Independent Auditor's Report

Contents

Certification

Primary financial statements

• Statement of Comprehensive Income
• Statement of Financial Position
• Statement of Changes in Equity
• Cash Flow Statement
• Administered Schedule of Comprehensive Income
• Administered Schedule of Assets and Liabilities
• Administered Reconciliation Schedule
• Administered Cash Flow Statement

Overview

Notes to the financial statements:

1. Financial Performance
1.1 Expenses
1.2 Own-Source Revenue and Gains

2. Income and Expenses Administered on Behalf of the Government
2.1 Administered – Expenses
2.2 Administered – Income

3. Departmental Financial Position
3.1 Financial Assets
3.2 Non-Financial Assets
3.3 Payables
3.4 Interest bearing Liabilities

4. Assets and Liabilities Administered on Behalf of Government
4.1 Administered – Financial Assets
4.2 Administered Financial Liabilities

5. Funding
5.1 Appropriations
5.2 Net Cash Appropriation Arrangements

6. People and Relationships
6.1 Employee Provisions
6.2 Key Management Personnel Remuneration
6.3 Related Party Disclosures

7. Managing Undertainties
7.1: Contingent Assets and Liabilities
7.2 Financial Instruments
7.3: Administered – Financial Instruments
7.4 Fair Value Measurement
7.5 Administered - Fair Value Measurement

8. Other Information
8.1: Aggregate Assets and Liabilities

Certification

Statement of Comprehensive Income

for the period ended 30 June 2020

The above statement should be read in conjunction with the accompanying notes.

Budget Variances Commentary

Variances are considered to be “major” based on the following criteria:

• variance between budget and actual is greater than 10% at item level; and
• variance is greater than 2% of the relevant categories. In the case of the Statement of Comprehensive Income, they are total expenses or total revenue.

Suppliers

The variance against supplier expenses is due to the adoption of AASB 16 which resulted in a reduction in supplier costs relating to lease expenses in the current financial year. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Depreciation and amortisation

The variance against depreciation and amortisation is due to the adoption of AASB 16 which resulted in increased depreciation charges to reflect right of use expense for leased premises. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Finance Costs

The variance against finance costs was due to application of AASB 16 which resulted in the recognition of finance costs relating to lease liabilities which did not apply under the previous standard and were not reflected in the Portfolio Budget Statements.

Write down and impairment of other assets

During the financial year the Fair Work Commission completed a valuation of all non-financial assets to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The Fair Work Commission recognised an impairment charge of $3.862 million relating to computer software assets.

Changes in asset revaluation surplus

During the financial year the Fair Work Commission completed a valuation of all non-financial assets to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The valuation was completed by an independent valuer and resulted in a revaluation surplus of $1.328m.

Statement of Financial Position

as at 30 June 2020

The above statement should be read in conjunction with the accompanying notes.

Budget Variances Commentary

Variances are considered to be “major” based on the following criteria:

• variance between budget and actual is greater than 10% at item level; and
• variance is greater than 2% of the relevant categories. In the case of the Statement of Financial Position, it is total equity.

Trade and other receivables

The variance against trade and other receivables relates to a higher than expected appropriations receivables balance at 30 June 2020, as a result of lower than expected payments for capital purchases and supplier payments made during the financial year.

Leasehold Improvements

The variance against leasehold improvements is due to the recognition of right of use asset on initial application of AASB 16. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Computer Software

During the financial year the Fair Work Commission completed a valuation of non-financial assets to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. An impairment charge was recognised for computer software assets.

Other non-financial assets

The variance against other non-financial assets is due to transition to AASB 16 which resulted in a reduction in lease incentives receivable on adoption of the new standard. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Suppliers

The variance against suppliers is due to lower than expected trade creditor and accruals balance at 30 June 2020.

Other payables

The variance against other payables is due to transition to AASB 16 which resulted in a reduction in other payables on adoption to the new standard. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Interest Bearing Liabilities

The variance that relates to interest bearing liabilities is due to the adoption of AASB 16. The Fair Commission recognised as lease liability relating to its property leases. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Statement of Changes in Equity

for the period ended 30 June 2020

The above statement should be read in conjunction with the accompanying notes.

