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NOTE 1: OVERVIEW

NOTE 1: OVERVIEW

1.1. Objectives of Indigenous Business Australia

Indigenous Business Australia (‘IBA’) is an Australian Government controlled entity which was established on 5 March 1990, when the Aboriginal and Torres Strait Islander Commission Act 1989 came into operation. On 23 March 2005, this Act was repealed and replaced by the Aboriginal and Torres Strait Islander Act 2005 (‘the Act’). IBA’s purpose, set out at section 147 of the Act, is as follows:

  1. a. to engage in commercial activities;
    1. to promote and encourage Aboriginal and Torres Strait Islander self‐management and economic self‐sufficiency;
    2. such other functions as are conferred on it by this Act.
  2. Without limiting by implication the meaning of commercial activities in paragraph 1(a), those activities include the performance of functions that:
  1. the Minister has authorised IBA to perform as an agent of the Commonwealth; or
  2. the Minister has delegated to IBA.

IBA is structured to meet one outcome: improved wealth acquisition to support the economic independence of Aboriginal and Torres Strait Islander peoples through commercial enterprise, asset acquisition, and access to concessional home and business loans.

The continued existence of IBA in its present form and with its present programs is dependent on Government policy and on continuing appropriations by Parliament for IBA’s administration and programs. IBA is a not for profit entity and is a registered charity with the Australian Charities and Not For Profit Commission.

1.2 Basis of preparation of the financial report

The financial statements of the parent entity (IBA) and its subsidiaries, together with IBA’s share of the results of associates (the Group) are general purpose consolidated 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’) for reporting periods ending on or after 1 July 2017; and
  2. Australian Accounting Standards ‐ Reduced Disclosure Requirements and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that apply for the reporting period.

The financial statements of the Group have been prepared on an accrual basis and are in accordance with historical cost convention, except for certain assets and liabilities which have been recognised 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 of the Group are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.

1.3 Impact of Coronavirus (“COVID-19”)

In March 2020, the World Health Organisation declared a global pandemic as a result of COVID-19. Its impact, and the strategies undertaken to mitigate its effect have materially impacted the outlook for the global economy including economic disruption and higher than usual volatility in financial markets. The level of disruption will likely have a negative impact on key metrics such as levels of unemployment, Gross Domestic Product and housing prices. IBA has carefully considered the impact of COVID-19 in preparing the financial statements for the year ended 30 June 2020.

As a result of COVID-19, the Group has implemented a number of key support measures as follows:

Home Ownership Support

On 9 April 2020 IBA reduced the interest rate applicable to all its home loan customers to a maximum of 2.99%, which will remain in place until 30 November 2020. From 15 June 2020 IBA automatically recalculated customers’ loan instalments at the reduced interest rate resulting in repayments being adjusted accordingly, unless instructed by the customer otherwise.

Business Support

Subject to eligibility criteria, the Group has deferred business loan and lease repayments for a 4-month period, waived interest on business loans and leases for a 4-month period and where necessary, extended loan terms by 4 months (to accommodate the deferral period).

Further, in June 2020, IBA announced a new Indigenous Business Relief Package for all Indigenous businesses who have been impacted by the crisis, including non-IBA customers. This new relief package has been designed in collaboration with the National Indigenous Australians Agency (NIAA) to respond to the immediate challenges Indigenous businesses are facing. The package includes:

  • Business Impact Analysis: Access to specialist advice to navigate the COVID-19 crisis, including assessment of business positioning, cashflow management and assistance to access available stimulus measures from Federal, State/Territories, and
  • Working capital assistance: Applications can be made for assistance of up to $100,000 via a loan/grant package.

In the process of applying the accounting policies listed in this note, the Group has made the following judgements that have the most significant impact on the amounts recorded in the financial statements:

1.4 Significant accounting judgements and estimates

The fair value of investment properties and other investments, which is based on market inputs, backed by periodic external valuations and where applicable by detailed cash flow forecasts.

