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Notes to the Financial Statements

Overview

Objectives of the Regional Investment Corporation

The RIC is an Australian Government controlled entity. The objective of the RIC is to administer financial assistance on behalf of the Australian Government to farm businesses, farm-related small businesses, states and territories to encourage growth, investment and resilience in rural and regional communities and Australian farm businesses utilising efficient, fair and transparent lending practices.

Functions of the Regional Investment Corporation

The key functions of the RIC, as prescribed under its enabling legislation are:

  1. to administer farm business loans;
  2. to administer, on behalf of the Commonwealth, financial assistance to States and Territories in relation to water infrastructure projects.

The continued existence of the RIC is dependent on Government policy and on continuing funding by Parliament for the RIC's administration and programmes.

The Basis of Preparation

The financial statements are general purpose financial statements as 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); and
  2. 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 which are recorded 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 dollar, unless otherwise specified.

New Accounting Standards

All new, revised or amending standards and/or interpretations that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect on the RIC’s financial statements.

Standard/ Interpretation

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 – Australian 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.

This standard does not apply to the RIC as it does not receive contract revenue. Income received by the RIC is out of scope of AASB 15 and therefore there is no significant effect to the accounting results on the implementation of this standard.

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.

ASB 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 relevant notes to the financial statements.

Application of AASB 16 Leases

The RIC 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 2020 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

The RIC 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 will be applied only to contracts entered into or changed on or after 1 July 2019. As at 30 June no new leases as defined under AASB 16 had been entered into.

AASB 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The RIC applied the following practical expedient when applying AASB 16 to its office leases previously classified as operating leases under AASB 117. The RIC chose to 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.

On adoption of AASB 16, the RIC recognised right-of-use assets and lease liabilities in relation to its lease of office space, which had previously been classified as an operating lease.

As a lessee, the RIC previously classified its lease as an operating lease based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, the RIC recognises right-of-use assets and lease liabilities for one lease. However, the RIC has elected not to recognise right-of-use assets and lease liabilities for a low value short-term lease.

The lease liability was measured at the present value of the remaining lease payments, discounted using the RIC’s incremental borrowing rate as at 1 July 2019. The RIC’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 1.88%.

The right-of-use asset (office space) was measured:

  1. 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 RIC recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below:

Impact on Transition of AASB 16

Departmental

1 July 2019

Right-of-use assets - property, plant and equipment

836,170

Lease liabilities

748,217

Retained earnings

4,631

The following table reconciles the RIC's minimum lease commitments disclosed in the 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

438,936

Plus: effect of extension options reasonably certain to be exercised

338,345

Undiscounted lease payments

777,281

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

29,064

Lease liabilities recognised at 1 July 2019

748,217

Taxation

The RIC is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

Events after the reporting period

There are no known events occurring after the reporting period that could have a material impact on the financial statements.

Note 1: Financial Performance

This section analyses the financial performance of the RIC for the period ended 30 June 2020.

Note 1.1: Expenses

2020

2019

$

$

Note 1.1A: Employee benefits

Wages and salaries

3,454,240

1,385,719

Superannuation

Superannuation

365,314

139,463

Leave and other entitlements

548,046

161,538

Separations

50,188

-

Total employee benefits

4,417,788

1,686,720

Accounting Policy

Accounting policies for employee related expenses are contained in Note 3: People and Relationships

Note 1.1B: Suppliers

Goods and services supplied or rendered

2020

$

2019

$

Consultants

1,245,794

708,783

Contractors

729,312

2,176,417

Property operating costs

145,521

181,721

Information technology services

244,873

160,126

Legal services

70,543

58,379

Marketing and communications

262,497

180,544

Recruitment services

109,940

143,996

Staff training and development

116,687

13,260

Travel

300,855

283,541

Other goods and services

227,471

329,712

Loan service provider

7,755,458

5,737,374

Total goods and services supplied or rendered

11,208,951

9,973,853

Other suppliers

Workers compensation expenses

11,215

-

Short-term leases

38,047

-

Total other suppliers

49,262

-

Total suppliers

11,258,213

9,973,853

The RIC has applied AASB 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under AASB 117.

Included within the balance of Other goods and services is the 2019-20 ANAO Audit fee paid by the RIC as a paying entity of $75,000 (2018-19: $90,000).

The above lease disclosures should be read in conjunction with the accompanying notes and Note 2.4A.

2018-19 represented the first full year of operations for the Regional Investment Corporation. The entity’s operations have continued to develop during 2019-20 and have seen an increase in the value and volume of its financial transactions.

