Overview

Coal LSL is a not-for-profit corporate Commonwealth entity established under the Coal Mining Industry (Long Service Leave) Administration Act 1992 to regulate and manage long service leave entitlements on behalf of eligible employees of the black coal mining industry.

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.

The financial statements have been prepared in accordance with:

• 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.

Coal LSL is not a General Government Sector entity and is not required to report budgetary numbers to parliament. As such, the entity does not fall within the scope of AASB 1055.

The financial statements have been prepared on an accruals basis 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 disclosure of the full amount is specifically required.

New accounting standards

No accounting standard has been adopted earlier than the application date as stated in the standard. The impact on initial application of AASB 9 Financial Instruments is disclosed in note 2.1. 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 the entity’s financial statements.

The following new/revised accounting standards are applicable to future reporting periods:

• AASB 15 Revenue from Contracts with Customers: application date 1 July 2019;
• AASB 16 Leases: application date 1 July 2019; and
• AASB 1058 Income of Not-for-Profit Entities: application date 1 July 2019.

It is expected that the adoption of these standards will have no material impact on Coal LSL.

Funding

From 1 July 2018, levies payable by employers under the provisions of the Coal Mining Industry (Long Service Leave) Payroll Levy Collection Act 1992 were reduced from 2.7% to 2.0% of "eligible wages". An actuarial assessment of the fund was undertaken in October 2017 which indicated a significant surplus position of approximately 149.1%. Due to this strong financial position, the Board recommended a reduction in the levy from 2.7% to 2.0%. This recommendation was approved as a regulation in June 2018. Despite the 25.9% reduction in the levy, the projected long term returns from the investment portfolio indicate achievement of the corporate objectives of the fund.

Taxation

Coal LSL is exempt from all forms of income taxation.

Economic dependency

Coal LSL is economically dependent upon continued funding by appropriation of moneys out of the Consolidated Revenue Fund of the Commonwealth of Australia derived from levies made in accordance with the Coal Mining Industry (Long Service Leave) Payroll Levy Collection Act 1992 .

From 29 May 2019, the industrial relations functions, which include Coal LSL, transferred from the Department of Employment, Skills, Small and Family Business to the Attorney-General's Department. This change had no impact on the appropriation funding arrangements of Coal LSL. The accounting policy for revenue from government is disclosed in note 1.2(b).

Events after the reporting period

There were no specific events subsequent to 30 June 2019 that had the potential to significantly affect the ongoing structure and financial activities of the entity.

Comparative amounts

Where necessary, comparative information has been reclassified to enhance comparability in respect of changes in presentation adopted in the current year. This has resulted in a reclassification to separately present software and property, plant and equipment in the statement of financial position. These reclassifications had no effect on the reported results of operations.

Note 1 - Statement of comprehensive income

1.1 Expenses

(b) Directors' remuneration and expenses

The remuneration of directors is by way of a daily fee for part-time holders of public office as
determined under Part 6 of the determination of the (Commonwealth) Remuneration Tribunal. Directors are also entitled to reimbursement for expenses incurred in travelling to/from meetings and in the conduct of business directly related to the affairs of Coal LSL.

The total number of directors that are included in the above table is 6 (2018: 6).

(c) Operating leases

Coal LSL signed an operating lease for its head office premises in Newcastle which commenced 1 March 2019 for an initial lease period of ten (10) years with a five (5) year plus five (5) year renewal option. Included in this lease is an annual fixed increase of 3.5% over the initial lease period, with a market review should the option be exercised. Given it is uncertain if Coal LSL will exercise the option periods, these have been excluded from the commitment calculation.

The lease of the previous head office premises, also located in Newcastle, was surrendered on 6 May 2019 releasing Coal LSL of all future commitments in relation to that agreement.

(d) Other expenses

1.2 Revenue

Note 2 - Financial assets and liabilities

2. Financial assets and liabilities
2.1 Categories of financial instruments

The initial application of AASB 9 Financial Instruments on 1 July 2018 resulted in the reclassification of $2.7m of trade and other receivables from loans and receivables to amortised cost bringing the total financial assets held at amortised cost to $26.9m as at 1 July 2018. No remeasurements or other reclassifications were required on initial application of the standard.

Net gains on financial assets and financial liabilities are disclosed in note 1.2(a) while net losses are disclosed in the statement of comprehensive income.

