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Note 1: Summary of significant accounting policies

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1.1 Objectives of the Attorney-General’s Department

The Attorney-General’s Department (the Department) is the central policy and coordinating body of the Attorney-General’s portfolio. It is a not-for-profit entity.

The Department delivers programmes and policies to maintain and improve Australia’s law and justice framework, strengthen national security and emergency management, and provide support for arts and culture.

Outcome 1: A just and secure society through the maintenance and improvement of Australia's law and justice framework and its national security and emergency management system.

Departmental and Administered activities are identified under eight programmes for Outcome 1. The eight programmes within Outcome 1 are: Attorney-General's Department Operating Expenses - Civil Justice and Legal Services (1.1), Attorney-General's Department Operating Expenses - National Security and Criminal Justice (1.2), Justice Services (1.3), Family Relationships (1.4), Indigenous Law and Justice (1.5), National Security and Criminal Justice (1.6), Australian Government Disaster Financial Support Payments (1.7) and Royal Commissions (1.8).

Outcome 2: Participation in, and access to, Australia's arts and culture through developing and supporting cultural expression.

Departmental and Administered activities are identified under one programme for Outcome 2. The programme within Outcome 2 is: Arts and Cultural Development (2.1).

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

The Department's activities contributing toward 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 Government, of items controlled or incurred by the Government.

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 (2012) 288 ALR 410, as they contribute to the larger body of law relevant to the development of Commonwealth programmes. 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.

1.2 Basis of preparation of the financial statements

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

The financial statements and notes have been prepared in accordance with:

  • Financial Reporting Rule (FFR) for reporting periods ending on or after 1 July 2014; 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 in accordance with 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.

Unless an alternative treatment is specifically required by an accounting standard or the FFR, 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 Department, 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 at balance date are reported in the schedule of commitments and the schedule of contingencies (other than unquantifiable or remote contingencies, which are reported at Note 13).

Unless an 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 and 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 at Note 1.20. Administered items are distinguished by shading in the financial statements.

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 judgements that have the most 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. In some instances, the Department’s buildings are purpose built and may in fact realise more or less in the market;
  • The fair value of artworks held by Artbank is determined using indicative market rates (via regular revaluation exercises);
  • The fair value of the Department’s property, plant and equipment has been taken to be the market selling price. At 30 June 2015 Australian Valuation Solutions undertook a revaluation of the Department’s property, plant and equipment; and
  • The Department recognises the present value of the superannuation provision associated with the former Solicitor-General pension. At 30 June each year the Australian Government Actuary will normally undertake an actuarial assessment of the scheme.

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 Standards

Adoption of New Australian Accounting Standard Requirements


Amendments to AASB 13 Fair Value Measurement that provide relief to not-for-profit public sector entities have been adopted prior to the signing of the Statement by the Accountable Authority and the Chief Financial Officer earlier than the application date as stated in the standard. AASB 1055 Budgetary Reporting was issued prior to the signing of the Statement by the Accountable Authority and Chief Financial Officer, and was applicable to the current reporting period and was disclosed in the Department’s financial statements. Of the new standards, amendments to standards and interpretation issued by the Australian Accounting Standards Board prior to the sign-off date that are applicable to the current period, none have had a material impact.

Future Australian Accounting Standard Requirements

The following new standards, amendments to standards and interpretations were issued by the Australian Accounting Standards Board prior to the sign-off date. These are expected to have a financial impact on the Department for future reporting periods:

AASB 9 Financial Instruments – December 2014 (Principal)

AASB 15 Revenue from Contracts with Customers – December 2014 (Principal)

AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15

AASB 2014-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014)

1.5 Revenue

Sales of goods and services

Revenue from the sale of goods is recognised when

  1. the risks and rewards of ownership have been transferred to the buyer;
  2. the Department 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 Department.

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 Department.

The stage of completion of contacts 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 during the financial year and at end of the reporting period. Impairment allowances are made when collectability of the debt is no longer probable.

Interest revenue is recognised using the effective interest method as set in AASB 139 Financial Instruments: Recognition and Measurement.

Revenue from Government

Amounts appropriated for departmental outputs for the year (adjusted for any formal additions and reductions) are recognised as revenue from Government 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.

1.6 Gains

Resources received free of charge

Resources received free of charge are recognised as gains 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 gain 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, unless received from another Government agency or authority as a consequence of a restructuring of administrative arrangements (refer to Note 1.7).

Sale of assets

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

1.7 Transactions with the Government as Owner

Equity

Amounts appropriated which are designated as ‘equity injections’ (less any formal reductions).

Departmental Capital Budgets (DCBs) are recognised directly in contributed equity in that year.

Restructuring of administrative arrangements

Net assets received from or relinquished to another Australian Government agency or authority under a restructuring of administrative arrangements are recorded at their book value directly against contributed equity.

Other distribution to Owners

Distributions to owners are debited to contributed equity unless in the nature of a dividend.

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 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.

Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period.

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 Department 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 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 methodology for calculating the liability for long service leave was confirmed by reference to the work of an actuary who is periodically retained by the Department. The estimate of the present value of the 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 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.

Superannuation

The majority of the staff of the Department are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS 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 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's administered schedule and notes.

The Department makes employer contributions to the CSS and PSS employee superannuation scheme at rates determined by an actuary to be sufficient to meet the cost to the Government for the superannuation entitlements of the Department’s employees. The Department 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

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 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.

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 Borrowing costs

All borrowing costs are expensed as incurred.

1.11 Fair value measurement

The Department deems transfers between levels of the fair value hierarchy to have occurred when evidence arises during assessment that a change in level has occurred.