Accounting Policy

Equity Injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budget (DCBs) are recognised directly in contributed equity in that year.

Budget Variances Commentary

Variances are considered to be “major” based on the following criteria:

• variance between budget and actual is greater than 10% at item level; and
• variance is greater than 2% of the relevant categories. In the case of the Statement of Changes in Equity, it is total equity.

Adjusted opening balance

The Fair Work Commission 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. The impact of AASB 16 was not reflected in the published Portfolio Budget statements.

Other Comprehensive Income

During the financial year the Fair Work Commission completed a valuation of all non-financial assets to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The valuation was completed by an independent valuer and resulted in a revaluation increment.

Cash Flow Statement

for the period ended 30 June 2020

The above statement should be read in conjunction with the accompanying notes.

Budget Variances Commentary

Variances are considered to be “major” based on the following criteria:

•   variance between budget and actual is greater than 10% at item level; and
•   variance is greater than 2% of the relevant categories. In the case of the Cash Flow Statement, it is total equity.

Operating Activities – Cash used

The variance against suppliers is due to the transition to AASB 16 where lease payments have been recognised as principle repayments under financing activities in cash used.

Investing Activities – Cash used

The variance against cash used for investing activities was due to lower than expected cash outflows relating to ICT projects.

Financing Activities – Cash used

The variance against suppliers is due to transition to AASB 16 where lease payments have been recognised as principle repayments under the financing activities which under previous standard were categorised as supplier payments.

Administered Schedule of Comprehensive Income

for the period ended 30 June 2020

The above schedule should be read in conjunction with the accompanying notes.

Administered Schedule of Assets and Liabilities

The above schedule should be read in conjunction with the accompanying notes.

Budget Variances Commentary

Variances are considered to be “major” based on the following criteria:

• variance between budget and actual is greater than 10% at item level; and
• variance is greater than 2% of the relevant categories. In the case of administered schedule of assets and liabilities, it is administered net assets/ liabilities

Application fees liabilities

On transition to AASB 15, the Fair Work Commission has recognised a liability for application fees received that have not been substantially performed or refunded at 30 June 2020.

Administered Reconciliation Schedule

The above schedules should be read in conjunction with the accompanying notes.

Administered cash transfers to and from the official public account

Revenue collected by the Fair Work Commission for use by the Government rather than the Fair Work Commission is administered revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by the Fair Work Commission on behalf of the Government and reported as such in the schedule of administered cash flows and in the administered reconciliation schedule.

Administered Cash Flow Statement

The above schedules should be read in conjunction with the accompanying notes.

Overview

Objectives of the Fair Work Commission

The Fair Work Commission is an Australian Government controlled entity. It is a not-for-profit entity. The objective of the Fair Work Commission is to deliver simple, fair and flexible workplace relations for employees and employers through the exercise of powers to set and vary minimum wages and modern awards, facilitate collective bargaining, approve agreements and deal with disputes.

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.

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.

New Accounting Standards

All new, revised, amending 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 the Fair Work Commission’s financial statements.

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

The Fair Work Commission 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 2018-19 is not restated, that is, it is presented as previously reported under the various applicable AASBs and related interpretations.

Under the new income recognition model the Fair Work Commission shall first determine whether an enforceable agreement exists and whether the promises to transfer goods or services to the customer are ‘sufficiently specific’. If an enforceable agreement exists and the promises are ‘sufficiently specific’ (to a transaction or part of a transaction), the Fair Work Commission applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, the Fair Work Commission shall consider whether AASB 1058 applies.

In relation to AASB 15, the Fair Work Commission elected to apply the new standard to all new and uncompleted contracts from the date of initial application. The Fair Work Commission is required to aggregate the effect of all of the contract modifications that occur before the date of initial application.

In terms of AASB 1058, the Fair Work Commission is required to recognise volunteer services at fair value if those services would have been purchased if not provided voluntarily, and the fair value of those services can be measured reliably.

