Annual Report 2003–04

Note 1: Summary of Significant Accounting Policies

1.1 Objectives of the Department of the Senate

The Department of the Senate (the department) is structured to meet the following outcome:

Effective provision of services to support the functioning of the Senate as a House of the Commonwealth Parliament.

The department’s activities contributing towards this outcome are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, revenues 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.

Departmental activities are identified under 5 headings as follows:

Output Group 1: Clerk’s Office – provides advice in relation to the proceedings of the Senate and its committees, provides secretariat services to various committees and provides strategic direction for the department;

Output Group 2: Table Office – provides procedural advice and programming services, processes legislation, produces documents including the record of Senate proceedings, provides safe custody of Senate records, provides inquiry services to facilitate the operations of the Senate and the work of senators and provides secretariat services to various committees;

Output Group 3: Procedure Office – provides procedural advice and legislative drafting services to non-government senators, provides secretariat services to the legislative scrutiny committees, conducts parliamentary research, and promotes awareness and knowledge of the Senate and the Parliament in the community;

Output Group 4: Committee Office – provides Senate and certain joint committees with secretariat support for the conduct of and reporting on inquiries, and aims to increase the public’s awareness of the work of committees.

Output Group 5: Black Rod’s Office – provides office support, information technology, security services, ceremonial services and corporate services to the Senate, senators and departmental staff.

1.2 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 (Financial Statements for reporting periods ending on or after 30 June 2004) Orders);
• Australian Accounting Standards and Accounting Interpretations issued by the Australian Accounting Standards Board; and
• Consensus Views of the Urgent Issues Group.

The Statements of Financial Performance and Position have been prepared on an accrual basis and are in accordance with historical cost convention, except for certain assets, which as noted, 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 benefits will flow and the amounts of the assets or liabilities can be reliably measured. Assets and liabilities arising under agreements equally proportionately unperformed are however not recognised unless required by an Accounting Standard. Liabilities and assets which are unrecognised are reported in the Schedule of Commitments and the Schedule of Contingencies (other than remote contingencies, which are reported at Note 10: Contingent Liabilities and Assets).

Revenues 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 and can be reliably measured. The continued existence of the department in its present form, and with its present programs, is dependent on continuing appropriations by Parliament for the department’s administration and programs.

1.3 Changes in Accounting Policy

The accounting policies used in the preparation of these financial statements are consistent with those used in 2002-03, except in respect of:

• Recoveries of shared expenses from other Parliamentary departments are recognised as revenue in 2003-04 (refer to Note 1.4).

1.4 Revenue

Revenues from Government Departmental outputs appropriations for the year (less any savings offered up in Portfolio Additional Estimates Statements) 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. The department does not currently participate in any activities that are reciprocal in nature.

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. Contributions of assets at no cost of acquisition or for nominal consideration are recognised at their fair value when the asset qualifies for recognition, unless received from another government agency as a consequence of a restructuring of administrative arrangements (refer to Note 1.5).

Other Revenue

Revenue from the sale of goods and services is recognised upon the delivery of goods to customers. Revenue from the rendering of a service 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.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

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

1.5 Transactions with the Government as Owner

Equity Injections

Appropriations designated as equity injections (less any savings offered up in Portfolio Additional Estimates Statements) are recognised directly in Contributed Equity.

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.

Capital Use Charge

A capital use charge is no longer imposed by the Government on the net assets of the department at year end. In 2002-03, the net assets figure was adjusted to take account of asset gifts and revaluation increments during the financial year. The charge was accounted for as a dividend to Government.

In accordance with the recommendations the Budget Estimates and Framework Review, the Government decided that the charge would not operate after 30 June 2003.

Other distributions to owners

The FMO’s require that distributions to owners be debited to contributed equity unless in the nature of a dividend. In 2002-03, by agreement with Finance, the department returned surplus output appropriation funding of $13,380,927 to the Official Public Account (OPA) of which $5,000 has been redrawn.

1.6 Employee Benefits

Liabilities for services rendered by employees are recognised at the reporting date to the extents that they have not been settled.

Liabilities for wages and salaries (including non-monetary benefits), and annual 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 regard to the rates expected to be paid on settlement of the liability. All other employee liabilities are measured as the present value of estimated future cash out flows to be made in respect of services provided by employees up to the reporting date.

(a) 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.

Leave liabilities are calculated on the basis of employees’ remuneration, including the department’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

The liability for long service leave is recognised and measured at the estimated present value of future cash flows to be made in respect of all employees at 30 June 2004. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

(b) Separation and redundancy

In 2003-2004, the department has made no provision for future separation and redundancy benefit payments.

(c) Superannuation

Staff of the department contribute to the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. The liability for their superannuation benefits is recognised in the financial statements of the Commonwealth and is settled by the Commonwealth in due course.

The department makes employer contributions to the Commonwealth at rates determined by an actuary to be sufficient to meet the cost to the Commonwealth of the superannuation entitlements of the department’s employees.

