Objectives of IP Australia
IP Australia is an Australian Government controlled entity. It is a not-for-profit entity. The objective of IP Australia is to contribute to the improvement of Australian and international IP systems and thereby support Australia's economic development through the provision and administration of intellectual property rights.
IP Australia is structured to meet one outcome: increased innovation, investment and trade in Australia, and by Australians overseas, through the administration of the registrable intellectual property rights system, promoting public awareness and industry engagement, and advising government.
IP Australia's activities contributing toward the outcome are classified as departmental. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by IP Australia in its own right.
Departmental activities are identified under three programs:
- Program 1.1 - IP Rights Administration and Professional Registration.
- Program 1.2 - Education and Awareness; and
- Program 1.3 - Advice to Government and International Engagement.
IP Australia operates on a cost recovery basis, funding its operations almost entirely through revenues raised from charges for intellectual property services. Appropriation is received for advice to Government and international engagement. The use of a Special Account, established under the Public Governance, Performance and Accountability Act 2013, enables IP Australia to fund its operations from the revenue received from charges for intellectual property services.
The Basis of Preparation of the Financial Statements
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:
- Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
- Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements issued by 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 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 and values are rounded to the nearest thousand dollars unless otherwise specified.
New Accounting Standards
All new and amending standards or interpretations applicable to the current financial year did not have a material effect on IP Australia’s financial statements.
Nature of change in accounting policy, transitional provisions, and adjustment to financial statements
AASB 15 Revenue from Contracts with Customers/AASB 2016-8 Amendments to Australian Accounting Standards – Australia Implementation Guidance for Not-for-Profit Entities and AASB 1058 Income of Not-For-Profit Entities
AASB 15, AASB 2016-8 and AASB 1058 became effective 1 July 2019. AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111
Construction Contracts and Interpretation 13 Customer Loyalty Programmes. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services
AASB 1058 is relevant in circumstances where AASB 15 does not apply. AASB 1058 replaces most of the not-for-profit (NFP) provisions of AASB 1004 Contributions and applies to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable the entity to further its objectives, and where volunteer services are received
The details of the changes in accounting policies, transitional provisions and adjustments are disclosed below and in the notes 1.2A and 2.3A of the financial statements.
AASB 16 Leases
AASB 16 became effective on 1 July 2019
This new standard has replaced AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases—Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
AASB 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases where the lease term is 12 months or less, or where the underlying asset is of low value. AASB 16 substantially carries forward the lessor accounting in AASB 117, with the distinction between operating leases and finance leases being retained. The details of the changes in accounting policies, transitional provisions and adjustments are disclosed below and in the notes 1.1C, 2.2A and 2.4A of the financial statements.
Application of AASB 15 Revenue from Contracts with Customers / AASB 1058 Income of Not-For-Profit Entities
IP Australia adopted AASB 15 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, IP Australia 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), IP Australia applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, IP Australia shall consider whether AASB 1058 applies.
In relation to AASB 15, IP Australia elected to apply the new standard to all new and uncompleted contracts from the date of initial application. IP Australia is required to aggregate the effect of all of the contract modifications that occur before the date of initial application.
Impact on transition
1 July 2019
Total adjustment recognised in retained earnings
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. The first column shows amounts prepared under AASB 15 and the second column shows what the amounts would have been had AASB 15 not been adopted:
Unearned revenue - Patent fees
Unearned revenue - Trade Mark fees
Unearned revenue - Design fees
Unearned revenue - Plant Breeders Rights fees
The adoption of AASB 15 has mainly affected the Patent, Trademark, Designs and Plant Breeders Rights examination service provided by IP Australia.
Previously, IP Australia recognised revenue for all of the above examination services at the time of issuance of the first report to the customer based on the stage of completion of services at the reporting date. Under AASB 15, IP Australia delayed the revenue recognition point for these examination services until performance obligation is completely satisfied by transferring the promised goods or services to the customer.
The total adjustment to the opening balance of retained earnings arising from the initial application of AASB 15 is $24.768m.
Application of AASB 16 Leases
IP Australia 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
IP Australia 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. IP Australia 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, IP Australia previously classified leases as operating based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, IP Australia recognises right-of-use assets and lease liabilities for most leases. However, IP Australia 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, IP Australia recognised right-of-use assets and lease liabilities in relation to leases of office space, and equipment, which had previously been classified as operating leases.
The lease liabilities were measured at the present value of the remaining lease payments, discounted using IP Australia’s incremental borrowing rate as at 1 July 2019. IP Australia’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 1.26%.
The right-of-use assets were measured as follows:
- Office space and equipment: measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
Impact on transition
On transition to AASB 16, the IP Australia recognised additional right-of-use assets and additional
lease liabilities, recognising the difference in retained earnings. The impact on transition is
1 July 2019
Right-of-use assets – Property, Plant and Equipment
The following table reconciles the minimum lease commitments disclosed in the IP Australia’s 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019:
1 July 2019
Minimum operating lease commitment at 30 June 2019 (GST exclusive)
Undiscounted lease payments
Less: Adjustment to 30 June closing balance
Adjusted minimum operating lease commitment
Less: effect of discounting using the incremental borrowing rate as at the date of initial application
Lease liabilities recognised at 1 July 2019
Resources Received Free of Charge
Resources received free of charge are recognised 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.
Revenue from Government
Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when IP Australia gains control of the appropriation. Appropriations receivable are recognised at their nominal amounts.
Significant Accounting Judgements and Estimates
No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period.
Contingent Liabilities and Contingent Assets
IP Australia had no quantifiable or unquantifiable contingent liabilities or assets at 30 June 2020 (2018-19: nil).
IP Australia is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST). Revenues, expenses, and assets are recognised net of GST except:
- where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
- for receivables and payables.
Events After the Reporting Period
There are no events occurring after statement of financial position date that materially affect the financial statements.