Notes to and forming part of the financial statements for the year ended 30 June 2015

Table of Contents—Notes

Note 1:   Summary of Significant Accounting Policies

Note 2:   Events after the Reporting Period

Note 3:   Net Cash Appropriation Arrangements

Note 4:   Expenses

Note 5:   Own-Source Income

Note 6:   Fair Value Measurements

Note 7:   Financial Assets

Note 8:   Non-Financial Assets

Note 9:   Payables

Note 10: Provisions

Note 11: Cash Flow Reconciliation

Note 12: Senior Management Personnel Remuneration

Note 13: Financial Instruments

Note 14: Financial Assets Reconciliation

Note 15: Appropriations

Note 16: Special Accounts

Note 17: Reporting of Outcomes

Note 18: Budgetary Reports and Explanations of Major Variances

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 which is to inform 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 7A and 16).

1.2          Basis of Preparation of the Financial Statements

The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013.

The financial statements have been prepared in accordance with:

1. Financial Reporting Rules (FRR) for reporting periods ending on or after 1 July 2014; 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.

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 FRR, 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.

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

The Commission has not been required to apply significant judgement or estimates when applying the accounting standards.

1.4          New Australian Accounting Standards

Adoption of New Australian Accounting Standards Requirements

The Commission has elected to early adopt AASB 2015-17 Amendements to Australian Accounting Standards – Fair Value Disclosures for Not-for-Profit Sector Entities. This amendment provides relief from certain fair value disclosures required by AASB 13 Fair Value Measurement and applies to annual reporting periods beginning on or after 1 July 2016.

The following new, revised, amending standards and or interpretations were issued prior to the signing of the statement by the accountable authority and chief financial officer, were applicable to the current reporting period and had a material effect on the Commission’s financial statements:

All other new, revised, amending standards and or interpretations that were issued prior to the sign-off date and are applicable to the current reporting period did not have a financial impact, and are not expected to have a future financial impact on the Commission’s financial statements.

Future Australian Accounting Standards Requirements

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

1. The Commission’s expected initial application date is when the accounting standard becomes operative at the beginning of the Commission’s reporting period.

All other new, revised, amending standards and or interpretations that were issued prior to the sign-off date and are applicable to future reporting periods are not expected to have a future material impact on the Commission’s financial statements.

1.5          Revenue

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.

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 2014–15 by agreement with the Department of Finance, the Commission received $56,000 as a Departmental Capital Budget (DCB).

1.8          Employee Benefits

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits expected 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 liability takes into account attrition rates and pay increases through promotion and inflation.

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. This liability is reported in the Department of Finance’s administered schedules and notes.

The Commission makes employer contributions to the employees’ superannuation scheme at rates 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 represents outstanding contributions for the final fortnight of the year.

1.9          Leases

The Commission only has operating leases where payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

1.10        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.

1.11        Financial Assets

The Commission only has financial assets that are loan receivables.

Loans and Receivables

Trade receivables are assets that have a fixed or determinable payment that are not quoted in an active market. 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—Loans and Receivables

Financial assets are assessed for impairment at the end of each reporting period.

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.

1.12        Financial Liabilities

The Commission has financial liabilities that are represented by supplier and other payables which are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been involved).

1.13        Plant and Equipment

Asset Recognition Threshold

Purchases of 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, plant and equipment were carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets did not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations is depended 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 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 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 at present are 3–10 years.

Impairment

All assets were assessed for impairment at 30 June 2015. 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.

1.14        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:  Net Cash Appropriation Arrangements

1. From 2010–11, the Government introduced net cash appropriation arrangements, where revenue appropriations for depreciation/amortisation expenses ceased. Entities now receive a separate capital budget provided through equity appropriations. Capital budgets are to be appropriated in the period when cash payment for capital expenditure is required.

Note 4:      Expenses

Note 5:      Own-Source Income

Note 6:  Fair Value Measurements

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.

1. There was no change in valuation technique from the previous reporting period.

2. The future economic benefits of ALRC’s plant and equipment assets are not primarily dependant on their ability to generate cash flows. The Commission has not disclosed quantitative information about the significant unobservable inputs for the Level 3 measurements in these classes.

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

The Commission’s assets are held for operational purposes and not held for the purposes of deriving a profit. The current use of all NFAs is considered their highest and best use.

4. Recurring and non-recurring Level 3 fair value measurements—valuation processes

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.

Significant Level 3 inputs utilised by the Commission are derived and evaluated as follows:

Plant and Equipment—Adjusted Market Transactions

The significant unobservable inputs used in the fair value measurement of PPE assets relates to the market demand and valuers judgement to determine the fair value measurement of these assets. A significant increase (decrease) in the transaction price would result in a significantly higher (lower) fair value measurement.

Plant and Equipment—Consumed economic benefit / Obsolescence of asset

Assets that do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence have been measured utilising the cost (Depreciated Replacement Cost or DRC) approach. Under the DRC approach the estimated cost to replace the asset is calculated and then adjusted to take into account its consumed economic benefit / asset obsolescence (accumulated depreciation). Consumed economic benefit / asset obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.

The weighted average is determined by assessing the fair value measurement as a proportion of the total fair value for the class against the total useful life of each asset.

Note 6B. 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 of NFAs between Level 1 and Level 2 fair value measurements during 2014–15 (nil 2013–14).

The Commission’s policy for determining when transfers between levels are deemed to have occurred can be found in Note 1.

1. There have been transfers of plant and equipement assets fair value measurements into Level 3 during the year due to the market valuation technique requiring the use of significant professional judgement classified as unobservable inputs.

The Commission’s policy for determining when transfers between levels are deemed to have occurred can be found in Note 1.

Note 12:    Senior Management Personnel Remuneration

Note 13:    Financial Instruments