Departmental

The Fair Work Commission’s departmental revenue is not impacted by the new standard on transition.

Administered

Application fees are payable to the Fair Work Commission at the time of lodgement of applications relating to s394, s365, s372, s773 and s789FC of the Fair Work Act 2009.

Prior to the 1st of July 2019 application fees were recognised as revenue in the Administered Schedule of Comprehensive Income upon receipt of the application fee. If the matter was closed prior to being substantially dealt with by the Fair Work Commission, application fees received were refunded to the applicant and an expense recognised in the Administered statement of Comprehensive income on the date the refund was paid.

From 1 July 2019 on transition to AASB 15, the Fair Work Commission recognises application fees received as a liability in the Administered Schedule of Assets and Liabilities. After a matter has been closed and substantially performed by the Fair Work Commission (i.e. the Fair Work Commission has fulfilled its performance obligation), revenue will be recognised in the Administered Schedule of Comprehensive Income.

Impact on transition

The impact on transition is summarised below:

Set out below are the amounts by which each financial statement line item is affected as at and for the year ended 30 June 2020 as a result of the adoption of AASB 15 and AASB 1058. The first column shows amounts prepared under AASB 15 and AASB 1058 and the second column shows what the amounts would have been had AASB 15 and AASB 1058 not been adopted:

Application of AASB 16 Leases

The Fair Work Commission 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 2018-19 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

The Fair Work Commission 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. The Fair Work Commission applied the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:

• Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
• 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;
• Reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under AASB 136 Impairment of assets as at the date of initial application; 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, the Fair Work Commission 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, the Fair Work Commission recognises right-of-use assets and lease liabilities for most leases. However, the Fair Work Commission 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 or for short-term leases with a lease term of 12 months or less.

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

The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Finance’s incremental borrowing rate as at 1 July 2019. The Finance’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 0.893%.

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.
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, the Fair Work Commission recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below:

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

Taxation

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

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 polices as for departmental items, including the application of Australian Accounting Standards.

Events after the Reporting Period

Departmental

There were no significant events that had the potential to significantly affect the ongoing structure and financial activities of the Fair Work Commission.

Administered

There were no significant events that had the potential to significantly affect the ongoing structure and financial activities of the Fair Work Commission.

Impact of the COVID-19 Pandemic

The Fair Work Commission recorded an increase in lodgments and matters dealt with by the Commission as a result of the pandemic. Temporary provisions were added to the Fair Work Act 2009, giving the Fair Work Commission power to deal with disputes on how JobKeeper directions and agreements are implemented.

Late in the financial year the Fair Work Commission completed a valuation of all non-financial assets to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The valuation included an assessment of COVID-19 on the fair value of assets and future lease obligations, and no adjustments were made. With most staff working remotely the Commission prioritised resources to meet increase in lodgments, and consequently some projects were postponed or paused.

The COVID-19 pandemic had no material impact on the Commissions Financial position at reporting date.

1. Financial Performance

This section analyses the financial performance of Fair Work Commission for the year ended 2020.

1.1 Expenses

1.2 Own-Source Revenue and Gains

2. Income and Expenses Administered on Behalf of the Government

This section analyses the activities that the Fair Work Commission does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental.

2.1 Administered – Expenses

2.2 Administered – Income

3. Departmental Financial Position

This section analyses the Fair Work Commission’s assets used to conduct its operations and the operating liabilities incurred as a result.

Employee related information is disclosed in the People and Relationships section.

3.1 Financial Assets

3.2 Non-Financial Assets

3.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles

Revaluations and impairments recognised in other comprehensive income

On 30 June 2020, an independent valuer conducted the revaluations. All revaluations were conducted in accordance with the revaluation policy. Total revaluation surplus recognised as other comprehensive income following the revaluation was $1.328m.

Impairments recognised in net cost of services

The Fair Work Commission has previously capitalised software development expenditure for the implementation of a new Case Management system (eCase). The system did not go live during the 2019-20 financial year as expected and further development work on the eCase was paused on the 31st of May 2020. With uncertainty whether the system will be available for use and deliver probable future economic benefit to recover the carrying value, the Fair Work Commission has recognised an impairment of $3.862m.

