Section 3: Budgeted financial statements

The budgeted financial statements will form the basis of the financial statements that will appear in the Australian Competition and Consumer Commission’s (ACCC) 2004-05 Annual Report, and form the basis for the input into the whole-of-government accounts. The financial statements should be read in conjunction with the accompanying notes.

The budgeted financial statements contain estimates prepared in accordance with the requirements of the Australian Government’s financial budgeting and reporting framework, including the principles of Australian Accounting Standards and Statements of Accounting Concepts, as well as specific guidelines issued by the Department of Finance and Administration.

Analysis of budgeted financial statements

An analysis of the ACCC’s budgeted financial statements is provided below.

Statement of financial performance

The ACCC is budgeting for a breakeven operating result in 2004-05. The actual operating result for 2003-04 was an approved operating loss of $7.0 million. The 2003-04 operating loss was due to the increasing costs of litigation.

Total revenue for 2004-05 is now estimated to be $98.9 million, a net increase of $0.6 million on the 2004-05 Portfolio Budget Statements. The increase is as a result of:

• the transfer of appropriation of $0.7 million from the Department of the Treasury (the Treasury) to the ACCC for the transfer of responsibilities for the administration of product safety and related consumer information functions; and
• a decrease in the Comcover insurance premium of $0.04 million.

Total expenses for 2004-05 are estimated to be $98.9 million, a net increase of $0.6 million on the 2004-05 Portfolio Budget Statements. The main increases are as a result of:

• increased employee expenses of $0.5 million for the transfer of responsibilities of the product safety and consumer information programmes from the Treasury;
• supplier expenses of $0.2 million for the transfer of responsibilities of the product safety and consumer information programmes from the Treasury to the ACCC; and
• a decrease in the Comcover insurance premium of $0.04 million.

Statement of financial position

The ACCC’s budgeted 2004-05 net asset position will be $12.4 million, an increase of $1.3 million from the 2004-05 Portfolio Budget Statements. This capital funding adjustment comprises:

• an adjustment of the operating loss estimate for 2003-04 in the 2004-05 Portfolio Budget Statements from $8.4 million to the actual loss of $7.0 million. A decrease in the accumulated deficits of $1.4 million;
• $0.1 million liability provisions for Long Service Leave and Annual Leave transferred from the Treasury to the ACCC for the product safety and consumer information functions; and
• $0.05 million transfer of cash and non-financial assets from the Treasury to the ACCC for the product safety and related consumer information functions.

Agency financial statements

Budgeted agency statement of financial performance

This statement provides a picture of the expected financial results for the ACCC by identifying full accrual expenses and revenues, which highlights whether the ACCC is operating at a sustainable level.

Budgeted agency statement of financial position

This statement shows the financial position of the ACCC. It enables decision-makers to track the management of the ACCC’s assets and liabilities.

Budgeted agency statement of cash flows

This statement identifies expected cash flows from operating activities, investing activities and financing activities.

Agency capital budget statement

This statement shows all proposed capital expenditure funded through the budget as appropriation or from internal sources.

Agency non-financial assets — summary of movement

This statement shows the movement in the ACCC’s non-financial assets over the budget year.

Note of administered activity

Details of transactions administered by the agency on behalf of the Australian Government are to be shown in the following notes to the financial statements.

Note of budgeted administered financial performance

This note identifies the main revenues and expenses administered on behalf of the Australian Government. It also discloses administered revenues from government and transfers to the Official Public Account.

Note of budgeted administered financial position

This note shows the assets and liabilities administered on behalf of the Australian Government.

Note of budgeted administered cash flows

This note shows cash flows administered on behalf of the Australian Government.

Table 3.1: Budgeted agency statement of financial performance
(for the period ended 30 June)

Table 3.2: Budget agency statement of financial position
(as at 30 June)

(1) ‘Equity’ is the residual interest in assets after deduction of liabilities.

Table 3.3: Budgeted agency statement of cash flows
(for the period ended 30 June)

Table 3.4: Agency capital budget statement

Table 3.5: Agency non-financial assets — Summary of movement (Budget year 2004-05)

Table 3.6: Note of budgeted financial performance administered on behalf of government (for the period ended 30 June)

Table 3.7: Note of budgeted financial position administered on behalf of government (as at 30 June)

Table 3.8: Note of budgeted administered cash flows
(for the period ended 30 June)

Notes to the financial statements

Basis of accounting

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

The statements have been prepared in accordance with:

• Finance Minister’s Orders (or FMOs, being the Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 30 June 2004));
• Australian Accounting Standards and Accounting Interpretations issued by the Australian Accounting Standards Board; and
• Consensus Views of the Urgent Issues Group.

The ACCC’s statements of financial performance and financial position have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets which are at valuation. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

Assets and liabilities are recognised in the statement of financial position when and only when it is probable that future economic benefit will flow and the amounts of the assets and liabilities can be reliably measured.

Revenue and expenses are recognised in the statement of financial performance when and only when the flow or consumption or loss of economic benefits has occurred can be reliably measured.

Administered revenues, expenses, assets and liabilities and cash flows are accounted for on the same basis and using the same policies as for departmental items except where otherwise stated.

Budgeted agency financial statements

Agency assets, liabilities, revenues and expenses are those items that are controlled by the ACCC. They are used by the ACCC in producing its outputs, including:

• computers, plant and equipment used in providing goods and services;
• liabilities for employee entitlements;
• revenues from appropriations or independent sources in payment of outputs; and
• employee, supplier and depreciation expenses incurred in producing the ACCC outputs.

