Overview

Objective of Rural Industries Research and Development Corporation

The Rural Industries Research and Development Corporation, trading as AgriFutures Australia,
(Corporation) is an Australian Government controlled Corporation defined as a corporate commonwealth entity in the Public Governance, Performance and Accountability Act 2013. The objective of the Corporation is to contribute to the productivity and sustainability of Australia through rural innovation by working with industry and government. In doing this we generate the knowledge to help rural industries and communities to capture opportunity and manage change. Growing the productivity and sustainability of rural industries through innovation is a key driver of the prosperity and resilience of rural Australia.

The Corporation is structured to meet a single outcome:

Increased knowledge that fosters sustainable, productive and profitable new and existing rural
industries and furthers understanding of national rural issues through research and development in government-industry partnership.

The continued existence of the Corporation in its present form and with its present programmes is
dependent on Government policy and on continuing funding by Parliament for the Corporation’s
administration and programs.

The Basis of Preparation

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.

The Correction of a Prior Period Error

In August 2019, the Department of Agriculture, Water and the Environment (“Department”) in consultation with Corporation noted that the requirements of the Primary Industry Research & Development Act 1989 (PIRD Act) had been applied incorrectly in calculating the Commonwealth matching funding previously paid by the Department to the Corporation until 2018-19.

Commonwealth matching funding is calculated under the PIRD Act and capped at the lessor of 50% of eligible expenditure (expenditure cap) or 0.5% of industry gross value of production (GVP cap). Historically, the GVP cap was applied on an industry by industry basis, however the PIRD
Act requires the GVP cap to be calculated on an aggregated industry basis.

In addition, based on the external legal advice sought by the Department in the current year, the Department also instructed the Corporation to include appropriation funded programs as eligible research expenditure for matching purposes.

This change in calculation methodology for Commonwealth matching funding meets the definition
of prior period error as defined in AASB 108 - Accounting Policies, Changes in Accounting Estimates and Errors as it is an error is in the nature of a mathematical mistake arising from misinterpretations of facts as the PIRD Act itself has not changed.

This has resulted in the Corporation receiving a one-off back payment of $21.4 million in the current financial year. $5.5m of the payment related to 2018-19 and the balance $15.9m of the prior period error related to 2017-18 and earlier periods.

The error has been corrected by restating each of the affected financial statement line items on the principal financial statements and their respective notes as follows:

New Accounting Standards

No accounting standard has been adopted earlier than the application dates as stated in the standard.

The new standards, revised standards, interpretations and amending standards that were issued prior to the sign off date and are applicable to the current reporting period did not have a material impact on the 2019-20 financial statements.

Application of AASB 15 Revenue from Contracts with Customers / AASB 1058 Income of Not-For-Profit Entities

The Corporation adopted AASB 15 and AASB 1058 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 2019 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 the Corporation 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), the Corporation applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, the Corporation shall consider whether AASB 1058 applies.

In relation to AASB 15, the Corporation elected to apply the new standard to all new and uncompleted contracts from the date of initial application. The Corporation is required to aggregate the effect of all of the contract modifications that occur before the date of initial application.

In terms of AASB 1058, the Corporation is required to recognise volunteer services at fair value if those services would have been purchased if not provided voluntarily, and the fair value of those services can be measured reliably. The Corporation did not have any volunteer services and therefore there was no impact on transition as at 1 July 2019.

The impact on transition is summarised below:

Application of AASB 15 Revenue from Contracts with Customers / AASB 1058 Income of Not-For-Profit Entities (Continued)

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:

Application of AASB 16 Leases

The Corporation 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 Corporation 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. The Entity 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, the Corporation previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, the Corporation recognises right-of-use assets and lease liabilities for most leases.

On adoption of AASB 16, the Corporation 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 Corporation’s incremental borrowing rate as at 1 July 2019. The Corporation’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 assets for office space were 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 Corporation recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings.

The impact on transition is summarised below:

The following table reconciles the Departmental minimum lease commitments disclosed in the Corporation's 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019:

Taxation

The Corporation is exempt from all forms of taxation except fringe benefits tax (FBT) and the goods and services tax (GST).

Events After the Reporting Period

The Corporation has been impacted by the COVID-19 pandemic with key events held by the Corporation either cancelled or deferred. There have also been minor impacts on project delivery due to the effects of COVID-19 on research organisations. The pandemic is not expected to impact on the Corporation’s ability to operate as a going concern due to the Corporation’s diverse income streams and cash reserves.

Financial Performance

This section analyses the financial performance of the Rural Industries Research & Development Corporation for the year ended 2020.

1.1 Expenses

ACCOUNTING POLICY

Accounting policies for employee related expenses is contained in the People and relationships section.

ACCOUNTING POLICY

The Corporation manages research project expense through project contracts which require research partners to perform services in accordance with scheduled milestones. Research project expenses are recognised when the contracted milestone payments are due.

