Notes

Notes to and forming part of the financial statements for the year ended 30 june 2014

Table of Contents-Notes

Note 1:                 Summary of Significant Accounting Policies

Note 2:                 Events after the Reporting Period

Note 3:                 Expenses

Note 4:                 Own-Source Income

Note 5:                 Fair Value Measurements

Note 6:                 Financial Assets

Note 7:                 Non-Financial Assets

Note 8:                 Payables

Note 9:                 Provisions

Note 10:                Cash Flow Reconciliation

Note 11:                Senior Executive Remuneration

Note 12:                Remuneration of Auditors

Note 13:                Financial Instruments

Note 14:                Financial Assets Reconciliation

Note 15:                Appropriations

Note 16:                Special Account

Note 17:                Reporting of Outcomes

Note 18:                Net Cash Appropriation Arrangements

Note 19:                Compensation and Debt Relief

Note 1:       Summary of Significant Accounting Policies

1.1         Objectives of the Australian Law Reform Commission

The Australian Law Reform Commission (the Commission) is an Australian Government controlled entity. It is a not-for-profit entity. The objective of the Commission is to report to the Attorney-General on the results of any review for the purposes of developing and reforming the law.

The Commission is structured to meet one outcome:

Informed government decisions about the development, reform and harmonisation of Australian laws and related processes through research, analysis, reports and community consultation and education.

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

Commission activities contributing towards this outcome are classified as departmental. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by the Commission in its own right.

Section 45 of the Australian Law Reform Commission Act 1996 (the Act), requires that money appropriated by the Parliament be transferred to the Law Reform Special Account (refer to notes 6A and 16).

1.2         Basis of Preparation of the Financial Statements

The financial statements are general purpose financial statements and are required by section 49 of the Financial Management and Accountability Act 1997.

The financial statements have been prepared in accordance with:

1. Finance Minister’s Orders (FMOs) for reporting periods ending on or after 1 July 2011; and 
2. 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 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 dollar, unless otherwise specified.

Unless an alternative treatment is specifically required by an accounting standard or the FMOs, assets and liabilities are recognised in the statement of financial position when, and only when, it is probable that future economic benefits will flow to the Commission 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 executor contracts are not recognised unless required by an accounting standard.  Liabilities and assets that are unrecognised are reported in the Schedule of Commitments or the Schedule of Contingencies.

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.

During 2012–13 additional legal advice was received that indicated there could be breaches of Section 83 of the Constitution, by Commonwealth agencies under certain circumstances with generic payments for long service leave, goods and services tax and payments made under determinations of the Remuneration Tribunal. There have been no breaches by the ALRC in respect to these items. The ALRC has reviewed its processes and controls with respect to these items and has determined that there is a low risk of breach to the ALRC. The ALRC has put in place a risk assessment plan that will be reviewed annually to ensure that any potential future breach with regards to these payments is minimised.

The Australian Government continues to have regard to developments in case law, including the High Court’s most recent decision on Commonwealth expenditure in Williams v Commonwealth [2014] 288 HCA 23, as they contribute to the larger body of law relevant to the development of Commonwealth programs. In accordance with its general practice, the Government will continue to monitor and assess risk and decide on any appropriate actions to respond to risks of expenditure not being consistent with constitutional or other legal requirements.

1.3         Significant Accounting Judgements and Estimates

In the process of applying the accounting policies listed in this note, the ALRC has made the following judgements that have significant impact on the amounts recorded in the financial statements:

1. The fair value of property, plant and equipment has been taken to be the market value of similar assets as determined by an independent valuer;
2. The relevant government bond rate has been used to discount non-current liabilities in accordance with the FMOs; and
3. The liability for long service leave has been estimated as per the FMOs. This takes into account expected salary growth, attrition and future discounting using the government bond.

1.4         New Australian Accounting Standards

Adoption of New Australian Accounting Standards Requirements

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

The following new standards / revised standards / interpretations amending standards issued prior to the sign-off date that were applicable to the current reporting period:

Other 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 financial impact, and are not expected to have a future financial impact on the Commission.

Future Australian Accounting Standards Requirements

The following new standard will have a disclosure impact only in future reporting periods:

New standards, revised standards, interpretations and amending standards issued by the Australian Accounting Standards Board prior to the signing of the statement by the Chief Executive and Chief Finance Officer are not expected to have a material financial impact on the Commission for future reporting periods.

1.5         Revenue

Revenue from the sale of goods is recognised when:

1. the risks and rewards of ownership have been transferred to the buyer; 
2. the Commission retains no managerial involvement or effective control over the goods;
3. the revenue and transaction costs incurred can be reliably measured; and
4. it is probable that the economic benefits associated with the transaction will flow to the Commission.

Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date.  The revenue is recognised when:

1. the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
2. the probable economic benefits associated with the transaction will flow to the Commission.

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 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.

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.

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.

Revenue from Government

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the Commission 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.

1.6         Gains

Sale of Assets

Gains from disposal of assets are recognised when control of the assets have passed to the buyer.

1.7         Transactions with the Government as Owner

Equity Injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets (DCBs) are recognised directly in contributed equity in that year. In 2013–14 by agreement with the Department of Finance and Deregulation, the Commission received $57,000 as a Departmental Capital Budget (DCB).

