Note 1: Summary of Significant Accounting Policies
1.1 Objectives of the Department
The Department of Foreign Affairs and Trade (the Department) is an Australian Public Service organisation. The objective of the Department is to support Australia's interests in international security, contribute to national economic and trade performance, promote global cooperation in partnership with other members of the international community and help Australian travellers and Australians overseas.
The Department is structured to meet three outcomes:
Outcome 1: The advancement of Australia’s international strategic, security and economic interests including through bilateral, regional and multilateral engagement on Australian Government foreign and trade policy priorities;
Outcome 2: The protection and welfare of Australians abroad and access to secure international travel documentation through timely and responsive travel advice and consular and passport services in Australia and overseas; and
Outcome 3: A secure Australian Government presence overseas through the provision of security services and information and communications technology infrastructure, and the management of the Commonwealth’s overseas owned estate.
The Department’s activities that contribute towards these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by the Department in its own right. Administered activities involve the management or oversight by the Department, on behalf of the Australian Government, of items controlled or incurred by the Australian Government.
The Department conducts the following administered activities;
- Consular and passport services;
- Public information services and public diplomacy; and
- Payments to international organisations.
The continued existence of the Department in its present form and with its present programs is dependent on Australian Government policy and on continuing appropriations by Parliament for the Department’s administration and programs.
1.2 Basis of Preparation of the Financial Report
The Financial Statements and notes are required by section 49 of the Financial Management and Accountability Act 1997 and are general purpose financial statements.
The financial statements and notes have been prepared in accordance with:
- Finance Minister’s Orders (FMOs) for reporting periods ending on or after 1 July 2010; and
- Australian Accounting Standards and Interpretations 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 are in accordance with the historical cost convention, except for certain assets at fair value or amortised cost. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.
The financial report is presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.
Unless an alternative treatment is specifically required by an accounting standard or the FMOs, assets and liabilities are recognised in the Balance Sheet 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 agreements equally proportionately unperformed are not recognised unless required by an accounting standard. Liabilities and assets that are unrealised are reported in the Schedule of Commitments and the Schedule of Contingencies (other than unquantifiable or remote contingencies, which are reported at Note 10).
Unless alternative treatment is specifically required by an accounting standard, income 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.
Administered revenues, expenses, assets, liabilities and cash flows reported in the Schedule of Administered Items and related notes are accounted for on the same basis and using the same policies as for Departmental items, except where otherwise stated in Note 1.22.
1.3 Significant Accounting Judgements and Estimates
In the process of applying the accounting policies listed in this note, the Department has made the following judgement that has a significant impact on the amounts recorded in the financial statements:
- the fair value of land and buildings has been taken to be the market value of similar properties as determined by an independent valuer. In some instances, the Department buildings are purpose built and may in fact realise more or less in the market.
No accounting assumptions or 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 Australian Accounting Standard Requirements
Adoption of New Australian Accounting Standard Requirements
No accounting standard has been adopted earlier than the application date as stated in the standard. The following new standards, amendments and interpretations, which were issued prior to the signing of the statement by the Chief Executive and Chief Financial Officer, were applicable to the current reporting period:
AASB 7 Financial Instruments: Disclosures – June 2010 (Compilation)
AASB 8 Operating Segments – May 2009 (Compilation)
AASB 118 Revenue – May 2009 (Compilation)
AASB 121 The Effects of Changes in Foreign Exchange Rates – June 2010 (Compilation)
AASB 128 Investments in Associates – June 2010 (Compilation)
AASB 132 Financial Instruments: Presentation – June 2010 (Compilation)
AASB 139 Financial Instruments: Recognition and Measurement – December 2009 (Compilation)
Future Australian Accounting Standard Requirements
The following new standards, amendments to standards or interpretations have been issued by the Australian Accounting Standards Board but are effective for future reporting periods. It is estimated that the adoption of these pronouncements will have no material future financial impact on the entity:
AASB 5 Non–current Assets Held for Sale and Discontinued Operations – October 2010 (Compilation)
AASB 9 Financial Instruments – December 2010 (Compilation)
AASB 101 Presentation of Financial Statements – October 2010 (Compilation)
AASB 107 Statement of Cash Flows – October 2010 (Compilation)
AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors – December 2009 (Compilation)
AASB 110 Events after the Reporting Period – December 2009 (Compilation)
AASB 118 Revenue – October 2010 (Compilation)
AASB 119 Employee Benefits – October 2010 (Compilation)
AASB 121 The Effects of Changes in Foreign Exchange Rates – October 2010 (Compilation)
AASB 124 Related Party Disclosures – December 2009 (Principal)
AASB 132 Financial Instruments: Presentation – October 2010 (Compilation)
AASB 137 Provisions, Contingent Liabilities and Contingent Assets – October 2010 (Compilation)
AASB 139 Financial Instruments: Recognition and Measurement – October 2010 (Compilation)
AASB 1031 Materiality – December 2009 (Compilation)
AASB 1054 Australian Additional Disclosures – May 2011 (Principal)
AASB 2010–6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] – November 2010
AASB 2010–7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] – December 2010
AASB 2011–1 Amendments to Australian Accounting Standards arising from the Trans–Tasman Convergence Project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132 & AASB 134 and Interpretations 2, 112 & 113] – May 2011
AASB 2011–2 Amendments to Australian Accounting Standards arising from the Trans–Tasman Convergence Project – Reduced Disclosure Requirements [AASB 101 & AASB 1054] – May 2011
AASB 2011–10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) [AASB 1, 8, 101, 124, 134, 1049 & 2011-8 and Interpretation 14] - September 2011
Interp. 4 Determining whether an Arrangement contains a Lease – December 2009 (Compilation)
Interp. 14 AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – December 2009 (Compilation)
Interp. 115 Operating Leases – Incentives – October 2010 (Compilation)
Interp. 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease – October 2010 (Compilation)
Interp. 132 Intangible Assets – Web Site Costs – October 2010 (Compilation)
Revenue from Government
Amounts appropriated for departmental output appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue when the Department 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.