Accounting Policy

Short-term leases and leases of low-value assets

The RIC has elected not to recognise right-of-use assets and lease liabilities for short-term leases of assets that have a lease term of 12 months or less and leases of low-value assets (less than $10,000). The RIC recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

2020

2019

$

$

Note 1.1C: Finance costs

Interest on lease liabilities

11,918

-

Total finance costs

11,918

-

The RIC has applied AASB 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under AASB 117.

The above lease disclosures should be read in conjunction with the accompanying notes and 2.4A.

Note 1.2: Own-Source Revenue and Gains

2020

2019

$

$

Note 1.2A: Interest

Deposits

50,365

87,911

Total Interest

50,365

87,911

Note 1.2B Revenue from Government

Department of Agriculture, Water and the Environment

Revenue from government

15,477,000

12,555,000

Total revenue from Government

15,477,000

12,555,000

Accounting Policy

Revenue from Government

Funding received or receivable from DAWE (appropriated to Agriculture as a corporate Commonwealth entity payment item for payment to the RIC) is recognised as Revenue from Government by the RIC unless the funding is in the nature of an equity injection or a loan.

Amounts transferred to the RIC from appropriations to DAWE (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the RIC gains control of the appropriation, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. Appropriations receivable are recognised at their nominal amounts.

Note 2: Financial Position

This section analyses RIC’s assets used to conduct its operations and the operating liabilities incurred as a result. Employee related information is disclosed in Note 3: People and Relationships.

Note 2.1: Financial Assets

2020

2019

$

$

Note 2.1A: Cash and cash equivalents

Cash on hand or on deposit

10,488,646

8,465,177

Total cash and cash equivalents

10,488,646

8,465,177

Note 2.1B: Trade and other receivables

Goods and services receivable

Employee receivables

-

96,014

GST

-

104,888

Other

349

-

Total goods and services receivable (gross)

349

200,902

Credit terms for goods and services were 30 days.

Accounting Policy

Financial assets

Trade receivables have fixed or determinable payments and are not quoted in an active market. Receivables are measured at amortised cost using the effective interest method adjusted for any impairment.

Note 2.2: Non-Financial Assets

Note 2.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles

Buildings

Property, plant and equipment

Total

$’000

$

$

As at 1 July 2019

Gross book value

-

333,923

333,923

Accumulated depreciation

-

(46,126)

(46,126)

Total as at 1 July 2019

-

287,797

287,797

Recognition of right of use asset on initial application of AASB 16

831,539

-

831,539

Adjusted total as at 1 July 2019

831,539

287,797

1,119,336

Additions

Purchased

-

152,349

152,349

Right-of-use assets

-

-

Revaluations and impairments recognised in other comprehensive income for right-of-use assets

-

-

-

Impairments on right-of-use assets recognised in net cost of services

-

-

-

Depreciation

-

(93,273)

(93,273)

Depreciation on right-of-use assets

(151,188)

-

(151,188)

Other movements of right-of-use assets

-

-

-

Total as at 30 June 2020

680,351

346,873

1,027,224

Total as at 30 June 2020 represented by:

Gross book value

831,539

486,272

1,317,811

Accumulated depreciation, amortisation and impairment

(151,188)

(139,399)

(290,587)

Total as at 30 June 2020

680,351

346,873

1,027,224

Carrying amount of right-of-use assets

680,351

-

680,351

Accounting Policy

Non-Financial assets

All assets have been purchased within the last two financial years and have been assessed for any indications of impairment at stocktake in February, as yet none is evident.

No property plant and equipment are expected to be sold or disposed of within the next 12 months.

Revaluations of Non-Financial Assets

Following initial recognition at cost, property, plant and equipment (excluding ROU assets) are carried at fair value (or an amount not materially different from fair value) less subsequent accumulated depreciation and accumulated impairment losses.

No revaluations of non-financial assets have been undertaken this financial year. All assets have been purchased within the last two financial years and the net book value represents fair value.

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.

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 $5,000, 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).

Lease Right of Use (ROU) Assets

The RIC has recognised one right of use lease liability for its commercial office premises at 122-124 Kite Street Suite 2, Orange.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the RIC 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.

Asset class

Useful life

Property, plant and equipment

Between 3-5 years

The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Impairment

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. No indications of impairment exist for any fixed asset or for the Right of use asset.

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. No items of property, plant and equipment have been disposed of this financial year.

