NoteNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

For the period ended 30 June 2020

Overview

Note 1: Financial performance

Note 2: Financial position

Note 3: People and relationships

Note 4: Managing uncertainties

Note 5: Regulatory charging summary

Note 6: Cash flow reconciliation

Note 7: Explanation of major budgetary variances

For the period ended 30 June 2020

Overview

Objective of the Civil Aviation Safety Authority (CASA)

The Civil Aviation Safety Authority (CASA) is an Australian Government controlled, not-for-profit entity. The objective of CASA is to establish a regulatory framework for maintaining, enhancing and promoting the safety of civil aviation, with particular emphasis on preventing aviation accidents and incidents.

CASA is structured to meet a sole outcome, ‘Maximise aviation safety through a regulatory regime, detailed technical material on safety standards, comprehensive aviation industry oversight, risk analysis, industry consultation, education and training’.

The continued existence of CASA, in its present form and with its present programs, is dependent on government policy and on continuing appropriations by Parliament for CASA’s administration and programs.

Basis of Preparation of the Financial Statements

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

The financial statements have been prepared in accordance with:

• Public Governance, Performance and Accountability Act 2013 (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 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 have been presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.

New Accounting Standards

Except for AASB 16, all new/revised/amended standards and/or interpretations that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect on CASA’s financial statements. The impact of AASB 16 has been separately described opposite.

AASB 15, AASB 2016-8 and AASB 1058 became effective 1 July 2019.

Application of AASB 15 Revenue from Contracts with Customers / AASB 1058 Income of Not-For-Profit Entities

CASA provides regulatory services to the aviation industry. Aviation operators apply to CASA for licenses and permissions, CASA then assesses the applications and either approves or rejects them. Civil Aviation (Fees) Regulations 1995 enables fees to be prescribed in regulation. CASA charges customers at either a fixed fee or an hourly rate, that is the actual time spent by a proficient officer to complete the job. CASA must create an estimate for applications charged at hourly rates and send an estimate letter to the customer. The customer accepts the estimate and makes an up-front payment to CASA prior to the commencement of work. An enforceable contract is now in place between CASA and the customer. Although there may be no formal written agreement, the rights and obligations for both CASA and the customers are stipulated by legislation. CASA’s revenue from regulatory services fall within the scope of AASB 15 Revenue from Contracts with Customers. CASA applied AASB 15 from 1 July 2019.

Although CASA charges an upfront fee there is no transfer of a promised good or service to the customer at that time.

The upfront fee is considered an advance payment for future goods or services and revenue should only be recognised when future goods or services are provided. The customer would only gain control of the asset once CASA has completed its assessment of the application and informed the customer of the outcome. CASA’s performance obligation is satisfied when the asset is transferred to the customer. CASA has identified that the performance obligations for the majority of regulatory fees are satisfied when the assessment is completed, and the customer
is informed of the outcome.

CASA has in place systems and processes to track the progress of customer assessments, from initial application to finalisation. These systems and processes will be used to confirm the finalisation of an assessment or application thus passing of control to the customer. This allows CASA the right to recognise the revenue for that job. Further detail of revenue recognition policy and disaggregation of revenue from contracts with customers are disclosed in Note 1.2.

CASA 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.

Impact on transition

In relation to AASB 15, CASA elected to apply the new standard to all new and uncompleted contracts from the date of initial application. The impact on 1 July 2019 is summarised below.

For the year ended 30 June 2020, CASA’s revenue from regulatory fees was $12,847,206 with the adoption of AASB 15 and AASB 1058. This figure would have been $12,916,473 under the previous accounting standard. The impact on CASA’s revenue was a decrease of $69,266.

Application of AASB 16 Leases

CASA 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.

CASA 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. CASA 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; 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, CASA 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, CASA recognises right-of-use assets and lease liabilities for most leases. However, CASA has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new short-term leases with a lease term of 12 months or less or when the remaining lease term was less than 12 months upon application.

On adoption of AASB 16, CASA recognised right-of-use assets and lease liabilities in relation to leases of office space and motor vehicles, which had previously been classified as operating leases.

The lease liabilities were measured at the present value of the remaining lease payments, discounted using CASA’s incremental borrowing rate as at 1 July 2019. As a government agency, CASA has adopted the zero-coupon yields for Australian Government bonds as its incremental borrowing rate. The average rate applied was 1%.

