The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of Preparation
These general purpose financial statements 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 Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 ('FRR'), and with Australian Accounting Standards - Reduced Disclosure Requirements and Interpretations issued by the Australian Accounting Standards Board ('AASB'), as appropriate for for-profit oriented entities.
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, certain assets and liabilities at fair value.
Amounts in the financial statements have been rounded off to the nearest thousand dollars, unless otherwise specified.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Hearing Australia's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.
Interest on deposits calculated using the effective interest method
Interest is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in Hearing Australia's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in Hearing Australia's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash is recognised at its nominal amount.
In accordance with the financial targets and performance considerations contained in the Australian Hearing Services Act 1991, the level of cash resources held by Hearing Australia is, in the opinion of the board of directors, sufficient to maintain:
- a reasonable level of reserves, having regard to estimated future infrastructure requirements;
- the extent of the Commonwealth equity in the entity; and
- Hearing Australia's commercial operational requirements.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.
Comparatives have been realigned, where necessary, to be consistent with current year presentation. There is no effect on the surplus or net assets of Hearing Australia.
New or amended Accounting Standards and Interpretations adopted
Hearing Australia has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting year.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
The following new Accounting Standards adopted are most relevant to Hearing Australia:
AASB 15 Revenue from Contracts with Customers
Hearing Australia has adopted AASB 15 from 1 July 2018, applying the ‘full retrospective’ method which requires the restatement of comparatives where necessary. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period.
AASB 9 Financial Instruments
Hearing Australia has adopted AASB 9 from 1 July 2018, applying the ‘full retrospective’ method which requires the restatement of comparatives where necessary. The standard replaced AASB 139 'Financial Instruments: Recognition and Measurement'. AASB 9 addressed the classification, measurement and derecognition of financial assets and financial liabilities and introduced new rules for hedge accounting.
There were also consequential changes to AASB 101 'Presentation of Financial Statements' from the introduction of AASB 15 and AASB 9.
Impact of adoption
The adoption of these Accounting Standards and Interpretations resulted in the following adjustments:
- impairment of receivables is now shown on the face of profit or loss;
- provision for impairment of receivables is now classified as allowance for expected credit losses;
- work in progress is now classified as contract assets;
- right of return assets is recognised in other current assets;
- investments under section 59 of the PGPA Act previously classified as held-to-maturity are now classified as a financial asset at amortised cost;
- deferred revenue is now classified as contract liabilities; and
- refund liabilities are now classified in other current liabilities.
The adoption of AASB 15 and AASB 9 did not result in any material change to the opening net assets or the opening retained surplus on 1 July 2017 and the measurement of revenue or expected credit losses has not materially changed.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by Hearing Australia for the annual reporting period ended 30 June 2019. Hearing Australia's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to it, are set out below.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset and lease liability are recognised at the commencement of the lease. The right-of-use asset is recognised at an amount that is equivalent to the initial measurement of the lease liability, adjusted for lease prepayments, lease incentives received, initial direct costs incurred, and an estimate of any future restoration, removal or dismantling costs. The lease liability is recognised at the present value of future lease payments comprising fixed lease payments less incentives, variable lease payments, residual guarantees payable, payment of purchase options where exercise is reasonably certain, and any anticipated termination penalties. The lease payments are discounted at the rate implicit in the lease, or where not readily determinable, the entity’s incremental borrowing rate. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will improve as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases.
Hearing Australia will adopt this standard from 1 July 2019, and using the transitional rules available, Hearing Australia will recognise on the same date lease liabilities ranging between $60,626,828 and $62,626,828 with a related right-of-use asset. Hearing Australia will follow the implementation instructions and guidelines as presented in the Finance Position Paper 'Implementation Options for AASB 16 Leases 2017-18 No 01 June 2018' as issued by the Department of Finance.