  • The calculation of expected credit losses applicable to loan assets after initial recognition is impacted by the credit risk adjustment to the discount rate (‘ECL credit risk premium’), which is based on market-derived inputs, projected rates of default and projected losses given default, and incorporating forward-looking information in determining the credit risk adjustment (risk premium) to the discount rate.

The table below shows the impact of changes in significant assumptions on the carrying value of loans receivable.

Assumptions

Carrying value 2020

$000s

2020

2019

Change in assumptions

Change in carrying value

$000’s

Credit Risk Premium

Housing loans

967,048

4.50%

3.10%

+0.09% / -0.09%

-4,917/+4,948

Business loans

28,406

30.00%

9.95%

+0.09% / -0.09%

-39/+40

Whilst management believes the estimates used in preparing the financial report are reasonable, the impact of COVID-19 has required additional consideration and analysis of the critical accounting judgment and estimates applicable to IBA and where applicable adjustments to the estimates adopted. The following are of particular significance:

  • The projected rates of default and projected losses given default applied to loan assets when assessing fair value at inception and expected credit losses on loan assets have been increased to reflect the assessed risk of credit loss associated with the IBA loan portfolio.

Given the uncertainty of the extent of the pandemic, actual results in the future may differ from those reported and it is therefore reasonably possible, on the basis of existing knowledge, that outcomes within the next financial period that are materially different from the Group’s assumptions and estimates could require an adjustment to the carrying amounts of the reported assets and liabilities.

The basis of other key judgements and estimation uncertainty applied by management are consistent with those that were applied and disclosed in the annual financial report for the year ended 30 June 2019.

1.5 Changes in Australian Accounting Standards

Adoption of new Australian Accounting Standards requirements

No accounting standard has been adopted earlier than the application date stated in the standard. The following new standards and amendments to standards were issued prior to the sign-off date:

  • AASB 15 Revenue from Contracts with Customers
  • AASB 16 Leases
  • AASB 1058 Income of Not-for-Profit

Adoption of AASB 15

Under AASB 15 revenue is recognised when a performance obligation is satisfied through the transfer of a promised good or service to a customer.

When a performance obligation is satisfied, revenue shall be recognised to the total of the transaction price that has been allocated to that performance obligation.

Where the performance obligation is satisfied over time, revenue shall be recognised by measuring the progress towards complete satisfaction of that performance obligation. An entity shall apply a single method of measuring progress for each performance obligation satisfied over time and the entity shall apply that method consistently to similar performance obligations and in similar circumstances. Appropriate methods of measuring progress include output methods and input methods.

Output methods recognise revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. Output methods include methods such as surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed and units produced or units delivered. Input methods recognise revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (for example, resources consumed, labour hours expended, costs incurred, time elapsed or machine hours used) relative to the total expected inputs to the satisfaction of that performance obligation.

Adoption of AASB 16

IBA 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 2019 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

IBA 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. IBA 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, Group entities 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 Group recognises right-of-use assets and lease liabilities for most leases. However, the Group 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 Group recognised right-of-use assets and lease liabilities in relation to leases of office space and automobiles, 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 Group’s incremental borrowing rate as at 1 July 2019. The incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions.

Impact of adoption of AASB 16

On transition to AASB 16, the Group 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 Group’s minimum lease commitments disclosed in the entity's 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019:

$’000

Minimum operating lease commitment

17,833

at 30 June 2019

Less: short-term leases not recognised

-

under AASB 16

Less: low value leases not recognised

(27)

under AASB 16

Plus: effect of extension options reasonably

-

certain to be exercised

Undiscounted lease payments

17,806

Less: effect of discounting using the incremental borrowing rate as at the date of initial

(4,521)

application

Lease liabilities / Right of Use assets recognised

13,285

at 1 July 2019

Adoption of AASB 1058

On initial recognition of an asset, an entity shall recognise any related contributions by owners, increases in liabilities, decreases in assets, and revenue (‘related amounts’) in accordance with other Australian Accounting Standards.