Fair Value

All property, plant and equipment are measured at their estimated fair value in the Statement of Financial Position. All property, plant and equipment held by the RIC are categorised under Level 2 in accordance with the hierarchy listed in AASB 13.

Level 2 measurements uses inputs other than quoted prices that are observable for the asset. The future economic benefits of the RIC’s property, plant and equipment are not primarily dependent on their ability to generate cash flows.

2020

2019

$

$

Note 2.2B: Other non-financial assets

Prepayments

70,503

86,071

Total other non-financial assets

70,503

86,071

No indicators of impairment were found for other non-financial assets.

Note 2.3: Payables

2020

2019

$

$

Note 2.3A: Supplier payables

Trade creditors and accruals

2,787,906

954,529

Total supplier payables

2,787,906

954,529

Settlement is usually made for suppliers within 30 days.

2020

2019

$

$

Note 2.3B Other payables

Salaries and wages

119,190

23,459

Superannuation

53,800

29,280

Statutory payables

47,206

60,897

Total other payables

220,197

113,636

Note 2.4: Interest Bearing Liabilities

2020

2019

$

$

Note 2.4A: Leases

Lease Liabilities

646,419

-

Total leases

646,419

-

Total cash outflow for leases for the year ended 30 June 2020 was $119,491.

Accounting Policy

Refer Overview section for accounting policy on leases.

Note 3: People and Relationships

This section describes a range of employment and post-employment benefits provided to our employees and our relationships with other key people.

Note 3.1: Employee Provisions

2020

2019

$

$

Note 3.1A: Employee provisions

Annual Leave

233,388

76,132

Long Service Leave

316,469

108,292

Total employee provisions

549,857

184,424

Accounting Policy

During the 2019-20 financial year the RIC has seen a significant increase in overall staffing numbers which has contributed to the increase in employee leave provisions from 2018-19. The RIC is also a relatively new agency and the average length of time employees have been with the agency significantly increased during the financial year also contributing to the increase in the employee leave provisions from 2018-19.

Liabilities for short-term employee benefits and termination benefits expected within twelve months of the end of reporting period are measured at their nominal amounts.

Leave

The liability for employee benefits includes provision for annual leave and long service 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 RIC’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 determined by reference to the Department of Finance 2019-20 standard parameters and using the Shorthand Method. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Superannuation

The RIC's staff are members of various Superannuation Schemes. The RIC makes employer contributions to the employee superannuation schemes and these are expensed in the financial statements.

There are staff who are members of the PSS which is a defined benefit scheme for the Australian Government.

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 administered schedules and notes. The RIC makes employer contributions to the Department of Agriculture, Water and the Environment on behalf of staff who remain members of the defined benefit scheme. The employees' defined benefit superannuation is at rates determined by an actuary to be sufficient to meet the current cost to the Government. The RIC 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.

Note 3.2: Key Management Personnel Remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the RIC, directly or indirectly, including any director (whether executive or otherwise) of the RIC. The RIC has determined the key management personnel to be the Chief Executive Officer, the Executive Leadership team and the Board. Key management personnel remuneration is reported in the table below:

2020

2019

$

$

Note 3.2A: Key management personnel remuneration

Short-term employee benefits

907,003

519,451

Other long-term employee benefits

39,385

2,579

Post-employment benefits

98,661

48,329

Total key management personnel remuneration expenses

1,045,049

570,359

There are ten (10) key management personnel included in the above table this includes David Foster who was Chair of the Board until he resigned on 3 October 2019 (seven people in 2018-19).

The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister's remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the RIC.

Note 3.3: Related Party Disclosures

Related party relationships:

The RIC is an Australian Government controlled entity. Related parties to the RIC are Directors, Key Management Personnel including the Portfolio Minister and Executive, and other Australian Government entities.

Transactions with related parties:

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include the payment or refund of taxes, receipt of a Medicare rebate or higher education loans. These transactions have not been separately disclosed in this note.

The following transactions with related parties occurred during the financial year:

  • The RIC was setup by a dedicated transition team seconded from the Department of Agriculture, Water and the Environment, this involved paying for a number of seconded staff, and their related expenses in order to set up and recruit the full ongoing arrangements for the RIC. During the 2019-20 financial period an amount of $109,988 was paid to the Department mainly for the provision of these services.

Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the RIC, it has been determined that there are no other related party transactions to be separately disclosed.

Note 4: Managing Uncertainties

This section analyses how the Agency manages financial risks within its operating environment.