Restructuring of Administrative Arrangements

Net assets received from, or relinquished to, another Government entity under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.

Other Distributions to Owners

The FMOs require that distributions to owners be debited to contributed equity.

1.8         Employee Benefits

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve months of the end of the reporting period 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.

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.  No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Commission is estimated to be less than the annual entitlement for sick 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 Commission’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 estimate of the present value of the long service leave liability takes into account attrition rates and pay increases through promotion and inflation.

Separation and Redundancy

Provision is made for separation and redundancy benefit payments. The Commission recognises a provision for terminations 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 Commission’s employees are members of the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).

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. The Commission makes employer contributions to the employees’ superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. The Commission accounts for the contributions as if they were contributions to defined contribution plans.

The liability for superannuation recognised as at 30 June 2014 represents outstanding contributions for the final fortnight of the year.

1.9         Leases

Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

1.10       Fair Value Measurement

The Commission deems transfers between levels of the fair value hierarchy to have occurred at the date of the event or change in circumstances that caused the transfer. There were no transfers in or out of any levels during the reporting period.

1.11       Cash

Cash is recognised at its nominal amount. Cash and cash equivalents include:

1. cash on hand;
2. 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;
3. cash in special accounts.

1.12       Financial Assets

The Commission classifies its financial assets in the following categories:

1. 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.

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 the end of each reporting period.

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’.

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).

1.14       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. Financial assets are initially measured at their fair value plus transaction costs, where appropriate.

1.15       Property, Plant and Equipment

Asset Recognition Threshold

Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $1,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

Revaluations

Following initial recognition at cost, property, plant and equipment were carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations were 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.

Revaluation adjustments were made on a class basis. Any revaluation increment was 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 were 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 restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

Depreciation

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

Impairment

All assets were assessed for impairment at 30 June 2014. 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 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 Commission were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

1.16       Taxation / Competitive Neutrality

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

Revenues, expenses and assets are recognised net of GST except:

1. where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
2. for receivables and payables.

Note 2:       Events after the Reporting Period

Departmental

There was no subsequent event that had the potential to significantly affect the ongoing structure and financial activities of the Commission.

Note 3:       Expenses

Note 4:       Own-Source Income

Note 5:       Fair Value Measurement

The following tables provide an analysis of assets and liabilities that are measured at fair value. The different levels of the fair value hierarchy are defined below.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Commission can access at measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

Fair Value Measurement—Highest & Best Use differs from current use for non-financial assets (NFAs)

The highest and best use of all non-financial assets are the same as their current use.

Note 5B. Level 1 and Level 2 transfers for recurring fair value measurements

Recurring fair value measurements transferred between Level 1 and Level 2 for assets and liabilities

There have been no transfers between Level 1 and Level 2 fair value measurements during 2013–2014.

1. There have been no changes to valuation techniques.

2. Significant unobservable inputs only. Not applicable for assets or liabilities in the Level 2 category.

There were no significant inter-relationships between unobservable inputs that materially affect fair value.

The Commission procured the services of the Australian Valuation Office (AVO) to undertake a comprehensive valuation of all non-financial assets at 30 June 2013. The Commission tests the procedures of the valuation model as an internal management review at least once every 12 months (with a formal revaluation undertaken once every three years). If a particular asset class experiences significant and volatile changes in fair value (i.e. where indicators suggest that the value of the class has changed materially since the previous reporting period), that class is subject to specific valuation in the reporting period, where practicable, regardless of the timing of the last specific valuation. The Commission has engaged Australian Valuation Solutions (AVS) to provide written assurance that the models developed comply with AASB 13.

There is no change in the valuation technique since the prior year.

Note 6:       Financial Assets

Goods and services receivable are with entities external to the Commission. Credit terms are net 30 days (2013: 30 days).

Note 7:       Non-Financial Assets

Plant and equipment were subject to revaluation.

No indicators of impairment were found for property, plant and equipment.

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

Revaluations of non-financial assets

All revaluations were conducted in accordance with the revaluation policy stated at Note 1. On 30 June 2013, an independent valuer—Australian Valuation Office—conducted the revaluation.

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

Note 8:       Payables

Note 9:       Provisions

Note 11:     Senior Executive Remuneration

Notes:

1. Note 11A was prepared on an accrual basis (therefore the performance bonus expenses disclosed above may differ from cash ‘bonus paid’ in Note 11B).

2. Note 11A excludes acting arrangements and part-year service where total remuneration expensed as a senior executive was less than $195,000.

Notes:

1. This table reports substantive senior executives who received remuneration during the reporting period. Each row is an averaged figure based on the headcount of the individuals in the band.

2. ‘Reportable salary’ includes the following: a) gross payments (less any bonuses paid, which are separated out and disclosed in the ‘bonus paid’ column); b) reportable fringe benefits (at the net amount prior to ‘grossing up’ for tax purposes); c) reportable employer superannuation.