Future Australian Accounting Standards requirements

The following new standards, amendments to standards or interpretations were issued by the AASB prior to the signing of these statements by the Chief Executive Officer and Chief Financial Officer and are expected to have a financial impact on IBA for future periods:

  • AASB1059: Service Concession Arrangements: Grantors
  • 2018-6: Amendments to Australian Accounting Standards – Definition of a Business
  • 2018-7: Amendments to Australian Accounting Standards – Definition of Material
  • 2019-1: Amendments to Australian Accounting Standards – References to the Conceptual Framework
  • 2019-2: Amendments to Australian Accounting Standards – Implementation of AASB 1059
  • 2019-3: Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform

    ​Other new standards that were issued prior to the signing of the statements by the Chief Executive Officer and Chief Financial Officer and are applicable to the future reporting period are not expected to have a future material financial impact on IBA.

1.6 Revenue and Income

Revenue from contracts with customers

A contract with a customer is only eligible for recognition under the following conditions:

  1. the parties to the contract have approved the contract, and are committed to perform their respective obligations;
  2. the rights of each party to the contract can be identified as well as the payment terms for the goods and services to be transferred;
  3. the contract has commercial substance, and
  4. it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

If these conditions exist, revenue shall be recognised when a performance obligation is satisfied through the transfer of a promised good or service to a customer. When a performance obligation is satisfied, revenue shall be recognised to the total of the transaction price that has been allocated to that performance obligation. An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.

Interest and Dividends

Interest revenue from loans and deposits is recognised using the effective interest method as set out in AASB 9: Financial Instruments. Dividend and distribution income is recognised when it is declared.

Resources received free of charge

Resources received free of charge are recognised in accordance with AASB 1058 as revenue or gains when and only when a fair value can be reliably determined, and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another non-corporate or corporate Commonwealth entity as a consequence of a restructuring of administrative arrangements (refer to Note 1.7).

Revenues from Government

Funding received or receivable from non-corporate Commonwealth entities (appropriated to the non-corporate Commonwealth entity as a corporate Commonwealth entity payment item for payment of this entity) is recognised in accordance the revenue accounting policy as identified unless the funding is in the nature of an equity injection or a loan.

IBA currently receives two forms of appropriations from the Department of Prime Minister and Cabinet:

  • Appropriation Bill No. 1, titled Ordinary Annual Services, Outcome 1, and
  • Appropriation Bill No. 2, titled Other Services, Equity Injection.

Consistent with prior recognition criteria, amounts received under Appropriation Bill No. 1 are recognised as revenue on receipt, whilst amounts received under Appropriation Bill No. 2 are recognised as equity upon receipt as it is designated as such and to be used for the provision of housing loans only (refer 1.8 below).

Grant Income

Where applicable, the KPIs are achieved over the contractual term, and as such, IBA has employed the input method as the means for measuring progress for each KPI satisfied, allowing revenue to be recognised over the same period. The input method has been deemed to the most appropriate method, given the resources used in achieving the KPIs is better able to be calculated, given the absence of items such as units produced or delivered, which are features of the output method.

Where grants are received that are not subject to performance obligations, where the Grant received is considered non-reciprocal, or when the Group has obtained control of the contribution, an amount equal to the grant received is recognised immediately on receipt in accordance with AASB 1058.

Rental Income

Rent revenue derived from investment properties is recognised on a straight-line basis over the lease term, net of any incentives.

1.7 Gains

Resources received free of charge

Resources received free of charge are recognised as gains when and only when a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Resources received free of charge are recorded as either revenue or gains depending on their nature.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another Government entity as a consequence of a restructuring of administrative arrangements.

Sales of assets

Gains from disposal of non-current assets are recognised when the control of the asset has passed to the buyer.

  1. Transactions with the Government as owner Equity injections

Amounts appropriated which are designated as 'equity injections' for a year are recognised directly in contributed equity in that year.

  1. Employee benefits

Liabilities for short-term employee benefits (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of balance date are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period, less the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Group is estimated to be less than the annual entitlement for sick leave.