2.2 Cash and cash equivalents

2.3 Trade and other receivables

At 30 June 2019, no trade or other receivables were overdue or impaired (2018: nil).

2.4 Financial instruments at fair value through profit or loss

(b) As at 30 June 2019, a total of $1,649.6m (2018: $1,684.8m) from the assets of the Coal Mining Industry Long Service Leave Fund were invested by Coal LSL with the appointed fund managers in accordance with the approved investment policy as follows:

All investments in unit trusts were held on behalf of Coal LSL by the Master Custodian, JPMorgan Chase Bank N.A. For the year ended 30 June 2019, the return on the investment of funds was 7.4% (2018: 8.3%).

2.5 Trade and other payables

Amounts are unsecured and are usually paid within 30 days of recognition.

Note 3 - Non-financial assets

3.1 Property, plant and equipment and software

Note 4 - People and relationships

4.1 Employee provisions

4.2 Key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The entity has determined the key management personnel to be the Chief Executive Officer, Chief Investment Officer and Board of Directors. As a result of Coal LSL's annual reassessment of key management personnel, in the context of the entity's structure and key decision making, there has been a reduction in the number of executives disclosed as key management personnel. Remuneration of key management personnel (excluding the Board of Directors which is disclosed in note 1.1(b)) is reported in the table below:

The total number of key management personnel that are included in the above table is 2 (2018: 9).

¹ The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister's remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the entity.

4.3 Related party disclosures

(a) Related party relationships

Coal LSL is a corporate Commonwealth entity. Related parties to this entity are the directors, key management personnel and the Portfolio Minister. Directors have associations with entities that are involved in the coal mining industry pursuant to their appointment to the Board under the Coal Mining Industry (Long Service Leave) Administration Act 1992 .

The directors of Coal LSL during the year were:

• Mr Bradley Neven, Chair
• Mr Grahame Kelly, Deputy Chair (appointed as Deputy Chair from 20 June 2019)
• Mr Mark Klasen (resigned as Deputy Chair from 20 June 2019)
• Ms Anne Donnellan
• Ms Christina Langby
• Ms Jennifer Short

Directors held their positions to the end of the financial year.

Key management personnel employed by Coal LSL during the year were:

• Ms Darlene Perks, Chief Executive Officer
• Ms Lisbeth Rasmussen, Chief Investment Officer

(b) Transactions with related parties

Given the breadth of government activities, related parties transact with the government sector in the same capacity as ordinary citizens. In addition, Coal LSL may transact with related parties through the collection of levies, payment of reimbursements and recognition of eligible employment service in the same manner as other registered employers and eligible employees. These transactions have not been disclosed in this note.

Apart from items disclosed at notes 1.1(b) Directors' remuneration and expenses, 1.2(b) Revenue from government and 4.2 Key management personnel remuneration, there were no further related party transactions.

Note 5 - Provisions

5. Provisions

5.1 Provision for reimbursements

The current portion of the provision includes unconditional entitlements where employees have met the eligibility requirements for long service leave. However, based on past experience, current leave obligations expected to be reimbursed to employers in the next 12 months is $136.6m (2018: $151.3m).

Coal LSL recognises that the present value of the provision for reimbursements is sensitive to changes in assumptions used in determining its value.

Salary growth

At 30 June 2019 the actuarial salary growth rate assumptions were 2.25% for long service leave balances with an expected payment date of within 2 years (2018: 2.0%), 2.5% for 3 years (2018: 2.75%), 3.0% for 4 years (2018: 3.5%) and 3.5% for all other payments periods (2018: 3.5%). With all other variables held constant a 1.0% increase in salary growth rates used in the calculation would increase the present value of the provision for reimbursements by $80.2m (2018: $69.4m). A 1.0% decrease would decrease the present value by $76.5m (2018: $66.2m).

Probability factors

At 30 June 2019 the probability factors utilised ranges from 47.2% to 100.0% depending on the type and category of long service leave (2018: 48.4% to 100.0%). An increase in the probability factors used in the calculation would increase the present value of the provision for reimbursements. A decrease in probability factors would decrease the present value.