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.
Parental Leave Payments Scheme
The Department offsets amounts received under Parental Leave Payments Scheme (for payment to employees) by amounts paid to employees under that scheme, because these transactions are only incidental to the main revenue-generating activities of the entity. Amount received by the entity not yet paid to employees would be presented gross as cash and a liability (payable). The total amount received under this scheme is disclosed as a footnote to the Note 4F: Revenue from Government.
Other Types of Revenue
Revenue from the sale of goods is recognised when:
- the risks and rewards of ownership have been transferred to the buyer;
- the Department retains neither managerial involvement nor effective control over the goods;
- the revenue and transaction costs incurred can be reliably measured; and
- it is probable that the economic benefits associated with the transaction will flow to the entity.
Revenue from the rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:
- the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
- the probable economic benefits of the transaction will flow to the entity.
The stage of completion of contracts at the reporting date is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the transaction.
Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any provision for bad and doubtful debts. Collectability of debts is reviewed at balance date. Allowances are made when collectability of the debt is no longer probable.
Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.
Other Resources Received Free of Charge
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 Australian Government Agency or Authority as a consequence of a restructuring of administrative arrangements (refer to Note 1.7).
Resources received free of charge are recorded as either revenue or gains depending on their nature.
Sale of Assets
Gains from disposal of non-current assets are recognised when control of the asset has passed to the buyer.
1.7 Transactions with the Government as Owner
Amounts appropriated that are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets (DCB) are recognised directly in contributed equity in that year.
Other Distributions to Owners
The FMOs require that distributions to owners be debited to contributed equity unless in the nature of a dividend. In 2010-11, by agreement with the Department of Finance and Deregulation, the Department returned from the Overseas Property Office net sale proceeds of $13,716,000 (2009-10: $5,927,000).
1.8 Employee Benefits
Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.
Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve months of balance date 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.
All other employee benefit liabilities are measured at the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.
The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave for Australia-based employees, as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Department is estimated to be less than the annual entitlement for sick leave. In the case of locally engaged staff at overseas posts, where the entitlement is vested, a liability has been recognised.
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 Department’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 with reference to an actuarial assessment conducted during 2010-11. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion, inflation and changes in the government bond rate.
Overseas conditions of service entitlements for officers during their posting are expensed as incurred. At reporting date the Department did not recognise any liability for overseas allowances, except as part of year-end salary accruals.
Separation and Redundancy
Provision is made for separation and redundancy benefit payments. The Department 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.
In some countries, locally engaged staff at overseas posts are entitled to separation benefits. The provision for these benefits has been classified as employee benefits.
Australia-based staff of the Department are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the Public Sector Superannuation accumulation plan (PSSap). The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap is a defined contribution scheme.
The liability for the 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 by the Department of Finance and Deregulation as an administered item.
The Department makes employer contributions to the employee superannuation schemes at rates determined by an actuary to be sufficient to meet the cost to the Australian Government of the superannuation entitlements of the Department’s employees. The Department accounts for the contributions as if they were contributions to defined contributions plans. Where required, the Department contributes superannuation to comply with overseas local labour laws.
Australia-based staff who are engaged on a temporary basis and locally engaged staff engaged overseas who are considered to be Australian residents for taxation purposes have compulsory employer superannuation contributions made on their behalf by the Department to the Australian Government Employees Superannuation Trust (AGEST) or another complying fund as nominated by them.