Leave liabilities are calculated on the basis of employee remuneration at the estimated salary rates that applied at the time the leave is taken, including employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

Amounts received under the Parental Leave Payments Scheme not yet paid to employees are presented on a gross basis as both cash received and corresponding liability.

The liability for long service leave has been determined by reference to the Australian Government shorthand method.

Separation and redundancy

Provision is made for separation and redundancy benefit payments. The Group recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

Superannuation

Staff of the Group are members of the Commonwealth Superannuation Scheme (‘CSS’), Public Sector Superannuation Scheme (‘PSS’), the PSS accumulation plan (‘PSSap’) or other scheme they nominate.

The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported in the Department of Finance's schedules and notes.

The Group makes employer contributions to the employee superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. The Group accounts for the contributions as if they were contributions to defined contribution plans.

The liability for superannuation recognised at year end represents outstanding contributions for the final fortnight of the year.

1.10 Leases

A distinction is made between finance leases and operating leases. Finance leases transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased assets. An operating lease is a lease that is not a finance lease.

All the leases to which the Group is party as a lessee are operating leases. Leased ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for as separate asset classes to corresponding assets owned outright, but included in the same column as where the corresponding underlying assets would be presented if they were owned.

Lessee accounting
All the leases to which the Group is party as a lessee are operating leases. Leased ROU assets are capitalised at the commencement date of
the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives
received. These assets are accounted for as separate asset classes to corresponding assets owned outright, but included in the same column
as where the corresponding underlying assets would be presented if they were owned.

Lessor accounting: operating leases

Rental income from operating leases is recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Initial direct costs incurred by the Group in negotiating and arranging operating leases are added to the carrying amount of the leased assets and recognised as an expense in the Statement of Comprehensive Income over the lease term on the same basis as the lease income. Lease incentives granted by the Group are recognised as a reduction of rental income over the lease term.

Lessor accounting: finance leases

Leases where the Group has transferred substantially all risks and rewards incidental to ownership of the leased assets to the lessees are classified as finance leases. The leased asset is recognised as a finance lease. The finance lease receivable is equal to the minimum lease payments receivable over the course of the lease, discounted at the interest rate implicit in the lease. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the present value of (A) the minimum lease payments and (B) the unguaranteed residual value to be equal to the sum of (C) the fair value of the leased asset and (D) any initial direct costs of the lessor. The difference between the undiscounted receivable and discounted receivable is recognised as unearned finance income.

Each lease payment received is allocated proportionally against the finance lease receivable and the unearned income. The finance income is recognised in the Statement of Comprehensive Income on a basis that reflects a constant periodic rate of return on the net investment in the finance lease receivable.

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to finance lease receivables and recognised as an expense in the Statement of Comprehensive Income over the lease term on the same basis as the lease income.

Contingent rents are recognised as income in the Statement of Comprehensive Income when earned.

1.11 Borrowing costs

Borrowing costs relating to external provider loans are expensed as incurred.

1.12 Fair Value Measurements

The Group did not have any transfers between the fair value hierarchy during 2019-20 or 2018-19.

1.13 Principles of consolidation

The consolidated financial statements comprise the financial statements of the parent entity (IBA) and its subsidiaries, together with IBA’s share of the results of associates (the Group). Subsidiaries are entities that IBA controls, The financial statements of the controlled entities are prepared for the period 1 July 2019 to 30 June 2020 using accounting policies consistent with those of the Group. The effects of transactions and balances between the entities, including any unrealised profits or losses, have been eliminated in full.

A subsidiary is an entity under the Group’s control including trusts where IBA is a beneficiary and where IBA controls the trustee. The results of subsidiaries are consolidated from the date on which control over the operating and financial policies is obtained and cease to be consolidated from the date on which control is transferred. IBA controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity or has the ability to affect those returns through its power over the entity.

