Notes to and forming part of the financial statements

A. About This Report

The Department of Finance (Finance) is an Australian Government controlled not-for-profit entity, its purposes for 2017-18 being: to assist the Australian Government to achieve its fiscal and policy objectives by advising on expenditure, managing sustainable public sector resourcing, driving public sector transformation and delivering efficient, cost-effective services to, and for, the government.

Finance is structured to fulfil its purpose through three outcomes, as set out in the 2017-18 Portfolio Budget Statements (PBS).

¹ Net cost of services includes depreciation and amortisation expense, the write-down and impairment of assets (or the reversal) and gains/losses from the sale of assets. It excludes revenue from government, income tax expense and other items recognised in other comprehensive income.

Finance’s activities are classified as either Departmental or Administered. Departmental activities involve the use of assets, liabilities, incomes and expenses controlled or incurred by Finance in its own right.

Administered items are controlled by the government and managed or overseen by Finance on behalf of the government. These items are distinguished from Departmental items using shading.

In some areas of this financial report, Departmental and Administered items are included in the same section, this is for presentation purposes only and these balances should not be compared.

The continued existence of Finance in its present form and with its present programs is dependent on government policy and on continued funding by Parliament.

Basis of preparation

Finance's financial statements are required by section 42 of the PGPA Act. The financial statements are general purpose financial statements that have been prepared in accordance with the PGPA (Financial Reporting) Rule 2015 (FRR) and Australian Accounting Standards (AAS) and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period. Finance has applied the Reduced Disclosure Requirements issued by the AASB as a minimum and has included additional disclosures for financial instruments, fair value and superannuation as required under subsection 18(3) of the FRR.

Basis of accounting

The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets and liabilities at fair value.

All assets have been assessed for impairment at the end of the reporting period, and no impairment indicators exist unless otherwise stated.

How to read this report

The following pages set out the notes to the financial statements, which include further information required to understand the financial statements. This has been assessed against materiality and relevance to the operations, financial position and performance of Finance. All amounts are presented in Australian dollars (AUD) and are in whole dollars unless otherwise specified.

Key judgements and estimates

In applying Finance's accounting policies, management has made a number of judgements and applied estimates and assumptions to future events. Judgements and estimates that are material to the financial statements are found in the following notes:

C1: General insurance activities

C2: Investment funds

C3: Superannuation

D1: Financial instruments

D3: Non-financial assets

E1: Employee benefits

With the exception of judgements and estimates applied in the above notes, no allowance is made for the effect of changing prices on the results or the financial position.

New Australian Accounting Standards (AAS)

Future AAS requirements

The Australian Accounting Standards Board (AASB) has issued a number of new standards, amendments to standards and interpretations that are effective for future reporting periods. These new standards are not expected to have an impact on Finance’s financial statements except for:

• AASB 9 Financial Instruments (effective 1 July 2018) applies a single approach for the classification and measurement of financial assets based on cash flow characteristics and the business model used for the management of financial instruments. It also introduces an expected credit loss model for the impairment of financial assets which replaces the incurred loss model used in AASB 139. Finance does not consider that the application of the new standard will have a material impact on the carrying balance of its financial instruments.

• AASB 16 Leases (effective 1 July 2019) will require lessees to recognise a right-of-use asset and a lease liability on the balance sheet for all leases with a term of more than 12 months, unless the underlying asset is of low value. Finance has forward year operating lease commitments of $351.1m for Departmental expenses and $152.1m for Administered expenses (refer to Note G1 for further information). Lessor accounting under AASB 16 remains substantially unchanged and lessors will continue to classify leases as operating or finance, and account for those two types of leases differently. Disclosures relating to the domestic property portfolio that Finance manages as lessor will require amendment including improved information about risk exposure.

• AASB 15 Revenue from Contracts with Customers (effective 1 July 2019) requires revenue to be recognised in accordance with the satisfaction of performance obligations under a contract. Depending on whether certain criteria are met, revenue is recognised either over time, in a manner that best reflects the company’s performance, or at a point in time, when control of the goods or services is transferred to the customer. Certain costs to fulfil a contract or incremental costs of obtaining a contract may qualify for capitalisation under the new standard. A five-step model is applied to determine when to recognise revenue, and at what amount. There will be minimal impact for the department when applying the new standard. Additional disclosures are required for qualitative and quantitative information on Finance’s contracts with customers, significant judgements and any asset recognised.