The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.
The Department administers defined benefit pension schemes for some locally engaged staff in North America, the United Kingdom and India on behalf of the Australian Government (refer to Note 17).
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 non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.
Where a non-current 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.
1.10 Borrowing Costs
All borrowing costs are expensed as incurred.
Cash is recognised at its nominal amount. Cash and cash equivalents includes cash on hand, cash held with outsiders, cash in special accounts, demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
1.12 Financial Assets
The Department classifies its financial assets in the following categories:
- financial assets at fair value through profit or loss;
- held-to-maturity investments;
- available-for-sale financial assets; and
- loans and receivables.
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Financial assets are recognised and derecognised upon ‘trade date’.
Effective Interest Method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through profit or loss.
Financial Assets at Fair Value through Profit or Loss
Financial assets are classified as financial assets at fair value through profit or loss where the financial assets:
- have been acquired principally for the purpose of selling in the near future;
- are a part of an identified portfolio of financial instruments that the Department manages together and has a recent actual pattern of short-term profit-taking; or
- are derivatives that are not designated and effective as a hedging instrument.
Assets in this category are classified as current assets.
Financial assets at fair value through profit or loss 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 any interest earned on the financial asset.
Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Department has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis.
Available-for-Sale Financial Assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.
Available-for-sale financial assets are recorded at fair value. Gains and losses arising from changes in fair value are recognised directly in the reserves (equity) with the exception of impairment losses. Interest is calculated using the effective interest method and foreign exchange gains and losses on monetary assets are recognised directly in profit or loss. Where the asset is disposed of or is determined to be impaired, part (or all) of the cumulative gain or loss previously recognised in the reserve is included in profit for the period.
Where a reliable fair value cannot be established for unlisted investments in equity instruments, cost is used. The Department has no such instruments.
Loans and Receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.
Impairment of Financial Assets
Financial assets are assessed for impairment at each balance date.
- Financial assets held at amortised cost - If there is objective evidence that an impairment loss has been incurred for loans and receivables or held to maturity investments held at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.
- Available-for-sale financial assets - If there is objective evidence that an impairment loss on an available-for-sale financial asset has been incurred, the amount of the difference between its cost, less principal repayments and amortisation, and its current fair value, less any impairment loss previously recognised in expenses, is transferred from equity to the Statement of Comprehensive Income.
- Available-for-sale financial assets (held at cost) - If there is objective evidence that an impairment loss has been incurred, the amount of the impairment loss is the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate for similar assets.
1.13 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 net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.
Other Financial Liabilities
Other financial liabilities, including borrowings, 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 yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
1.14 Supplier and other payables
Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).
1.15 Contingent Liabilities and Contingent Assets
Contingent liabilities and contingent assets are not recognised in the Balance Sheet but are reported in the relevant schedules and 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 and contingent liabilities are disclosed when settlement is greater than remote.
1.16 Financial Guarantee Contracts
Financial guarantee contracts are accounted for in accordance with AASB 139 Financial Instruments: Recognition and Measurement. They are not treated as a contingent liability, as they are regarded as financial instruments outside the scope of AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
1.17 Acquisition of Assets
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. 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 agency's accounts immediately prior to the restructuring.
1.18 Property, Plant and Equipment
Asset Recognition Threshold
Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, 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 that 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 ‘makegood’ provisions in property leases taken up by the Department where an obligation exists to restore the property to its original condition on termination of the lease. These costs are included in the value of the Department’s leasehold improvements with a corresponding provision for the 'makegood' recognised.
Fair values for each class of asset are determined as shown below.
|Asset Class||Fair value measured at:|
|Land||Market selling price|
|Buildings exc. Leasehold improvements||Market selling price|
|Leasehold Improvements||Depreciated replacement cost|
|Plant and Equipment||Market selling price|
|Works of Art||Market selling price|
In the absence of market-based evidence, fair value is estimated using depreciated replacement cost.
Following initial recognition at cost, property, plant and equipment are carried at fair value less 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 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 through the surplus/deficit. Revaluation decrements for a class of assets are recognised directly through the operating result except to the extent that they reverse 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.
Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Department using, in all cases, the straight-line method of depreciation.
Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.
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:
|Buildings||Based on remaining useful life||Based on remaining useful life|
|Leasehold improvements||Lesser of lease term or 15 years||Lesser of lease term or 15 years|
|Plant and equipment||5 or 10 years||5 or 10 years|
|Intangibles||6 years||6 years|
The aggregate amount of depreciation allocated during the reporting period is disclosed in Note 3D.
Assets were assessed for impairment at 30 June 2011. 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 any asset is the higher of its fair value less costs to sell 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 Department 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.