An associate is an entity over which the Group is in a position to exercise significant influence through participation in the financial and operating policy decisions of the investee, but which is not a subsidiary or a jointly controlled entity. The Group’s share of the results, assets and liabilities of an associate are included in the Group financial statements using the equity method of accounting. Under the equity method of accounting, the investment in the associate is carried in the Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of net assets of the associate, less distributions received, less any impairments in the value of the investment.

The Group’s investments in associates are classified as financial instruments measured at fair value through profit or loss in line with AASB 9: Financial Instruments. These investments are fair-valued as at reporting date and distribution income received from them is recognised as a dividend. The carrying value of associates is detailed in Note 4.

1.14 Financial risk management

The operating, investing and financing activities of the Group expose it to credit, liquidity and interest rate risks. The risks are defined as:

  • Credit risk: the possibility that a debtor or borrower will not repay or will delay repayment of all or part of a loan.
  • Interest rate risk: a risk that the value of a financial asset such as home and business loans would fluctuate in terms of fair value or future cash flows as a result of changes in market interest rates.
  • Liquidity risk: a risk that IBA may not have or may not be able to raise the funds to meet these obligations. IBA is not exposed to currency risk or other price risk.

1.15 Financial instruments
Recognition of financial instruments

A financial instrument is initially recognised at fair value and is adjusted for (in the case of instruments not carried at FVTPL) transaction costs that are incremental and directly attributable to the acquisition or issuance of the financial instrument. Transaction costs relating to financial instruments carried at FVTPL are expensed in the Statement of Comprehensive Income.Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument.

Derecognition of financial instruments

Financial assets are de-recognised from the Statement of Financial Position when the rights to cash flows have expired and the Group has transferred the financial asset such that it has transferred substantially all the risks and rewards of ownership of the financial asset. Financial liabilities are de-recognised from the Statement of Financial Position when the Group’s obligation has been discharged, cancelled or has expired.

Classification

Financial assets are classified based on the business model within which the asset is held and on the basis of the financial asset’s contractual cash flow characteristics.

Subsequent measurement

A financial asset is subsequently measured at amortised cost using the effective interest method if the following conditions are met:

  1. the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows;
  2. the contractual terms of the financial asset give rise on specified dates to cash flows consist solely of payments of principal and interest (‘SPPI’).

The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset.

A financial asset is subsequently measured at fair value through other comprehensive income (‘FVOCI’) if the financial asset is held within a business model with multiple objectives: both to sell financial assets and to hold financial assets in order to collect contractual cashflows which pass the SPPI test. The Group does not have any FVOCI financial assets.

Fair value through profit or loss

Financial assets that do not meet the criteria to be measured at amortised cost or FVOCI are measured at FVTPL, with all changes in fair value recognised in investment income as part of other operating income and charges.

Assessment of business model and SPPI test

The Group determines the business model at the level that reflects how groups of financial assets are managed. In determining the business model, all relevant evidence that is available at the date of the assessment is used. The Group exercises judgement to determine the appropriate level at which to assess its business models and its intention with respect to its financial assets. Key considerations for the SPPI assessment include the timing of the contractual cash flows and the interest component, where interest primarily reflects the time value of money and the credit risk of the principal outstanding.

Categorisation and valuation of the Group’s financial assets

FVTPL

  • Investments in subsidiaries, associates, joint ventures and other related business undertakings, including loans to such entities, are classified as FVTPL. These investments are fair-valued as at reporting date and distribution income received from them is recognised as a dividend. Valuation is based on market inputs and supported by an independent valuation once every three years. The methodology adopted in relation to valuation by the directors of subsidiaries and associates uses techniques consistent with those of the most recent independent valuation. The fair value of subsidiary businesses is also used to test the value of the assets within for impairment.
  • Convertible redeemable bonds are held at FVTPL since cashflows associated with the bonds do not meet the SPPI test and are fair- valued at reporting date based on market inputs.