Contractual commitments for the acquisition of property, plant, equipment and intangible assets

As at the reporting date, the Fair Work Commission has no contractual commitments for the acquisition of leasehold improvements, property, plant and equipment.

No indicators of impairment were found for other non-financial assets.

3.3 Payables

3.4 Interest bearing Liabilities

4. Assets and Liabilities Administered on Behalf of Government

This section analyses assets used to conduct operations and the operating liabilities incurred. As a result, the Fair Work Commission does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental reporting.

4.1 Administered – Financial Assets

As at 30 June 2020, there were no administered financial assets that required disclosure (2019: nil).

4.2 Administered Financial Liabilities

5. Funding

This section identifies the Fair Work Commission funding structure.

5.1 Appropriations

5.1A: Annual Appropriations (‘Recoverable GST exclusive’)

Annual Appropriations for 2020

Annual Appropriations for 2019

5.1B: Unspent Annual Appropriations (‘Recoverable GST exclusive’)

5.1C: Special Appropriations (‘Recoverable GST exclusive’)

5.1D: Disclosure by Agent in Relation to Annual and Special Appropriations (‘Recoverable GST exclusive’)

5.2 Net Cash Appropriation Arrangements

From 2010-11, the Government introduced net cash appropriation arrangements where revenue appropriations for depreciation/amortisation expenses ceased. The Fair Work Commission now receives a separate capital budget provided through equity appropriations. Capital budgets are to be appropriated in the period when cash payment for capital expenditure is required.

The inclusion of depreciation/amortisation expenses related to ROU leased assets and the lease liability principle repayment amount reflects the cash impact on implementation of AASB 16 Leases, it does not directly reflect a change in appropriation arrangements.

6. People and Relationships

This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.

6.1 Employee Provisions

6.2 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 Fair Work Commission has determined the key management personnel to be the Portfolio Minster, the President and the General Manager. Key management personnel remuneration is reported in the table below:

In 2019/20 the Fair Work Commission completed a reassessment of the composition of its key management personnel. The Portfolio Minister, President and the General Manager have been found to meet the criteria based on the responsibilities of their respective positions. In the prior year the Commission included four Executive Directors as key management personnel and confirmed that although these positions make operational decisions in their area of responsibility, they do not satisfy the definition per AASB 124 Related Party Disclosures. The 2018/19 comparative key management personnel remuneration has been restated in the table below. (Before restatement comparative short term employee benefits were 1.088m, Post-Employment benefits 133k, Other long-term employee benefits 36k, and termination benefits 95k.)

The remuneration of the Portfolio Minister, the President and the General Manager are set by the Remuneration Tribunal.

6.3 Related Party Disclosures

Related party relationships:

The entity is an Australian Government controlled entity. Related parties to this entity are Key Management Personnel including the Portfolio Minister and Executive.

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. These transactions have not been separately disclosed in this note.

Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the entity, it has been determined that there are no related party transactions to be separately disclosed (2019: nil).

7. Managing Undertainties

This section analyses how the Fair Work Commission manages financial risks within its operating environment.

7.1: Contingent Assets and Liabilities

Quantifiable Contingencies

As at 30 June 2020, there were no quantifiable contingent liabilities or assets requiring disclosure (2019: nil).

Unquantifiable Contingencies

As at 30 June 2020, there were no unquantifiable contingent liabilities or assets requiring disclosure (2019: nil).

Quantifiable Administered Contingencies

As at 30 June 2020, there were no quantifiable contingent liabilities or assets requiring disclosure (2019: nil).

Unquantifiable Administered Contingencies

As at 30 June 2020, there were no unquantifiable contingent liabilities or assets requiring disclosure (2019: nil).

7.2 Financial Instruments

7.3: Administered – Financial Instruments

As at 30 June 2020, there were no administered financial instruments that required disclosure (2019: nil).

7.4 Fair Value Measurement

7.5 Administered - Fair Value Measurement

8. Other Information

8.1: Aggregate Assets and Liabilities