ACCOUNTING POLICY

The Entity 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 entity recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

1.2: Own-source revenue and gains

ACCOUNTING POLICY

Industry Levies
Under Section 30(1)(a) of the Primary Industries Research and Development Act 1989 (PIRD Act), each program to which a levy is attached receives industry levies. These contributions to the Corporation are collected and distributed by the Australian Government under the various Levy Collection Acts. Industry levies revenue is recognised as income of not-for-profit entities in accordance with AASB 1058, when the Corporation has an unconditional right to receive cash which usually coincides with when the amounts are paid or payable by the Government to the Corporation.

ACCOUNTING POLICY

Revenue from Contracts with Customers
The following is a description of principal activities from which the Corporation generates its revenue from Contracts with Customers:

  Research projects. Industry contributions are contributions from industry organisations to projects and Australian Government Grants are grants to a program managed by the Corporation; and

  Sponsorships and ticket sales for events managed by the Corporation.

The Corporation has determined that all revenue from contracts with customers are recognised as income of not-for-profit entities in accordance with AASB 1058, except for those that are enforceable and with sufficiently specific performance obligations and are accounted for as revenue from contracts with customers in accordance with AASB 15.

The impact of initially applying AASB 1058 on the Corporation’s revenue is described in Overview. Due to the modified retrospective transition method chosen in applying AASB 1058, comparative information has not been restated to reflect the new requirements. The adoption of AASB 1058 did not have an impact on Other comprehensive income and the Statement of Cash flows for the financial year.

Revenue is accounted for under AASB 15 when the underlying contract contains identifiable and measurable performance obligations. Revenue is recognised over time as the Corporation satisifes each of the performance obligations in the contract. The transaction price is the total amount of consideration to which the corporation expects to be entitled in exchange for transferring promised goods or services to a customer. Revenue is recognised using the input method of milestone payments paid to research organisations to allocate the transaction price to performance obligations.

Revenue is accounted for under AASB 1058 when the underlying contract does not contain identifiable performance obligations, or that are not enforceable. They are recognised when the Corporation has an unconditional right to receive cash which usually coincides with receipt of cash.

As a result of the transitional impacts of adopting AASB 15, a portion of revenue from contracts with customers has been deferred and has been recognised in contract liabilities.

Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance account. Collectability of debts is reviewed at end of the reporting period. Allowances are made when collectability of the debt is no longer probable.

ACCOUNTING POLICY

Royalties
The Corporation receives a portion of the total royalties paid under commercialisation agreements. The Corporation has voluntarily changed the accounting policy for royalties in 2019-20 with royalties recognised under AASB 1058 on an accrual basis when the royalty is entitled to be received by the Corporation.

Under the voluntary change in accounting policy, royalties relating to the current year are accrued using either an estimation by the entity collecting the royalty or on a three year average of royalties collected. This change provides reliable and more relevant information as it ensures that revenue is recorded in the correct accounting period. The effect of the change in accounting policy is an increase in royalties revenue of $0.3m in the 2019-20 financial year.

ACCOUNTING POLICY
Revenue from Government
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 Corporation unless the funding is in the nature of an equity injection or a loan.

Under Section 30(1)(b) of the Primary Industries Research and Development Act 1989 (PIRD Act), the Australian Government provides matching payments, within certain parameters, equal to one half of the amount expended by each program. Matching payments are recognised as Revenue from Government when the necessary expense is recognised.

Financial position

2:1 Financial assets

This section analyses the Rural Industries Research & Development Corporation assets used to conduct its operations and the operating liabilities incurred as a result. Employee related information is disclosed in the People and Relationships section.

ACCOUNTING POLICY

Financial Assets
Trade receivables, loans and other receivables that are held for the purpose of collecting the contractual cash flows where the cash flows are solely payments of principal and interest, that are not provided at below-market interest rates, are subsequently measured at amortised cost using the effective interest method adjusted for any loss allowance.

ACCOUNTING POLICY

Term Deposits
The Corporation retains sufficient funds in cash to meet immediate working capital requirements. Amounts over this requirement are invested in term deposits usually on three month terms.

Interest revenue is recognised on an accrual basis.

2.2: Non-financial assets

ACCOUNTING POLICY

Assets are recorded at cost on 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.

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 $300, 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 the property leases taken up by the Corporation where there exists an obligation to restore the property to original condition. These costs are included in the value of the Corporation’s buildings with a corresponding provision for the ‘make good’ recognised.

Revaluations
Following initial recognition at cost, property, plant and equipment (excluding ROU assets) is 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 do 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 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.

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.

On initial adoption of AASB 16 the Corporation has adjusted the ROU assets at the date of initial application by the amount of any provision for onerous leases recognised immediately before the date of initial application. Following initial application, an impairment review is undertaken for any right of use lease asset that shows indicators of impairment and an impairment loss is recognised against any right of use lease asset that is impaired. Lease ROU assets continue to be measured at cost after initial recognition in Commonwealth agency, GGS and Whole of Government financial statements.