The Department’s intangibles comprise internally developed software for internal use and 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 lives of the Department’s software assets are 6 years (2009-10: 6 years). All software assets were assessed for indicators of impairment as at 30 June 2011.
Inventories held for sale are valued at the lower of cost and net realisable value. Inventories held for distribution are valued at cost, adjusted for any loss of service potential.
Costs incurred in bringing each item of inventory to its present location and condition, are assigned as follows:
- raw materials and stores – purchase cost on a first-in-first-out basis; and
- finished goods and work in progress – cost of direct materials and labour plus attributable costs that can be allocated on a reasonable basis.
Inventories acquired at no cost or nominal consideration are initially measured at current replacement cost at the date of acquisition.
The Department is exempt from all forms of Australian taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST). Overseas, the department may be subject to Value Added Tax (VAT) on the purchase of goods and services.
Revenues, expenses, assets and liabilities are recognised net of GST:
- except where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
- for receivables and payables.
1.22 Reporting of Administered Activities
Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the Schedule of Administered Items and related notes. Except where otherwise stated below, administered items are accounted for on the same basis and using the same policies as for Departmental items, including the application of Australian Accounting Standards.
Administered Cash Transfers to and from Official Public Account
Revenue collected by the Department for use by the Australian Government rather than the Department is Administered Revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance and Deregulation. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of the Australian Government. These transfers to and from the OPA are adjustments to the administered cash held by the Department on behalf of the Australian Government and reported as such in the Statement of Cash Flows, in the Schedule of Administered Items and in the Administered Reconciliation table in Note 18. The Schedule of Administered Items largely reflects the Australian Government’s transactions, through the Department, with parties outside the Australian Government.
Business undertaken on the National Interest Account
Part 5 of the Export Finance and Insurance Corporation Act (EFIC Act 1991) provides for the Minister for Trade to give an approval or direction to EFIC to undertake any transaction that the Minister considers is in the national interest. Such transactions may relate to a class of business which EFIC is not authorised to undertake, or involve terms and conditions EFIC would not accept in the normal course of business on its Commercial Account. EFIC manages these transactions on the National Interest Account (NIA).
Where the Minister gives EFIC an approval or direction to undertake a transaction under Part 5 of the Act, the credit risk is borne by the Australian Government and the funding risk is borne by EFIC on the Commercial Account. Accordingly, premium or other incomes arising from these transactions are paid by EFIC to the Australian Government in line with Part 8 of the EFIC Act. EFIC recovers from the Australian Government the costs of administering business undertaken under Part 5 and also recovers from the Australian Government any losses incurred in respect of such business. These transactions are disclosed separately as income and expenses administered on behalf of Government in Notes 14 and 15.
The Department’s accounts reflect the Commonwealth’s exposure to the NIA. This exposure is disclosed as a liability in Note 17 and reflects the overall business written on the NIA. The detailed transactions undertaken in the NIA are disclosed in EFIC’s financial statements in accordance with EFIC’s reporting requirements and applicable accounting standards.
All administered revenues are revenues relating to the course of ordinary activities performed by the Department on behalf of the Australian Government. Administered fee revenue is recognised when goods or services have been provided.
Loans and Receivables
Where loans and receivables are not subject to concessional treatment, they are carried at amortised cost using the effective interest method. Gains and losses due to impairment, derecognition and amortisation are recognised through surplus and deficit.
Administered investments in subsidiaries are not consolidated because their consolidation is relevant only at the Whole of Government level. Administered investments other than those held for sale are classified as available-for-sale and are measured at their fair value as at 30 June 2011. Fair value has been taken to be the Australian Government’s interest in the net assets of the entity as at balance date.
Overseas Superannuation Schemes
The Department recognises an administered liability for the present values of the Australian Government’s expected future payments arising from the New Delhi Gratuity Scheme and the unfunded components of the North American Pension Scheme (NAPS) and London Pension Scheme.
The Department engages actuaries to estimate the unfunded provisions and expected future cash flows as at 30 June each year. Actuarial gains and losses for the defined plans are recognised applying the “direct to equity” option as outlined in AASB 119. These estimates are disclosed in the Schedule of Administered Items and Note 17.
Guarantees to Controlled Entities
The amounts guaranteed by the Commonwealth have been disclosed in the Schedule of Administered Items and Note 19. At the time of completion of the financial statements, there was no reason to believe that the guarantees would be called upon, and recognition of a liability was therefore not required.
The Department administers a number of grant programs on behalf of the Australian Government. Grant liabilities are recognised to the extent that (i) the services required to be performed by the grantee have been performed or (ii) the grant eligibility criteria have been satisfied, but payments due have not been made. A commitment is recorded when the Australian Government enters into an agreement to make the grants but services have not been performed or criteria satisfied.
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