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Note 1: Summary of significant accounting policies

1.1 Objectives of National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA)

NOPSEMA’s primary role is promoting and securing compliance and improvement by duty holders through monitoring, enforcement and proactive engagement with stakeholders to reduce risks to the workforce, the environment and the structural integrity of facilities, wells and well-related equipment of the Australian offshore petroleum and greenhouse gas storage industries through the Offshore Petroleum and Greenhouse Gas Storage Act 2006.

1.2 Basis of Preparation of the Financial Report

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:

a) Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and

b) 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 and values are rounded to the nearest thousand dollars unless otherwise specified.

Assets and liabilities are recognised in the Statement of Financial Position when and only when it is probable that future economic benefits will flow to the entity or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under executory contracts are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the schedule of commitments and the schedule of contingencies.

Revenues and expenses are recognised in the Statement of Comprehensive Income when, and only when, the flow consumption or loss of economic benefits has occurred and can be reliably measured.

1.3 Significant Accounting Judgements and Estimates

No accounting assumptions and estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period.

1.4 New Accounting Standards

Adoption of New Accounting Standard Requirements

All new standards that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect on NOPSEMA’s financial statements.

NOPSEMA has adopted AASB 9 Financial Instruments from 1 July 2018. The new impairment model for financial assets requires the consideration of an allowance for expected future credit losses. Trade receivables that do not contain a significant financing component under AASB 15 must apply the simplified approach which allows entities to recognise lifetime expected credit losses without the need to identify significant increases in credit risk. NOPSEMA has determined the impact for the current period as nil, and will continue to revisit the assessment in future periods.

NOPSEMA has adopted AASB 15 Revenue from Contracts with Customers. The standard requires revenue to be recognised upon the transfer of control rather than the trasnfer of risks and rewards. In applying the cumulative effect method on transition to AASB 15, no adjustment was required to the opening retained earnings as the new standard did not have an impact on NOPSEMA’s revenue recognition.

Future Accounting Standard requirements

The AASB has introduced AASB 16 Leases, removing the distinction between operating and finance leases for lessees. AASB 16 requires lessees to account for all leases under a single on- balance sheet model in a similar way to finance leases under AASB 117. The standard includes two recognition exemptions for lessees:

  1. short-term leases; and
  2. leases for which the underlying asset is of low value

At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g. change in lease term or change in future lease payments resulting form a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting requirements in AASB 16 are substantially unchanged from those in AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases.

NOPSEMA will apply the modified model approach from 1 July 2019 by recognising the cumulative effect of initial application as an adjustment to the opening balance of retained earnings. The value at date of initial application is calculated as Right-of-Use Asset $7,754,148 and Lease Liability

$11,398,592. The difference of $3,644,444 will be recognised as a ‘Net investment in Sublease’, which represents the portion of office space occupied by NOPTA (National Offshore Petroleum Titles Administrator).

1.5 Own-Source Revenue

NOPSEMA operates on a full cost recovery basis by means of collecting levies from the industry it regulates. These levies have been set in the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Regulations 2004. Revenue from levies is recognised in accordance with

AASB15 Revenue from Contracts with Customers. In addition NOPSEMA receives interest on cash balances held in operation and deposit bank accounts.

Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance. Allowances are made in accordance with AASB 9 Financial Instruments.

1.6 Gains

Resources Received Free of Charge

Resources received free of charge are recognised as revenue 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.

Sale of assets

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

1.7 Revenue from Government

Contributed Equity

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

to this entity) is recognised as Revenue from Government by the corporate Commonwealth entity unless the funding is in the nature of an equity injection or a loan.

NOPSA (National Offshore Petroleum Safety Authority) commenced operations on 1 January 2005. In 2012, Environment and Well Integrity divisions were added to NOPSA operations and the entity was renamed NOPSEMA (National Offshore Petroleum Safety and Environmental Management Authority).

