Objectives of the Entity

• The Department of Communications and the Arts (the Department) is a Government controlled entity. It is a not-for-profit entity. The objective of the Department is to foster an environment in which all Australians benefit from access to diverse communication services and artistic and cultural experiences.

The Department is structured to meet the following outcomes:

Outcome 1: Promote an innovative and competitive communications sector, through policy development, advice and program delivery, so all Australians can realise the full potential of digital technologies and communications services

Outcome 2: Participation in, and access to, Australia’s arts and culture through developing and supporting cultural expression

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

Activities that contribute to these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by the Department in its own right. Administered activities involve the management or oversight by the Department, on behalf of the Government, of items controlled or incurred by the Government.

The 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 have been prepared in accordance with:

1. Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
2. 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 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 rounded to the nearest thousand.

Significant Accounting Judgements and Estimates

For the Administered Investment in Australia Post, management estimates are used to determine volume and price growth rates and the weighted average cost of capital that underpin the discounted cash flow valuation at the end of the reporting period. Actual results may differ from these estimates under different assumptions and conditions and may materially affect the financial position reported in future periods. The valuation of NBN Co Limited (NBN Co) is based on the net assets approach. For more information refer to Note 4.1C.

For the Administered loan to NBN Co, management judgement is used to assess if there has been a significant increase in credit risk in accordance with AASB 9 Financial Instruments. The Department assesses exposure to credit risk with reference to the probabilities of default. For more information refer to Note 4.1B.

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.

Changes in Accounting Policies

AASB 9 Financial Instruments

AASB 9 sets out requirements for recognising and measuring financial assets and financial liabilities. This standard replaces AASB 139 Financial Instruments: Recognition and Measurement.

AASB 9 introduces an expected credit loss model for impairment of financial assets. The measurement of financial assets now includes a forward looking assessment of the expected credit losses associated with the financial instrument. The Department has reviewed the requirements of the expected credit loss model under AASB 9 and has recognised an impairment allowance on the NBN Co loan on transition to the new standard at 1 July 2018 of $1,600,000. The Department has assessed that there has been no significant increase in credit risk of the NBN Co loan since inception and the probability of default has been assessed as extremely low. In accordance with the transitional provisions in AASB 9, the impairment allowance has been recognised in the current year opening retained earnings with no change to comparatives. For more information refer to Note 4.1B.

The Department performed a review of its current classification and measurement of remaining financial assets and liabilities under the requirements of the new standard. Based on this review, the Department did not identify any other material changes to the classification or measurement of its other financial instruments.

New Accounting Standards

All other new standards, revised standards, interpretations or amending standards that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect on the Department's financial statements.

Future Accounting Standards

All new standards, revised standards, interpretations or amending standards 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 Department’s financial statements with the exception of AASB 16 Leases.

The Department expects to apply AASB 16 Leases from 1 July 2019. This Standard will require the net present value of payments under most operating leases to be recognised as assets and liabilities. As at 30 June 2019 the Department has a net $65.119 million (GST inclusive) in operating lease commitments over the next eight years.

Taxation

The Department 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.

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

Departmental

There are no events that occurred after the reporting period that would materially affect the departmental financial statements.

Administered

The Public Governance, Performance and Accountability (Establishing Old Parliament House) Amendment Rules 2019 (Amendment Rules) amend the PGPA OPH Rule to reflect the transfer of responsibility for OPH from the Communications and the Arts portfolio to the Prime Minister and Cabinet portfolio, as reflected in amendments to the Administrative Arrangements Order (AAO) made by the Governor-General on 8 August 2019. The AAO amendments, which establish responsibility for OPH in the Prime Minister and Cabinet portfolio, will take effect from 1 September 2019.