Change in estimate

Coal LSL changed an accounting estimate for the provision for reimbursements at 30 June 2019. The revised estimate is based on a review of the duration of the liability. The estimated duration of the liability decreased from 10 years to 5 years and resulted in a change in the discount rate applied. The change in estimate has been applied prospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors . As a result of the change in estimate, the provision increased by $22.9m and the reimbursement expense increased by the same amount at 30 June 2019. It is impracticable to estimate the effect of this change in estimate on future periods.

Discount rates

At 30 June 2019 the discount rate utilised was 1.03% for all categories of long service leave (2018: 2.63%). With all other variables held constant, a 1.0% increase in discount rates used in the calculation would decrease the present value of the provision for reimbursements by $77.0m (2018: $65.7m). A 1.0% decrease would increase the present value by $82.4m (2018: $70.2m).

Note 6 - Contingencies and commitments

6.1 Contingent assets and liabilities

Quantifiable contingencies

In accordance with the Coal Mining Industry (Long Service Leave) Legislation Amendment Act 2011 , “Eligible Employees” can make application to Coal LSL for recognition of periods of eligible employment service that may not be presently recognised and recorded by Coal LSL. A contingent liability will arise at reporting date where applications have been received but not yet approved by the Board of Directors. At 30 June 2019 Coal LSL has an estimated contingent liability of $2.6m (2018: $2.2m).

Coal LSL has an estimated contingent asset of $6.1m at 30 June 2019 (2018: $1.6m) arising in respect of levies attributable to those employers of “Eligible Employees” and “Former Eligible Employees” in relation to applications received.

Unquantifiable contingencies

Coal LSL has not raised a liability for unknown claims by employees for recognition of period(s) of employment service as, at balance date, these amounts are unknown and are not reliably measurable. A contingent asset will also arise in respect of levies attributable to those employers of “Eligible Employees” and “Former Eligible Employees” that previously did not contribute to the fund for unrecognised service. No asset will be raised for unknown claims as these amounts are unknown and are not reliably measurable.

6.2 Commitments

Coal LSL has the following commitments at 30 June:

Commitments in relation to operating lease costs are disclosed in note 1.1(c).

Note 7 - Aggregate assets and liabilities

Independent auditor’s report

To the Minister for Industrial Relations

Opinion
In my opinion, the financial statements of the Coal Mining Industry (Long Service Leave Funding) Corporation (‘the Entity’) for the year ended 30 June 2019:
(a) comply with Australian Accounting Standards – Reduced Disclosure Requirements and the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
(b) present fairly the financial position of the Entity as at 30 June 2019 and its financial performance and cash flows for the year then ended.

The financial statements of the Entity, which I have audited, comprise the following statements as at 30 June 2019 and for the year then ended:

• Statement by Directors, Chief Executive Officer and General Manager Finance;
• Statement of Comprehensive Income;
• Statement of Financial Position;
• Statement of Changes in Equity; Statement of Cash Flows; and
• Notes to the financial statements, comprising a Summary of Significant Accounting Policies and other explanatory information.

Basis for opinion
I conducted my audit in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing Standards. My responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Entity in accordance with the relevant ethical requirements for financial statement audits conducted by the Auditor‐General and his delegates. These include the relevant independence requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) to the extent that they are not in conflict with the Auditor‐General Act 1997. I have also fulfilled my other responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Accountable Authority’s responsibility for the financial statements
As the Accountable Authority of the Entity, the Directors are responsible under the Public Governance, Performance and Accountability Act 2013 (the Act) for the preparation and fair presentation of annual financial statements that comply with Australian Accounting Standards – Reduced Disclosure Requirements and the rules made under the Act. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the ability of the Entity to continue as a going concern, taking into account whether the Entity’s operations will cease as a result of an administrative restructure or for any other reason. The Directors are also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the assessment indicates that it is not appropriate.

Auditor’s responsibilities for the audit of the financial statements
My objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian National Audit Office Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of the financial statements.

As part of an audit in accordance with the Australian National Audit Office Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also:

• identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Accountable Authority;
• conclude on the appropriateness of the Accountable Authority’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern; and
• evaluate the overall presentation, structure and content of the financial statements, including the
• disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

I communicate with the Accountable Authority regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

Australian National Audit Office

Peter Kerr
Executive Director
Delegate of the Auditor‐General

Canberra
17 September 2019