Depreciation
Depreciable plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Corporation 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:

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 to 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.

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 Corporation were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

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

Intangibles
The Corporation’s intangibles comprise purchased software. 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 life of the Corporation’s software is 5 years (2019: 5 years).

All software assets were assessed for indications of impairment as at 30 June 2020.

2.3: Payables

2.4 Interest Bearing Liabilities

ACCOUNTING POLICY
Refer Overview section for accounting policy on leases.

2.5 Other Provisions

People and relationships

3.1 Employee provisions

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

ACCOUNTING POLICY
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 if 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.

The liability for long service leave has been determined by reference to the shorthand method as per the FRR and Commonwealth Entity Financial Statements Guide. The estimate of the present value of the liability takes into account attribution rates and pay increases through promotion and inflation.

Superannuation
Employees of the Corporation are members of the Public Sector Superannuation Scheme (PSS), or the PSS accumulation plan (PSSap), or other superannuation funds held outside the Australian Government.

The PSS is a defined benefit scheme for the Australian Government. The PSSap is a defined contribution scheme.

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 Corporation makes employer contributions to employee’s defined benefit superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. The Corporation 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.

Accounting Judgements and Estimates
The liability for long service leave has been estimated using present value techniques in accordance with the shorthand method as per FFR 24. This takes into account expected salary growth, attrition and future discounting using Commonwealth bond rates.

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 Corporation, directly or indirectly, including any director (whether executive or otherwise) of the Corporation. The Corporation has determined the key management personnel to be the Managing Director, six Directors and four General Managers. Key management personnel remuneration is reported in the table below:

The total number of key management personnel that are included in the above table are 11 individuals (2019: 12 individuals).

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 Corporation.

3.3: Related party disclosures

Related party relationships:
The Corporation is an Australian Government controlled entity. Related parties to this entity are Directors 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 directors and key management personnel of the Corporation during the year were:

There were no transactions with related parties during the financial year which require disclosure in this note.

Executive remuneration reporting

Managing uncertainties

4.1 Contingent liabilities and assets

This section analyses how the Rural Industries Research & Development Corporation manages financial risks within its operating environment.

Quantifiable contingencies
As at 30 June 2020, the Corporation has no quantifiable contingencies (2019: nil).

Unquantifiable contingencies
As at 30 June 2020, the Corporation has no unquantifiable contingencies (2019: nil).

ACCOUNTING POLICY
Contingent liabilities and contingent assets are not recognised in the statement of financial position but are reported in the notes. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability 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.

4.2 Financial instruments

4.2C: Net Gains or Losses on Financial Liabilities

There is no gains or losses on financial liabilities for the period ending 30 June 2020 (2019: nil).

The 2019 comparative for Trade receivables and Total financial assets at amortised cost has been restated. Refer to the Prior Period Error note in the Overview for further information.

ACCOUNTING POLICY
Financial assets
The Corporation classifies its financial assets in the following categories:

a) financial assets at fair value through profit or loss;
b) financial assets at fair value through other comprehensive income; and
c) financial assets measured at amortised cost.

The classification depends on both the Corporation’s business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when the entity becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

Financial Assets at Amortised Cost
Financial assets included in this category need to meet two criteria:

1. the financial asset is held in order to collect the contractual cash flows; and
2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective Interest Method
Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Financial Assets at Fair Value Through Other Comprehensive Income (FVOCI)
Financial assets measured at fair value through other comprehensive income are held with the objective of both collecting contractual cash flows and selling the financial assets and the cash flows meet the SPPI test.

Any gains or losses as a result of fair value measurement or the recognition of an impairment loss allowance is recognised in other comprehensive income.

Financial Assets at Fair Value Through Profit or Loss (FVTPL)
Financial assets are classified as financial assets at fair value through profit or loss where the financial asset either doesn't meet the criteria of financial assets held at amortised cost or at FVOCI (i.e. mandatorily held at FVTPL) or may be designated.

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates an interest earned on the financial asset.

Impairment of Financial Assets
Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12-month expected credit losses if risk has not increased.

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset.

Financial Liabilities
Financial liabilities are classified as either financial liabilities 'at fair value through profit or loss' or other financial liabilities. Financial liabilities are recognised and derecognised upon 'trade date'.

Financial Liabilities at Fair Value Through Profit or Loss
Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit or loss. The new gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

Financial Liabilities at Amortised Cost
Financial liabilities, including borrowing, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received.

4.3: Fair Value Measurement

Fair value measurements at the end of the reporting period

ACCOUNTING POLICY
All property, plant and equipment are measured at fair value in the Statement of Financial Position.
When estimating fair value, market prices were used where available. Where market prices were not available, depreciated replacement cost was used (i.e. level 3).

Level 3 measurements use inputs to estimate fair value where there are no observable market prices for the assets being valued.

Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the asset’s 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.

5.1: Aggregate assets and liabilities