Independent Audit Report

Statement by the Accountable Authorities, Chief Executive Officer and Chief Financial Officer

In our opinion, the attached financial statements for the year ended 30 June 2020 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.

In our opinion, at the date of this statement, there are reasonable grounds to believe that the Royal Australian Navy Central Canteens Board will be able to pay its debts as and when they fall due.

This statement is made in accordance with a resolution of the directors.

Statement of Comprehensive Income

FOR THE YEAR ENDED 30 JUNE 2020

The above statement of comprehensive income is to be read in conjunction with the attached notes.

Statement of Financial Position

38AS AT 30 JUNE 2020

The above statement of financial position is to be read in conjunction with the attached notes.

Statement of Changes in Equity

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020

The above statement of changes in equity is to be read in conjunction with the attached notes.

Cash Flow Statement

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2020

The above statement of cash flows is to be read in conjunction with the attached notes.

Notes to the Financial Statements

0NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

1 OVERVIEW

The Royal Australian Navy Central Canteens Board (RANCCB) is an Australian Government controlled entity. It is a not-for-profit entity.

1.1 Objectives of The Royal Australian Navy Central Canteens Board

The Royal Australian Navy Central Canteens Board (RANCCB) was established by the Navy (Canteens) Regulations, 1954. These Regulations were repealed and replaced by the Navy (Canteen) Regulation 2016. This Regulation provides that the Directors shall, subject to and in accordance with the Regulations, apply monies and property of the Fund; provide grants, loans and benefits for members of the Royal Australian Navy and further provide grants to the Royal Australian Navy Relief Trust Fund (RANRTF).

The continued existence of the RANCCB is dependent upon the Chief of Navy requiring the provision of services elaborated above.

1.2 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 and Accountability Act 2013.

The financial statements and notes 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 the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and is in accordance with historical cost convention, except for certain assets 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 statement is presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified. Rounding may cause totals to differ from the sum of the components.

All new, revised or amended 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 the entity’s financial statements.

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.

1.3 Taxation

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

1.4 Events after the Reporting Period

It is the opinion of the Directors that there has not been any matter or circumstance that has arisen since the end of the financial year that has significantly affected or may affect the Board’s operations, the result of those operations, or the Board’s state of affairs in the financial years following the period under review with the exception of COVID-19 as highlighted under Market Volatility - COVID 19 in the non-financial asset accounting policy note.

Accounting Policy

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 $500, 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).

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.

With the absence of records reflecting the cost of the RANCCB holiday parks at acquisition date, the allocation of costs between land, buildings and other plant and equipment at acquisition date and subsequent additions to land and buildings; management has relied upon land records, where available, to determine the allocation of revaluation surpluses. Revaluation surpluses have been allocated in the first instance to land and the residual apportioned between buildings and other infrastructure plant and equipment based on the carrying costs of those assets. The RANCCB holiday parks were acquired between the early 1970s to mid-1980s.

Revaluations

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 depended upon the volatility of movements in market values for the relevant assets.

For the purpose of determining the fair value of land, buildings and property, plant and equipment, management has relied on third party independent evaluators. Asset valuations were undertaken in June 2020 by Opteon Property Group and Acumentis.

The valuations were prepared in accordance with the International Valuation Standards and other applicable Valuation Standards as well as applicable financial reporting standards such as: AASB 13, AASB 116 and AASB 136. The assets have been valued on a stand-alone basis as single assets using:

Level 2 Inputs that are observable for the asset (or liability), either directly or indirectly; and

Level 3 Inputs for the asset (or liability) where relevant observable inputs are not available, i.e. situations in which there is little, if any, market activity.

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 reversed 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.

Market Volatility – COVID-19

The market is being impacted by uncertainty caused by the COVID-19 pandemic. As at the date of the valuation assessments, the valuers have stated that there is market uncertainty resulting in valuation uncertainty. The assessments are therefore reported on the basis of ‘valuation uncertainty’. Consequently, less certainty exists than normal and a higher degree of caution should be attached to valuation assessments than normally would be the case. The valuations at 30 June 2020 can be relied upon as at the date of valuation. Given the unknown future impact that COVID-19 might have on asset markets, the value assessed may change significantly and unexpectedly over a relatively short period of time.

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:

Description 2020 2019

Buildings From 5 to 50 Years From 5 to 50 Years

Property, Plant and Equipment From 2 to 10 Years From 2 to 10 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. No indicators of impairment were found for property, plant and equipment.

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 property plant or equipment is expected to be sold or disposed of within the next 12 months.

Intangibles

Intangibles comprise externally developed software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the RANCCB software are 3 years (2017-18 3 years).

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

Leasehold improvements

The fair value of leasehold improvements have been taken to be the market value of similar properties as determined by an individual valuer. In some instances, entity buildings are purpose-built and may in fact realise more or less in the market.

Accounting policy

Employee Provisions

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.

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.

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.

Separation and Redundancy

Provision is made for separation and redundancy benefit payments. The entity 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

The entity's staff are members of other superannuation funds held outside the Australian Government. Contributions are made by the RANCCB to employee superannuation funds and are charged as expenses when incurred.

The liability for superannuation recognised as at 30 June 20 represents outstanding contributions.

Accounting judgements and estimates

For the purpose of determining employee entitlements assumptions have been made on future increases in wages and salaries, future on cost rates and employee departure and period of service.

5.1 KEY MANAGEMENT PERSONNEL

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The entity has determined the key management personnel to be the Minister and Cabinet and Board of Directors who are appointed by the Chief of the Defence Force under the Navy (Canteen) Regulation 2016. In accordance with the Regulation, members of the Defence Force serving on the Board are restricted from receiving remuneration.

The total number of Directors disclosed above are 7 (FY18/19: 7).

5.2 RELATED PARTY DISCLOSURES

The entity is an Australian Government controlled entity. Related parties to this entity are Directors, Key Management Personnel and other Australian Government entities. The Chief of Navy has been delegated by the Chief of the Defence Force to appoint the Board.

Directors

The following persons were directors of RANCCB during the financial year:

Commodore M Miko (Chairman) - part year

Commodore S Ottaviano (Chairman) – part year

Captain J Metzl - part year

Captain C Ryan

Commander C Okely

Commander C Rice

Commander N Mann

Lieutenant Commander M Clarke – part year

Warrant Officer W Nicol

Transactions with directors or director-related entities

There were no transactions with directors or director-related parties in FY19/20 (FY18/19: $Nil). Directors who have a conflict or feel they may be perceived as having a conflict are required to excuse themselves from voting and from taking part in the deliberations.

Other transactions with directors or director-related entities

There were no other transactions with directors or director-related entities.

6.1 CONTINGENT ASSETS AND LIABILITIES

There are no contingent assets or liabilities as at 30 June 2020 (30 June 2019: $Nil).

Heading

Heading