Amortised cost

  • Business and home loans are issued at lower than market rates. They are fair-valued at inception against market interest rates benchmarked on commercial bank rates. The quantum of interest rate differential determines the variance of the fair value from the face value of the loans. The loans are subsequently measured at amortised cost using the effective interest method and the discount recognised at inception is progressively unwound through the expected life of the loan.
  • Trade and other receivables are recognised at transaction value and held at amortised cost.
  • Deposits with banks with an original maturity greater than three months are held at amortised cost.

Cash is recognised at its nominal amount. Cash and cash equivalents include cash on hand and demand deposits in bank accounts with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

When measuring fair value, the Group is required to maximise the use of observable inputs. The Group uses inputs from Level 2 of the fair value hierarchy: inputs other than quoted price that are observable either directly or indirectly.

Financial liabilities

Financial liabilities, including borrowings, are initially measured at fair value net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Financial liabilities are recognised and derecognised upon trade date.

Interest bearing loans and borrowings
Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods and services have been received, regardless of whether they have been invoiced.

Loans are classified under other financial liabilities and the carrying value is calculated based on the balance yet to be repaid. Interest is expensed as it accrues using the effective interest method.

Impairment of financial instruments

Expected credit losses (‘ECL’)

The ECL requirements apply to financial assets measured at amortised cost and FVOCI, lease receivables, amounts receivable from contracts with customers, loan commitments, certain letters of credit and financial guarantee contracts. The calculation of ECL requires judgement and the choice of inputs, estimates and assumptions. IBA’s calculation of the ECL includes forward-looking or macro-economic information (‘FLI’). Where ECL is modelled collectively for portfolios of exposures, it is modelled as the product of the probability of default (‘PD’), the loss given default (‘LGD’) and the exposure at default (‘EAD’).

Concessional loan assets

Concessional loan assets are recognised at the market-based value of the loan reduced by a concessional discount. The concessional loan discount is the difference between the face value of the loan after adjusting for accrued interest and capitalisation of transaction costs and the loan’s fair value. In line with RMG 115: Accounting for Concessional Loans, the undiscounted value of the loan asset is recognised in full and the discount component of the concessional loan is immediately recognised as an expense in the Statement of Comprehensive Income (i.e. Concessional loan discount, Note 2D). Interest income is subsequently determined using a credit-adjusted effective interest rate (‘EIR’). The credit-adjusted EIR is the EIR adjusted for expected credit losses on initial recognition. The ECL is measured as the product of the lifetime PD, LGD and EAD adjusted for FLI. For concessional loan assets, the Group exercises judgement based on the behavioural, rather than contractual characteristics of the facility type.

Subsequent unwinding of discount

Under AASB 9, IBA’s concessional loans are subsequently measured at amortised cost. The concessional loan discount expensed at initial recognition of the loan asset is unwound over the expected life of the loan. The difference between the income from the effective interest rate and the interest charged to the borrower’s loan account results in the progressive unwinding of the concessional loan discount (i.e. unwinding of concessional loan discount, Note 3C).

Indicators of impairment occurring subsequent to recognition

If there is objective evidence that events occurring subsequent to recognition of a loan asset held at amortised cost have affected expected cash flows, an impairment is recognised as the difference between the carrying value of the loan and the discounted value of management’s best estimate of future cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate). The impairment loss is recognised in the Statement of Comprehensive Income (i.e. impairment of loans / valuation decrements in financial assets held at FVTPL, Note 2E). Objective indicators of impairment include: significant financial difficulties of the debtor, probability that a debtor will enter bankruptcy, and default or significant delay in payments. Given the characteristics of the concessional loan assets, that are subject to continuous ECL’s assessment.

11.16 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligation as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligation may be small. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is recognised in the Statement of Comprehensive Income net of any reimbursement.

A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events, or where the amount of the obligation cannot be measured with reasonable reliability. Contingent liabilities are not recognised in the Statement of Financial Position.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non- occurrence of one or more uncertain future. Contingent assets are not recognised but are disclosed where an inflow of economic benefits is probable.

1.17 Financial guarantee contracts
Financial guarantee contracts are treated as a financial instrument within the scope of AASB 9 Financial Instruments. As such, they are not classified as a provision or contingent liability within the scope of AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

1.18 Acquisition of assets
Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange, and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost or for nominal consideration are initially recognised as assets and revenue at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor's accounts immediately prior to the restructuring.