Administered items are those items which are controlled by the Australian Government and managed or oversighted by the ACCC on behalf of the Australian Government. These administered items managed or controlled by the ACCC include authorisation fees, fines and costs.

The purpose of the separation of agency and administered items is to enable the assessment of administrative efficiency of the agency in providing goods and services.

Revenue

Revenues from government

Amounts appropriated for departmental output appropriations for the year (less any savings and reductions) are recognised as revenue, except for certain amounts which relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned.

Savings are amounts offered up in Portfolio Additional Estimates Statements. Reductions are amounts by which appropriations have been legally reduced by the Finance Minister under Appropriation Act No. 3.

Resources received free of charge

Services 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.

Other revenue

Revenue from the sale of goods (that is, seminars/speakers fees, sale of publications, photocopy revenue and sale of non-current assets) is recognised upon the delivery of goods/services to customers.

Revenue from rendering of services is recognised by reference to the stage of completion of contracts or other agreements to provide services. The stage of completion is determined according to the proportion that costs incurred to date bear to the estimated total costs of the transaction.

Receivables for goods and services are recognised at the nominal amounts due less any provision for bad or doubtful debts. Collectability of debts is reviewed at balance date. Provisions are made when collectability of the debt is judged to be less rather than more likely.

Revenue from disposal of non-current assets is recognised when control of the asset has passed to the buyer.

Interest revenue is no longer received by the ACCC following the government’s decision to abolish the Australian Banking Incentive Scheme (ABIS) from 1 July 2003.

Transactions with the government as owner

Equity injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any savings offered up in Portfolio Additional Estimates Statements) are recognised directly in contributed equity in that year.

Restructuring of administrative arrangements

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

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 wages and salaries (including non-monetary benefits) annual leave, and sick leave are measured at their nominal amounts. Other employee benefits expected to be settled within 12 months of the reporting date are also measured at their nominal amounts.

The nominal amount is calculated with regards to the rates expected to be paid on settlement of the liability.

All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.

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 ACCC is estimated to be less than the annual entitlement for sick leave.

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 benefits incidental to ownership of leased non-current assets. 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 the present value of minimum lease payments at the beginning of the lease term and a liability 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.

Lease incentives taking the form of ‘free’ leasehold improvements and rent holidays are recognised as liabilities. These liabilities are reduced by allocating lease payments between rental expense and reduction of the liability.

Receivables

Court costs, which are awarded, are not considered as receivables or as creditors, as the case may be, until the costs have been agreed by the concerned parties.

A provision is raised for any doubtful debts based on a review of the collectability of all outstanding accounts as at year end.

Bad debts are written off during the year in which they are identified.

Acquisition of assets

Assets are recorded at cost of acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and revenues 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 contribution by owners at the amounts at which they were recognised in the transferor agency’s accounts immediately prior to the restructuring.

Property, infrastructure, plant and equipment (PP&E)

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

Basis

Property, infrastructure, plant and equipment are carried at valuation. The ACCC revalues all its assets in three year cycles. Revaluations have been undertaken up to 30 June 2002 on a deprival basis. The revaluations were for the cycle which finishes on 30 June 2005.

Future revaluations by the ACCC are to be undertaken at fair value.

Buildings (leasehold improvements) were revalued as at 30 June 2004 at depreciated replacement cost.

Infrastructure, plant and equipment (P&E) assets were revalued as at 30 June 2002 at deprival value.

All valuations are conducted by an independent qualified valuer.

Depreciation and amortisation

Depreciable property, plant and equipment assets are written off to their estimated residual values over their estimated useful lives to the ACCC using, in all cases, the straight line method of depreciation. Leasehold improvements are amortised on a straight line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.

Depreciation/amortisation rates (useful lives) and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate. Residual values are re-estimated for a change in prices only when assets are revalued.

Depreciation and amortisation rates applying to each class of depreciable asset are based on the useful lives in the table below. These rates apply to each item in that class except where the useful life of the item has been reassessed following revaluation.

Asset class	Total useful life
Fitout	Lesser of the term of the lease or 10 years
Furniture and fittings	10 years
Office equipment	5 years
Computer hardware	3 years
Computer software	3 to 7 years

Impairment of non-current assets

Non-current assets carried at up-to-date fair value at the reporting date are not subject to impairment testing.

Non-current assets carried at cost or deprival value and held to generate net cash inflows are required to have their recoverable amounts tested at the reporting date. The test compares the carrying amounts against the net present value of future net cash inflows. ACCC has no assets in this category.

The non-current assets carried at cost or deprival value, which are not held to generate net cash inflows, have been assessed for indications of impairment. Where indications of impairment exist, the carrying amount of the asset is compared to the higher of its net selling price and depreciated replacement cost and is written down to that value if greater. No assets were identified as impaired as at 30 June 2004.

Intangibles

Intangibles comprise software that has been externally acquired for internal use. These assets are carried at cost.

Software is amortised on a straight-line basis over its anticipated useful life. The useful life of the ACCC’s software is three to seven years.

All software assets were assessed for impairment as at 30 June 2004.

Inventories

Inventories (publications) held for resale are valued at cost, unless they are no longer required, in which case they are valued at net realisable value.

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