1.1 Basis of Preparation of the Financial Statements
The financial statements of the Offices of the AASB and the AUASB are required by Section 42 of the PGPA Act and are general purpose financial reports.
The financial reports have been prepared in accordance with:
- Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) for reporting periods ending on or after 1 July 2019, and
- Australian Accounting Standards and Interpretations issued by the 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.
1.2 Significant Accounting Judgements and Estimates
There are no accounting assumptions or estimates at reporting date that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next reporting period.
1.3 Changes in Australian Accounting Standards
(a) Adoption of New Australian Accounting Standard Requirements applicable for 30 June 2020
The new accounting standards effective for 30 June 2020 impacting the AASB and AUASB are AASB 1058 Income of Not-For-Profit Entities, AASB 15 Revenue from Contracts with Customers and AASB 16 Leases.
AASB 1058 Income of Not-For-Profit Entities and AASB 15 Revenue from Contracts with Customers set out new income recognition requirements. The AASB has assessed the funding agreement between the States and Territories and the AASB and determined that it does not contain performance obligations and is therefore outside of the scope of AASB 15. Although the agreement is for three years, the reassessment criteria at the end of each year indicate that only one year of funding is within the AASB’s control at any one time. Accordingly, as required by AASB 1058, revenue will continue to be recognised as it is received and no adjustments are required on adoption of the new standard.
Volunteer services received by the AASB and AUASB in lieu of board member sitting fees, secondee arrangements and audit fees can all be reliably measured at fair value and would have been obtained under a commercial arrangement, therefore continue to be recognised as revenue and an expense in the statements, as AASB and AUASB had commenced recognising these volunteer services in prior years. Other volunteer services such as the use of meeting rooms and panel members time have been assessed and do not meet the recognition requirements, as they would not otherwise have been paid on commercial terms. However, as the extent of reliance on these services is significant, the quantum and nature of these services has been disclosed in Note 3D.
AASB 16 Leases replaces AASB 117 Leases. The AASB as a lessee, recognises an asset (the right to use the leased item) and a financial liability to pay rentals. The only exceptions are short-term leases (i.e. lease term of 12 months or less) and low-value leases. Interest expense is recognised on the lease liability and depreciation expense on the right-of-use asset. The right of use asset is measured at cost.
The AASB has applied AAS16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under AASB 117.
The AUASB is not a lessee under AASB 16 as the MOU between AASB and AUASB does not specifically identify any assets for which the AUASB has a right of use.
On adoption of AASB 16, the AASB recognised right-of-use assets and lease liabilities in relation to leases of office space, which had previously been classified as operating leases.
The lease liabilities were measured at the present value of the remaining lease payments, discounted using the AASB incremental borrowing rate as at 1 July 2019. The AASB incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 0.0823%.
The right-of-use assets were measured as follows; Office space measured at an amount equal to the lese liability, adjusted by the amount of any prepaid or accrued lease payments.
Impact on transition:
On transition to AASB 16, the AASB recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below:
1 July 2019
Right-of-use assets- Building
The net impact on retained earnings on 1 July 2019 was an increase of $103,575 due to the derecognition of a lease incentive for a rent-free period. The lease incentive was previously included in Other Payables and recognised on a straight-line basis as reduction of rental expense as per AASB 117.
In applying AASB 16 for the first time, AASB has used the following practical expedients permitted by the standard:
- Relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review – there were no onerous contracts as at 1 July 2020, and
- Excluding initial direct costs for the measurement of the right -of-use asset at the date of initial application.
AASB has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, AASB relied on its assessment made applying AASB 117 and Interpretation 4 Determining whether an Arrangement contains a Lease.
Revaluation of ROU
AASB elected to measure the Buildings Right-of-Use Asset at cost as per AASB 16.
The following table reconciles the Departmental 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:
1 July 2019
Minimum operating lease commitment at 30 June 2019
Less: effect of discounting using the incremental borrowing rate as the date of initial applications
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Lease liabilities recognised at 1 July 2019
Of which are:
Current lease liabilities
Non-Current lease liabilities
B) New standards effective for years commencing after 30 June 2020
New standards, amendments to standards and interpretations that are applicable to future periods have been issued by the AASB. None of these are expected to have a material impact on future reporting periods, either because the AASB and AUASB do not conduct the types of transactions addressed by the pronouncements or because the extent to which they may impact the AASB and AUASB is not expected to be material.
The Offices of the AASB and AUASB are exempt from all forms of taxation, except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).
1.5 Financial Instruments
AASB and AUASB have the following financial assets: cash and cash equivalents, management fee receivable and trade receivables. Management fee receivable and trade receivables are measured at amortised costs. The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment.
The net fair values of cash and cash equivalents, management fee receivable and trade receivables of the AASB and AUASB approximates their carrying amounts.
Financial assets are assessed for impairment at the end of each reporting period based on the simplified Expected Credit Losses (ECL) approach. The ECL are calculated using the provision matrix that is based on historical credit loss experience adjusted for forward looking factors specific to the debtors and the economic environment. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.
The Offices of the AASB and AUASB are exposed to minimal credit risk due to the nature of the trade receivables, as they represent funding from State and Territories or Commonwealth Government. As there is no history of credit losses in the past and no forward-looking factors indicated differently, no allowance for ECL has been recognised.
The majority of trade receivables relates to a funding agreement between the Office of the AASB and the States and Territories. The current agreement runs from 1 July 2019 to 30 June 2021. Income is received in equal quarterly instalments and is recognised when controlled. All receivables are due in the next 12 months.
Financial instrument liabilities
The net fair value of trade creditors and management fee payable of the AASB and AUASB approximate their carrying amount.
1.6 Plant & 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).
Following initial recognition at cost, property, plant and equipment are carried at fair value (or an amount not materially different from 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 depended upon the volatility of movements in market values for the relevant assets.
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:
All assets were assessed for impairment at 30 June 2020.
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.
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.
Lease 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.