NOPSEMA does not receive any capital appropriations from the Government. However, upon its establishment, NOPSA received assets with a net book value of $895,598 for no consideration from the Government, via the Department of Industry, Tourism and Resources, through an agreement under section 32 of the Financial Management and Accountability Act. This is shown as a contribution of equity in NOPSEMA’s financial statements.

It has been determined that a repayment of this contribution was never intended and the equity will remain classified as ‘contributed equity’ in the financial statements.

Distributions to duty holders

On 21 December 2018, an amendment to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 was passed under Section 59E - Remittal or refund of compliance amount. This gave NOPSEMA the ability to issue refunds and credit notes for environmental levies. During this year NOPSEMA paid $68,400 to Department of Industry, Innovation and Science in order to refund customers.

1.8 Employee benefits

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits within twelve months of the end of reporting period 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 net total of the present value of the defined benefit obligation at the end of the reporting period minus 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 NOPSEMA employees is estimated to be less than the annual entitlement for sick leave.

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

The liability for long service leave has been calculated in accordance with the Australian Government shorthand method. The estimate of the present value takes into account attrition rates and pay increases through promotion and inflation.

Superannuation

The entity’s staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), or the PSS accumulation plan (PSSap), or other superannuation funds held outside the Australian Government.

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

The liability for defined benefit 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 administered schedules and notes.

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

The liability for superannuation recognised as at 30 June represents outstanding contributions.

1.9 Leases

Leases are currently recognised in accordance with AASB 117 whereby, a distinction is made between finance leases and operating leases. Finance leases effectively 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.

Where an asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the lease property or, if lower, the present value of minimum lease payments at the inception of the contract and a liability is recognised at the same time and for the same amount.

The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense.

Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

1.10 Cash

Cash is recognised at its nominal value. Cash and cash equivalents include:

a) cash on hand or on deposit;

b) cash in special accounts

1.11 Financial assets

The entity recognises its financial assets at their nominal values in the following categories:

a) cash and cash equivalents; and

b) trade and other receivables

Trade and Other Receivables

Trade receivables, which generally have 30 day terms, are recognised and carried at original statutory amounts as notified to facility operators, less any allowance for expected credit losses.

All trade and other receivables are expected to be recovered in no more than 12 months.

Impairment of Financial Assets

Financial assets are assessed for impairment at the end of each reporting period in accordance with AASB 9.

1.12 Liabilities

Suppliers and other Payables

Suppliers represent a liability for goods and services provided to the entity. The amounts are unsecured and settlement is usually made within 30 days.

Provisions

NOPSEMA has recognised a provision for restoration to 2 current office leasing agreements. The reporting disclosures required for this provision are included under note 8B.

1.13 Contingent Liabilities and Contingent Assets

Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position. They may arise from uncertainty as to the existence of a liability or asset, or represent a liability or asset in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

1.14 Acquisition of Assets

Assets are recorded at cost of 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 income 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.

1.15 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 $2,000, 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).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make good’ provisions in property leases taken up by the entity where there exists an obligation to restore the property to its original condition. These costs are included in the value of the entity’s leasehold improvements with a corresponding provision for the ‘make good’ recognised.

Revaluations

Fair values for each class of asset are determined as shown below.

Asset class

Fair value measured at

Leasehold improvements

Depreciated replacement cost

Infrastructure, plant and equipment

Market selling price

Following initial recognition at cost, property plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets did not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reversed a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the entity using, in all cases, the straight-line method of depreciation.

Depreciation rates (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:

2019

2018

Leasehold improvements

Lease term

Lease term

Plant and equipment

3 to 5 years

3 to 5 years

Impairment

All assets were assessed for impairment at 30 June 2019. 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.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the entity were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

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

1.16 Intangibles

The entity’s intangibles comprise internally developed software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Regulatory Management System (RMS) Software is amortised on a straight-line basis over its anticipated useful life. The useful life of the entity’s RMS software is 5 years.

All software assets were assessed for indications of impairment as at 30 June 2019.

1.17 Taxation

NOPSEMA 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:

a) where the amount of GST incurred is not recoverable from the Australian Taxation Office; and

b) for receivables and payables