CASA generally would not include optional periods in the lease liability calculation model at initial measurement. A process must be undertaken prior to the lease expiry to assess the costs and benefits of exercising the optional periods. The lease liability calculation will be modified once the proposed extension or variation has been approved by CASA executives.

The right-of-use assets were measured as follows:

1. office space: measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments; and
2. all other leases: the carrying value that would have resulted from AASB 16 being applied from the commencement date of the leases, subject to the practical expedients noted above.

Impact on transition

On transition to AASB 16, CASA recognised additional right-of-use assets and $21,134,719 additional lease liabilities. The balance of lease incentives and straight-lining provisions totalling $3,310,197 has been written off against retained earnings.

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

Significant Accounting Judgements and Estimates

In the process of applying the accounting policies listed in this note, CASA has made the following judgements that have the most significant impact on the amounts recorded in the financial statements:

• the value of the long service leave component of the leave provision is an estimate based on expert actuarial assumptions on the likely tenure of existing staff, patterns of leave claims and payouts, future salary movements and discount rates (ten year government bond rate).

No other 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 accounting period.

Taxation

CASA is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

Revenues, expenses and assets are recognised net of GST, except:

• where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
• for receivables and payables.

Events After the Reporting Period

There was no subsequent event that had the potential to significantly affect the ongoing structure and financial activities of CASA.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

For the period ended 30 June 2020

Note 2.2: Non-financial assets

Note 2.2A: Reconciliation of the opening and closing balances of property,
plant and equipment and intangibles

Accounting Policy

Acquisition of Assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor’s accounts immediately prior to the restructuring.

Property, Plant and Equipment

Asset Recognition Threshold

Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $5,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to makegood provisions in property leases taken up by CASA where there exists an obligation to restore the property to its original condition. These costs are included in the value of CASA’s leasehold improvements with a corresponding provision for the makegood recognised.

Leased Right of Use (ROU) Assets

Leased ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by CASA as separate asset classes to corresponding assets owned outright, but included in the same column as where the corresponding underlying assets would be presented if they were owned.

Following initial application, an impairment review is undertaken for any right of use leased asset that shows indicators of impairment and an impairment loss is recognised against any right of use leased asset that is impaired. Leased ROU assets continue to be measured at cost after initial recognition.

Revaluations

Fair values (excluding ROU assets) for each class of asset of the property, plant and equipment category are determined as shown below:

Following initial recognition at cost, property, plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment loss. The fair value of property, plant and equipment is reviewed annually and external valuations performed with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reverse a previous revaluation increment for that class. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to CASA, using, in all cases, the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset of the property, plant and equipment category are based on the following useful lives.

The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Impairment

All assets were assessed for impairment as at 30 June 2020. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment is made if the asset’s recoverable amount is less than the carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if CASA were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Intangibles

CASA’s intangibles comprise internally developed software and externally acquired software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of CASA’s software are 3 to 10 years (2018­–19: 3 to 10 years).

All software assets were assessed for indications of impairment as at 30 June 2020.

Note 3: People and Relationships

Note 3.1: Key Management Personnel Remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of CASA, directly or indirectly, including Board Directors. CASA has determined the key management personnel to be the Portfolio Minister, the Board Directors, the Director of Aviation Safety and his/her direct reports. Key management personnel remuneration is reported in the table below:

Note 3.2: Related Party Disclosures

Related party relationships

CASA is an Australian Government controlled entity. Related parties to CASA are Key Management Personnel including the Portfolio Minister, the CASA Board of Directors, the Director of Aviation Safety and his/her direct reports, as well as other Australian government entities.

Transactions with related parties

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include the payment or refund of taxes, receipt of a Medicare rebate or higher education loans. These transactions have not been separately disclosed in this note.

Significant transactions with related parties can include:

• CASA transacts with other Australian Government controlled entities consistent with normal day-to-day business operations provided under normal terms and conditions, including the payment of workers compensation, insurance premiums, and some services charges. There are no other significant transactions with related parties that require disclosure.
• CASA makes employer contributions to Australian government superannuation plans and schemes as disclosed in note 1.1A Employee Benefits.

Note 4: Managing Uncertainties

Note 4.1: Contingent Assets and Liabilities

Note 4.2: Fair Value Measurements

Note 4.3: Financial Instruments

Note 7: Explanation of Major Budgetary Variances