Note 4.1: Contingent Assets and Liabilities

The Regional Investment Corporation does not have any quantifiable or unquantifiable contingencies for 2020 (nil: 2018-19).

Note 4.2: COVID-19

The Regional Investment Corporation is impacted by the global pandemic of COVID19.

Impairments

There has been no evidence of impairment on fixed assets due to COVID19.

The responsibility for impairing loans rests with DAWE.

Employee Provisions

Employee provisions have been estimated using the same assumptions as previous years.

Impact of COVID19 on the RIC’s Loan service provider (LSP)

The LSP has addressed the risks of COVID19 and business disruption by implementing a flexible work pattern and dividing the workforce into two groups. The two groups have access to the office on alternate weeks to minimise cross infection of staff.

The LSP has also outsourced some of the credit work to other credit providers further reducing risks of business disruption due to COVID19.

Operational Challenges at the RIC

The RIC has been in an expansion phase due to Government policy changes implemented prior to COVID19 pandemic, with some of the planned expansion delayed due to the global pandemic.

The RIC has continued to expand its credit services team during COVID19 and additional staff have been set up to work from home after completing comprehensive training at the Orange office.

Note 5: Other Information

Note 5.1: Aggregate Assets and Liabilities

2020

2019

$

$

Note 5.1A: Aggregate Assets and Liabilities

Assets expected to be recovered in:

No more than 12 months

10,710,687

8,752,150

More than 12 months

876,035

287,797

Total assets

11,586,722

9,039,947

Liabilities expected to be settled in:

No more than 12 months

3,480,275

1,157,357

More than 12 months

724,104

95,232

Total liabilities

4,204,379

1,252,589

Note 5.2: Assets Held in Trust

The RIC receives funds from DAWE for the purpose of funding approved concessional loans. Any balance of funds received from DAWE, the bank or loan recipients that are yet to be disbursed are held in trust on behalf of the loan recipient.

There are a number of circumstances that could result in individual loan settlements being rejected or delayed, this may be due to incorrect account details or circumstances changing at the point of settlement. In this situation funds are paid out of the bank account to the settlement trust account, returned and paid out again. The RIC only accounts for the receipt of the funds once and the payment of the funds once (even if funds are returned and paid out on a number of occasions).

The assets held in trust reflects the difference between the funds received and the funds disbursed at the end of the financial year. The Cashflow statement records the amount of funds received that have been lent to the loan recipients (2020: $396,000,529). Payments in the assets held in trust includes funds lent to loan recipients, interest returned to DAWE and principal repayments returned to DAWE. Similarly receipts includes receipt of interest from loan recipients and the bank, receipt of principal repaid and receipts of funds from DAWE.

At the 30th June 2020 the difference between what the RIC has received and what has been lent or returned is the asset held in trust.

2020

2019

$

$

Note 5.2A: Loan funding received but not disbursed

As at 1 July

Assets held in trust added to receipts

932,965

-

Receipts

419,192,899

28,501,465

Payments

400,018,339

27,568,500

Total as at 30 June

20,107,525

932,965

Total amount held at the end of the reporting period

20,107,525

932,965

Non-monetary assets

The RIC does not hold any non-monetary assets in trust.

Note 5.3: Budget Variances

Budget Variance Explanation

Affected statements and line items

Expansion of loan programs offerings and changes in loan settings resulting in a large increase in demand for loans. This has seen an expansion in staffing and an intention to increase office space that has commenced but been delayed due to COVID19.

Statement of Comprehensive Income:

  • Employee benefits
  • Depreciation

Statement of Financial Position:

  • Cash and cash equivalents
  • Total payable

The RIC received funding for a new measure, the new AgBiz loan program.

Statement of Comprehensive Income:

  • Revenue from Government

Statement of Cashflows:

  • Receipts from Government

The 2019-20 budget did not set budget expectations for the introduction of the new lease standard AASB16 asset and liability fixed assets or in retained earnings.

Financial Position:

  • Non-Financial assets
  • Interest Bearing Liabilities

Statement of Changes in equity:

  • Comprehensive income

The cashflow budget for 2019-20 did not include the loan funding and loan related cashflows. The cash that is used and received for loans offsets – the net cashflow reflects the operating activities only.

Statement of Cashflows

  • Cash Received
  • Cash Used

The original budget figures were reported in the 2019-20 Portfolio Budget Statements. This was subsequently updated during the financial year with the Minister of Finance’s approval. This allowed for an approved operating loss. The RIC considers major variance between budget and actuals is greater than 10% of the original estimate or it is considered important for the reader’s understanding.