1.19 Property, plant and equipment Asset recognition threshold
Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases costing less than $1,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

Leased Right of Use (ROU) Assets

Leased ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by Commonwealth lessees as separate asset classes to corresponding assets owned outright, but included in the same column as where the corresponding underlying assets would be presented if they were owned.

On initial adoption of AASB 16 the Group has adjusted the leased ROU assets at the date of initial application by the amount of any provision for onerous leases recognised immediately before the date of initial application. Following initial application, an impairment review is undertaken for any leased ROU asset that shows indicators of impairment and an impairment loss is recognised against any leased ROU asset that is impaired. Leased ROU assets continue to be measured at cost after initial recognition.

Depreciation

A depreciable asset is an asset deemed to have a limited useful life.

Depreciable property, plant and equipment assets are written off to their estimated residual values over their estimated useful lives using the straight-line method of depreciation in all cases. Depreciation rates (estimated useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

Depreciable asset class

Estimated useful life (FY20)

Estimated useful life (FY19)

Leasehold improvements including leased ROU assets

Lease term

Lease term

Buildings

50 years

50 years

Other property, plant and equipment

3 – 5 years

3 – 5 years

Land is not a depreciable asset.

Make good

The Group is a party to property leases where there exists an obligation for the Group to restore the property to original condition. These costs are included in the value of Ieasehold improvements with a corresponding provision for make good recognised.

Impairment

Property, plant and equipment assets with high value and long estimated useful lives are assessed for impairment on an annual basis. Where indications of impairment exist, the asset’s recoverable amount is estimated, and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

Heritage and cultural assets

The Group has a collection of artwork which has been classified as heritage and cultural assets since the works are primarily used for purposes that relate to their cultural significance. Only heritage and cultural assets that can be reliably measured are recognised. Purchases of heritage and cultural assets are recognised initially at cost in the Statement of Financial Position, except for purchases less than $1,000, for each item, which are expensed in the year of acquisition. Heritage and cultural assets acquired at no cost, or for a nominal cost, are initially recognised at fair value. Since the Group has curatorial and preservation policies regarding the heritage and cultural assets, the assets are deemed not to have limited useful lives in line with AASB 16: Property, Plant and Equipment, and thus are not subject to depreciation. However, they are subject to impairment testing when there is an indication of impairment. Where indications of impairment exist, the recoverable amount is estimated, and an impairment adjustment made if the asset's recoverable amount is less than it’s carrying amount.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

1.20 Goodwill

Goodwill arises on a business combination where the acquirer transfers a consideration in excess of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. In line with AASB 3: Business Combinations, when the Group is the acquirer in a business combination, it recognises goodwill as an asset representing the excess of consideration paid over net assets acquired. Goodwill is not amortised. The Group assesses its goodwill for impairment on an annual basis or when there are indicators of impairment.

1.21 Intangible Assets

An intangible asset is an identifiable non-monetary asset without physical substance. Intangible assets are amortised on a straight-line basis over their estimated useful lives. Internally-generated software assets, which have useful lives of three years, comprise the majority of the Group’s intangible assets.

1.22 Investment properties


When measuring fair value, the Group is required to maximise the use of observable inputs. The Group uses inputs from Level 2 of the fair value hierarchy: inputs other than quoted price that are observable either directly or indirectly. The Group uses a market-based valuation technique incorporating recently observed market data for similar properties and future earnings discounted at market capitalisation rates. The Group uses independent qualified valuers to value major properties annually and all other properties at least once every three years.Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which is based on active market prices, adjusted if necessary for any difference in the nature, location or condition of the specific asset at the balance sheet date. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise.
Investment properties are tested for impairment based on market selling price.

Where an investment property is acquired at no cost or for nominal cost, its cost is deemed to be its fair value as at the date of acquisition.

Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on disposal of an investment property is recognised in profit or loss in the year of disposal.

