for the period ended 30 June 2018

Overview

Basis of preparation of the financial statements

Aboriginal and Torres Strait Islander Land Account's (ATSILA) activities are classified as administered activities carried out by the Department of the Prime Minister and Cabinet (PM&C) on behalf of the Australian Government and are reported in PM&C's administered financial statements for the period 1 July 2017 to 30 June 2018.

In addition to being consolidated into PM&C’s financial statements, separate audited financial statements are prepared for ATSILA as required by subsection 193H of the Aboriginal and Torre Strait Islander Act 2005 (ATSI Act).

The Minister for Finance has granted ATSILA an exemption under the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR). The exemption applies to the following requirements of the FRR:

(a)Sections 9, 32 and 33 of the FRR. ATSILA is required to present its administered activities in departmental format, in accordance with current practice.

(b)Divisions 2,3,4 and 5 of Part 6 of the FRR to the extent that ATSILA has no appropriation transactions and balances other than through its special account.

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.

New Australian Accounting Standards

No accounting standard has been adopted earlier than the application date as stated in the standard.

There are no new standards, revised standards, amended standards or interpretations that were issued by the Australian Accounting Standards Board (AASB) prior to the signing date that are applicable to the current reporting period and have a material financial impact on ATSILA.

Taxation

ATSILA is exempt from all forms of taxation except the Goods and Services Tax (GST).

Compliance with statutory conditions for payments from the consolidated revenue fund

The Australian Government continues to have regard to developments in case law, including the High Court’s decision on Commonwealth expenditure in Williams v Commonwealth [2014] HCA 23, as they contribute to the larger body of law relevant to the development of Commonwealth programs. In accordance with its general practice, the Government will continue to monitor and assess risk and decide on any appropriate actions to respond to risks of expenditure not being consistent with constitutional or other legal requirements.

During 2017-18 PM&C reviewed ATSILA’s exposure to the risk of not complying with statutory conditions on payments from appropriations, namely section 83 of the Constitution. Payments in 2017-18 subject to statutory conditions have been reviewed and there are no issues of non-compliance. ATSILA will continue to monitor its level of compliance with section 83 of the Constitution.

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.

Events after the reporting period

On 12 February 2018, the Minister for Indigenous Affairs announced that the Government will introduce new Bills into Parliament to ensure the long-term sustainability of the new Indigenous Land and Sea Corporation which acquires and manages assets for Indigenous Australians, and allow the entity to invest in sea country and water assets. The Bill will establish a new special account, ‘Aboriginal and Torres Strait Islander Land and Sea Future Fund Special Account’ and transfer all assets of ATSILA to this account. As at the date of signing the ATSILA financial statements, this Bill had not been passed.

Related party disclosures

Related parties to ATSILA are Key Management Personnel including the Minister for Indigenous Affairs, and other Australian Government entities. Given consideration to relationships with related entities, and transactions entered into during the reporting period by ATSILA, there are no related party transactions to be separately disclosed.

1. Financial Performance

1. Financial Performance

This section analyses the financial performance of the Aboriginal and Torres Strait Islander Land Account for the year ended 30 June 2018.

1.1. Expenses

Accounting Policy

The ATSI Act provides a minimum guaranteed annual payment of $45.000 million to the ILC, payable on the first business day in October. This annual payment is required to be indexed each year by the Consumer Price Index. The indexation factor for the payment in 2018 was 1.0% (2017: 1.4%).

An additional payment is paid to the ILC if the actual capital value of ATSILA exceeds the indexed capital value. No additional payment was made during the year (2017: Nil).

Accounting Policy

Expenditure directly related to the management of ATSILA’s investments can be debited from ATSILA under section 58(4) of the PGPA Act. These costs represent the services provided by the Investment Unit and by specialist investment advisors.

1.2. Own-Source Revenue and Gains

Accounting Policy

Interest revenue is recognised using the effective interest rate method.

Accounting Policy

A gain or loss on realisation is recognised when the market value of the investment is different from that of the purchase value.

2. Funding

2. Funding

This section identifies the Aboriginal and Torres Strait Islander Land Account funding structure.

2.1. Special Accounts

¹Appropriation: Public Governance, Performance and Accountability Act 2013; section 80.

Establishing Instrument: Aboriginal and Torres Strait Islander Act 2005; section 192W.

Purpose: to provide a secure stream of income to the Indigenous Land Corporation in perpetuity to provide economic, environmental, social and cultural benefits for Aboriginal people and Torres Strait Islanders by assisting in the acquisition and management of land.

This account is interest bearing.

3. Managing Uncertainties

1. Managing Uncertainties

This section analyses how the Aboriginal and Torres Strait Islander Land Account manages financial risks within its operating environment.

3.1. Contingent Assets and Liabilities

PM&C, on behalf of ATSILA, is not aware of any material quantifiable or unquantifiable contingent assets or liabilities as at the signing date that would require disclosure in the financial statements (2017: Nil).

Accounting Policy

Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position but are reported in the relevant schedules and notes. 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 remote.

3.2. Financial Instruments

Accounting Policy

PM&C has classified ATSILA’s financial assets in the following categories:

(a)Held-to-maturity investments.

(b)Loans and receivables.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon trade date.

Investments

Investment activities are conducted in accordance with the requirements of section 58 of the PGPA Act. Investments are typically low risk and take the form of term deposits. The duration of the term deposits are usually for a term of 3 to 12 months.

The investment objective of PM&C as administrators for ATSILA, is to ensure that ATSILA complies with legislative obligations under the PGPA Act and the ATSI Act; and that ATSILA maintains and preserves its capital base.

The investment portfolio and bank accounts are managed to ensure sufficient funds are available for payments to the ILC when due. Investment practices are also governed by the investment policy of PM&C which requires the management of the portfolio to respond to positive investment opportunities in the market so as to achieve the best possible returns for the account within the legislative framework.

The asset allocation of the portfolio as at 30 June 2018 is 100% (2017: 100%) in term deposits with Australian banks.

Effective Interest Method

The effective interest rate method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriate, a shorter period.

Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through profit and loss.

Held-to-Maturity Investments

Non derivative financial assets with fixed or determinable payments and fixed maturity dates that ATSILA has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest rate method less impairment, with revenue recognised on an effective yield basis.

Loans and Receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest rate method less impairment. Interest is recognised by applying the effective interest rate.

Impairment of Financial Assets

Financial assets are assessed for impairment at the end of each reporting period.

If there is objective evidence that an impairment loss has been incurred for loans and receivables or held-to-maturity investments held at amortised cost, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.

The above net gain is from financial assets not recognised at fair value through profit and loss.