1.12 Cash

Cash and cash equivalents includes cash on hand, cash held with outsiders, demand deposits in bank accounts with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.

1.13 Financial assets

The Department classifies its financial assets as 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.

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 amortised cost – if there is objective evidence that an impairment loss has been incurred for loans and receivables 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 as 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.

1.14 Financial liabilities

Financial liabilities are classified as other financial liabilities.

Financial liabilities are recognised and derecognised upon 'trade date'.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial 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.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (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 but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

1.16 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

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 amount at which they were recognised in the transferor agency’s accounts immediately prior to the restructuring.

1.17 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 which are significant in total).

The initial cost of an asset includes an estimate of the 'makegood' cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant in property leases taken up by the Department where there exists an obligation to restore the property to its original condition. These costs are included in the value of leasehold improvements with a corresponding provision for the ‘makegood’ recognised.

Revaluations

Fair values for each class of asset are determined as shown below:

Asset Class: Fair value measured at:
Land Market selling price
Buildings Market selling price
Leasehold improvements Depreciated replacement cost
Property plant and equipment Market selling price
Heritage and cultural assets Active market

Following initial recognition at cost, property, plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets 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 reverses 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 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.

Depreciation

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. The library assets which have been recognised as heritage assets are not depreciated, and all other library acquisitions are expenses in the year of acquisition.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable departmental asset are based on the following useful lives:

2015 2014
Buildings on freehold land, 25-50 years 25-50 years
Leasehold improvements, Lease term Lease term
Property, plant and equipment 3 to 10 years 3 to 10 years
Heritage and cultural (where applicable), Up to 480 years Up to 480 years

Depreciation rates applying to each class of depreciable administered asset are based on the following useful lives:

2015 2014
Building on freehold land 25-50 years 25-50 years
Property, plant and equipment 3 to 10 years 3 to 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 Department were deprived of the asset, its value in use is taken to be it depreciated replacement cost.

Derecognition

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

Heritage and cultural

Heritage and cultural items include artworks held by Artbank that are of national, historical or cultural significance.

Artbank maintains separate curatorial and preservation policies for heritage and cultural assets (http://www.artbank.gov.au/preservation.html)

Artbank maintain an ongoing preservation and collections maintenance program to preserve the physical integrity of each artwork in the collection. However, not all items are given the same level of care, security and attention. While priority is given to works requiring immediate intervention to arrest further damage to at risk works, as a rental collection, priority is also determined by client demand of specific works. Artbank is responsible for 9,847 artworks with an aggregated fair value of $37.524 million.

1.18 Intangibles

The Department’s intangibles comprise internally developed software and purchased software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the Department’s intangibles are 3 to 5 years (2013-14: 3 to 5 years).

All software assets were assessed for indications of impairment at 30 June 2015.

1.19 Taxation

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

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

a) where the amount of GST incurred is not recoverable from the Australian Taxation Office; and

b) for receivables and payables.

1.20 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 transfer to and from the Official Public Account

Revenue collected by the Department for use by the Government rather than the Department is administered revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by the entity on behalf of the Government and reported as such in the schedule of administered cash flows and in the administered reconciliation schedule.

Revenue

All administered revenues are revenues relating to the course of ordinary activities performed by the Department on behalf of the Australian Government. As such, administered appropriations are not revenues of the Department.

Dividend revenue represents dividends received from entities, which mainly relate to administered investments of the Department and is recognised when the dividend has been declared and the right to receive the dividend has been established

Competitive neutrality

The Australian Government Solicitor (AGS) is a portfolio related entity and operates on a for profit basis. As an agency within the Australian Government it is not subject to taxation other than GST and FBT. However, under competitive neutrality arrangements, the AGS is required to make payroll tax, income tax, and practicing certificates equivalent payments to the Government.

Expenses

All administered expenses are expenses relating to the course of ordinary activities performed by the Department on behalf of the Australian Government.

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 is recognised through profit and loss.

Concessional loans are initially recognised at their fair value. If the rate of interest charged is lower than the government bond rate (for government/public sector loans) or the counterparty’s borrowing rate (for non government loans) the difference between the amortised cost and the fair value of the loan is treated as an expense.

Administered investments

Administered investments in controlled entities are not consolidated because their consolidation is relevant only at the Whole of Government level.

Administered investments other than those held for sale are measured at their fair value at 30 June 2015. Fair value has been taken to be the Australian Government's proportional interest in the net assets of the entities as at the end of the reporting period.

Grants and subsidies

The Department administers a number of grant and subsidy schemes on behalf of the Government.

Grant and subsidy 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 Government enters into an agreement to make these grants but services have not been performed or criteria satisfied.

Payments to corporate Commonwealth entities

Payments to corporate Commonwealth entities from amounts appropriated for that purpose are classified as administered expenses, equity injections or loans of the Department. The appropriation to the Department is disclosed in Table A of the Note 30.

Superannuation provisions

The Department recognises an administered liability for the present value of the Australian Government's expected future payments arising from the former Solicitors-General Pension scheme.

Increases in the accrued benefits liability, pursuant to regular estimates of the liability taking account of actuarial reviews, are recognised as an expense and classified as personal benefit expense, except for actuarial gains or losses which are recognised in equity. In accordance with AASB 119 Employee Benefits, the liability is assessed annually by applying the projected unit credit method in assessing the balance of the liability. The rate used to discount long term employee benefits and post employment benefits is determined by reference to the government bond rate at the reporting date on high quality corporate bonds except where there is not a deep market in these bonds, in which case the market yield on national government bonds is used. In the case of discounting the personal benefit liability, the market yield on government bonds has been used. Additional information can be found at Note 23.

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