1.23 Inventories

Inventories held for sale are valued at the lower of cost and net realisable value. Inventories held for distribution are valued at cost, adjusted for any loss of service potential.

Costs incurred in bringing each item of inventory to its present location and condition are assigned as follows:

  • Raw materials and stores: purchase cost on a first-in, first-out basis
  • Finished goods and work in progress: cost of direct materials and labour plus attributable costs that are capable of being allocated on a reasonable basis.

Inventories acquired at no cost or for a nominal consideration are initially measured at current replacement cost at the date of acquisition.

1.24 Taxation

As at reporting date, IBA is exempt from all forms of taxation except the goods and services tax (‘GST’). IBA became exempt from fringe benefits tax (‘FBT’) on 1 January 2020.

Revenues, expenses, and assets and liabilities are recognised net of GST except:

  • where the amount of GST incurred is not recoverable from the Australian Taxation Office (‘ATO’)
  • for receivables and payables.

These exemptions apply to the parent entity but not to the entities under IBA’s control. Incorporated entities under IBA’s control are subject to taxation and adopt the liability method of tax-effect accounting, whereby the income tax expense is based on the profit from ordinary activities adjusted for any permanent differences.

Current income tax charged to the Statement of Comprehensive Income is the tax payable on taxable income. Amounts expected to be paid to the relevant tax authority are recognised as current tax liabilities. Amounts expected to be recovered from the relevant tax authority are recognised as current tax liabilities.

Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant authority.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited to the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available, against which deductible temporary differences can be utilised.

The amount of benefits brought to account or that may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and to comply with the conditions of deductibility imposed by the law.

1.25 Competitive neutrality

The Group does not have any competitive neutrality obligations.

1.26 Events After the Reporting Period

There are no potential significant events that will affect the ongoing structure and financial activities of the Group after 30 June 2020.


1.29. Explanation of major variances between the actual amounts presented in the financial statements and the corresponding original budget amounts (AASB 1055)

The table below provides commentary for significant variances between the Group’s original budget estimates, as published in the 2020-21 Portfolio Budget Statements, and the actual expenses, own-source revenue and assets for the year.

Affected line item

Variance reporting

Statement of Comprehensive Income

Sales of Goods and Services

Whilst the impact of COVID-19 did impact operations, the unbudgeted acquisition of a direct investment during the year

enabled this category to be higher than budgeted.

Supplier Expense

Consistent with above, supplier expenditure has increased in

excess of budget given the unbudgeted acquisition of a direct investment during the year.

Unwinding of Concessional Discount

The unwinding of concessional loan discount was favourable compared to budget due to loans being wound back at their original credit adjusted effective interest rate compared to the

lower interest rate charged to borrowers’ accounts.

Write down and impairment of assets

COVID-19 impacted on the valuation of the tourism assets due to the short-term reduction and uncertainty of future cash

flows. In addition, IBAs investments in unit trusts were affected by the impact of COVID-19 on the financial markets.

Statement of Financial Position

Investments

Amounts received under New Business Relief Package was

unbudgeted and placed on deposit.

Land & Buildings

Under AASB 16 Leases IBA is required to recognize right-of-use assets on its balance sheet, whereas previously only the associated operating expense was recognised through the

Statement of Comprehensive Income.

Other provisions

Under AASB 16 Leases the Group is required to recognize its operating lease liabilities on its balance sheet, whereas previously only the associated operating expense was

recognized through profit and loss.

Other payables

Amounts received through the former Indigenous Entrepreneurs Scheme and recent Indigenous Business Relief Package were unbudgeted

Cash Flow Statement

Loans and advances made

COVID-19 impacted on the demand for housing and start-up

business loans, including invoice financing, in Q4.

Investments purchased

COVID-19 impacted the receipt of monies ordinarily received

from Indigenous partners.

Repayment of loans receivable

The last quarter saw less loan repayments than expected, due to COVID-19 impacts, as well as affecting loan repayment

volumes through invoice financing.