than unlikely.

Significant accounting judgements and estimates

No 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 reporting period.

Quantifiable administered contingencies – Banking Act, Life Insurance Act and Corporations Act administration

An actuarial assessment of the number of claims that are likely to be lodged with ASIC in respect to unclaimed monies was conducted by a registered actuary. ASIC adopted the registered actuary’s calculation for the likely claims payable, reported in Note 4.2B.

The contingent liability represents an estimate of the principal unclaimed monies that have been lodged with ASIC but where the likelihood of a successful claim is regarded as unlikely. No allowance has been made for the compounding interest, which is payable for a successful claim lodged from 1 July 2013 in accordance with legislated interest rates. The contingent liability has been calculated by deducting from the total principal balance, excluding interest, of unclaimed monies lodged but not yet claimed, the undiscounted amount of the provision for future refunds excluding any interest:

2020
$’000

2019
$’000

Banking Act 1959

523,334

475,864

Life Insurance Act 1995

85,739

73,882

Corporations Act 2001

379,573

345,075

Unquantifiable administered contingencies

There are no unquantifiable administered contingent liabilities.

Accounting Policy

Administered contingent liabilities represent a repayment estimate of unclaimed monies that are considered unlikely to be paid. There are no administered contingent assets as at 30 June 2020 (2019: nil).

7.2 Financial instruments

Notes

2020
$’000

2019
$’000

7.2A: Categories of financial instruments

Financial assets at amortised cost

Loans and receivables:

Cash and cash equivalents1

3.1A

41,151

65,221

Trade receivables

3.1B

39,796

4,577

Total financial assets at amortised cost

80,947

69,798

Financial liabilities at amortised cost

Trade creditors

3.3A

30,798

41,832

Total financial liabilities at amortised cost

30,798

41,832

1 Comparatives have been changed to include Cash in special accounts.

Accounting Policy

Financial assets

ASIC classifies its financial assets in the following categories:

  • Cash and cash equivalents are measured at nominal amounts.
  • Trade receivables are measured at amortised cost

The classification depends on both ASIC’s business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when the entity becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

Comparatives have not been impacted by the application of AASB 9. The application of AASB 9 has had no impact on the classification or carrying amount of Trade receivables.

Financial assets at amortised cost

Financial assets included in this category need to meet two criteria:

1. the financial asset is held in order to collect the contractual cash flows; and

2. the cash flows are solely payments of principal and interest on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective interest method

Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period based on the simplified approach.

The simplified approach for trade debtors is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset.

Financial liabilities at amortised cost

Supplier payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

Accounting judgement and estimates

No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of financial assets and liabilities within the next reporting period.

Notes

2020
$’000

2019
$’000

7.2B: Impairment loss on financial instruments

Financial assets at amortised cost

Impairment

40

589

Net gain/(loss) on financial assets at amortised cost

40

589

7.3 Administered – financial instruments

Notes

2020
$’000

2019
$’000

Financial assets at amortised cost

Loans and receivables:

Cash and cash equivalents1

1,435

1,859

Trade receivables2

4.1B

7,449

8,463

Total financial assets at amortised cost

8,884

10,322

Total financial assets

8,884

10,322

1 Cash and cash equivalents is cash on hand only and is recognised at its nominal amount.

2 Comparatives have been changed to exclude GST.

The application of AASB 9 has had no impact on the classification or carrying amount of Administered trade receivables or liabilities.

7.4 Fair value measurement

Accounting Policy

ASIC deems transfers between levels of the fair value hierarchy to have occurred at the end of the reporting period. See Note 3.2A for further details on ASIC’s valuation policy and procedures.

2020
$’000

2019
$’000

Non-financial assets:

Leasehold improvements

29,786

28,802

Plant and equipment

19,511

20,661

Total non-financial assets

49,297

49,463

ASIC did not measure any non-financial assets at fair value on a non-recurring basis as at 30 June 2020.