3. The ‘contributed superannuation’ amount is the average cost to the Commission for the provision of superannuation benefits to substantive senior executives in the reportable remuneration band during the reporting period

4. ‘Reportable allowances’ are the average actual allowances paid as per the ‘total allowances’ line on individuals’ payment summaries.

5. ‘Bonus paid’ represents average actual bonuses paid during the reporting period in that reportable remuneration band. The ‘bonus paid’ within a particular band may vary between financial years due to various factors such as individuals commencing with or leaving the Commission during the financial year.

Note 11C. Average Annual Reportable Remuneration Paid to Other Highly Paid Staff during the Reporting Period

During the reporting period, there was no employees whose salary plus performance bonus were $195,000 or more. (2013: no employees)

Note 12:     Remuneration of Auditors

Financial statement audit services were provided free of charge to the Commission by the Australian National Audit Office (ANAO).

The ANAO provided assurance engagements free of charge to the Commission.

Note 13:     Financial Instruments

Note 13B. Net Gains or Losses on Financial Liabilities

Financial liabilities—at amortised cost

There is no income or expense from financial liabilities not at fair value through profit or loss in the year ending 30 June 2014 (2013: nil).

Note 13D. Credit Risk

The Commission’s maximum exposures to credit risk as loans and receivables were cash and trade receivables. The maximum exposure to credit risk was the risk that arises from potential default of a debtor. This amount was equal to the total amount of trade receivables (2014: $330 and 2013: $0).

The Commission has no collateral to mitigate against credit risk.

Note 13E. Liquidity Risk

The Commission’s financial liabilities were payables and other liabilities. The exposure to liquidity risk is based on the notion that the Commission will not encounter difficulty in meeting its obligations associated with financial liabilities.

This was highly unlikely as the Commission is appropriated funding from the Australian Government and the Commission manages its budgeted funds to ensure it has adequate funds to meet payments as they fall due. In addition, the Commission has policies in place to ensure timely payments are made when due and has no past experience of default.

The Commission has no derivative financial liabilities in 2014 or 2013.

Note 13F. Market Risk

The Commission holds basic financial instruments that do not expose the Commission to certain market risks. The Commission is not exposed to ‘Currency Risk’ or ‘Other Price Risk’.

Interest Rate Risk

The Commission is not exposed to Interest Rate Risk.

Note 14:     Financial Assets Reconciliation

Note15:      Appropriations

Notes

1. Appropriations reduced under Appropriation Acts (Nos. 1 & 3) 2013–14: sections 10, 11, 12 and 15 and under Appropriation Acts (Nos. 2, 4 & 5) 2013–14: sections 12, 13, 14 and 17. Departmental appropriations do not lapse at financial year-end. However, the responsible Minister may decide that part or all of a departmental appropriation is not required and request the Finance Minister to reduce that appropriation. The reduction in the appropriation is effected by the Finance Minister’s determination and is disallowable by Parliament. In 2014, there was no reduction in departmental and non-operating departmental appropriations.
2. In 2013–14, there was no adjustment that met the recognition criteria of a formal addition or reduction in revenue (in accordance with FMO Div 101) but at law the appropriations had not been amended before the end of the reporting period.
3. The variance amount contributes to amounts paid to the Official Public Account on 30 June 2014. The amounts consist of revenue received from sale of publications. Also an amount has been paid for long service leave.

    

Notes:

1. Appropriations reduced under Appropriation Acts (Nos. 1 & 3) 2012–13: sections 10, 11, 12 and 15 and under Appropriation Acts (Nos. 2, 4 & 5) 2012–13: sections 12, 13, 14 and 17. Departmental appropriations do not lapse at financial year-end. However, the responsible Minister may decide that part or all of a departmental appropriation is not required and request the Finance Minister to reduce that appropriation. The reduction in the appropriation is effected by the Finance Minister’s determination and is disallowable by Parliament. In 2013, there was no reduction in departmental and non-operating departmental appropriations.
2. In 2012–13, there was no adjustment that met the recognition criteria of a formal addition or reduction in revenue (in accordance with FMO Div 101) but at law the appropriations had not been amended before the end of the reporting period.
3. The variance amount contributes to amounts paid to the Official Public Account on 30 June 2013. The amounts consist of revenue received from sale of publications. Also an amount has been paid for long service leave.

Notes:

1. Departmental and Capital Budgets are appropriated through Appropriation Acts (Nos. 1, 3 & 5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts. For more information on ordinary annual services appropriations, please see Note 15A. Annual Appropriations.
2. Appropriations reduced under Appropriation Acts (Nos. 1, 3 & 5) 2013–14: sections 10, 11, 12 and 15 or via a determination by the Finance Minister.
3. Payments made on non-financial assets include purchases of assets and expenditure on assets which has been capitalised.

Notes:

1. Departmental and Capital Budgets are appropriated through Appropriation Acts (Nos. 1, 3 & 5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts. For more information on ordinary annual services appropriations, please see Note 15A. Annual Appropriations.
2. Appropriations reduced under Appropriation Acts (Nos. 1, 3 & 5) 2012–13: sections 10, 11, 12 and 15 or via a determination by the Finance Minister.
3. Payments made on non-financial assets include purchases of assets and expenditure on assets which has been capitalised.