1.7 Leases

No finance leases were in existence at any time during the year or at balance date. Operating lease payments are expensed on the basis of the benefits derived from the leased assets. The department’s operating leases relate to vehicles leased from Leaseplan.

1.8 Cash

Cash means notes and coins held, deposits held at call with a bank, and term deposits.

1.9 Financial instruments

Accounting policies for financial instruments are stated at notes 15 and 21.

1.10 Acquisition of Assets

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

Assets 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 administrative arrangements. In the latter case, assets are initially recognised at the amounts at which they were recognised in the transferor agency’s accounts immediately prior to the restructuring.

1.11 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 $500 for furniture and fittings, computer equipment and office machines and equipment and $2,000 for plant and equipment, security infrastructure, intangibles and all other assets, 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

(a) Basis

Plant and equipment are carried at valuation. Revaluations undertaken up to 30 June 2002 were done on a deprival basis; revaluations since that date are at fair value. This change in accounting policy is required by Australian Accounting Standard AASB 1041 Revaluation of Non-current Assets.

No assets have been revalued during the current period, accordingly this change in policy has had no financial effect.

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

Asset Class	Fair Value Measured at:	Deprival Value Measured at:
Property, Plant & Equipment	Market selling price	Depreciated replacement cost

Under both deprival and fair value, assets which are surplus to requirements are measured at their net realisable value.

(b) Frequency

Plant and equipment are revalued progressively in successive three year cycles. The current cycle commenced on 1 July 2001 and finished on 30 June 2004.

All plant and equipment assets were revalued during 2001-02.

Assets in each class acquired after the commencement of a progressive revaluation cycle are not captured by the progressive revaluation then in progress.

(c) Conduct

All valuations are conducted by an independent qualified valuer.

(d) Depreciation

Depreciable 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.

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

	2004	2003
Plant and equipment	5 to 15 years	5 to 15 years
Computer equipment	3 to 10 years	3 to 10 years
Furniture and fittings	5 to 30 years	5 to 30 years
Office machines and equipment	4 to 30 years	4 to 30 years
Intangibles (software)	3 to 5 years	3 to 5 years

(e) Recoverable amount test

From 1 July 2002, Schedule 1 no longer required the application of the recoverable amount test in Australian Accounting Standard AAS 10 Recoverable Amount of Non-Current Assets to the assets of agencies when the primary purpose of the asset is not the generation of cash inflows.

No plant and equipment assets have been written down to recoverable amount per AAS 10. Accordingly, the change in policy had no financial effect.

1.12 Intangibles

The Department of the Senate’s intangibles comprise software for internal use. These assets are carried at cost.

From 1 July 2002, Schedule 1 no longer requires the application of the recoverable amount test in Australian Accounting Standard AAS 10 Recoverable Amount of Non-Current Assets to the assets of agencies when the primary purpose of the asset is not the generation of cash inflows.

However, Schedule 1 now requires such assets, if carried on the cost basis, to be assessed for indications of impairment. The carrying amount of impaired assets must be written down to the higher of its net market selling price or depreciated replacement cost.

All software assets were assessed for impairment as at 1 July 2002. None were found to be impaired.

Software is amortised on a straight-line basis over its anticipated useful life.

The useful lives of the department’s software is 3 to 5 years (2003: 3 to 5 years).

1.13 Inventories

Inventories held for resale are valued at the lower of cost and net realisable value.

Inventories not held for resale are valued at cost, unless they are no longer required, in which case they are valued at net realisable value.

1.14 Taxation

The department is exempt from all forms of taxation except fringe benefits tax and goods and services tax (GST).

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

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

The fringe benefits tax for Members of Parliament is paid by the Department of Finance and Administration. The Department of the Senate also pays fringe benefits tax on benefits it provides to office holders of the Senate. The tax is paid from a special appropriation provided for the benefits of senators and members. The fringe benefits tax in respect of senators generally has not been recognised in the financial statements of the department except to the extent that the department has provided the benefits to office holders.

1.15 Foreign Currency

Transactions denominated in a foreign currency are converted at the exchange rate on the date of payment and receipt. Foreign currency receivables and payables are converted at the exchange rates current as at balance date. Associated currency gains and losses are not material.

1.16 Insurance

The department has insured for risks through the Government’s insurable risk managed fund called Comcover. Workers compensation is insured through the Government’s Comcare Australia.

1.18 Adoption of AASB Equivalents to International Financial Reporting Standards from 2005-2006.

The Australian Accounting Standards Board has issued replacement Australian Accounting Standards to apply from 2005-06. The new standards are the AASB Equivalents to International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board. The new standards cannot be adopted early. The standards being replaced are to be withdrawn with effect from 2005-06, but continue to apply in the meantime.

The purpose of issuing AASB Equivalents to IFRSs is to enable Australian entities reporting under the Corporations Act 2001 to be able to more readily access overseas capital markets by preparing their financial reports according to accounting standards more widely used overseas.

For-profit entities complying fully with the AASB Equivalents will be able to make an explicit and unreserved statement of compliance with IFRSs and well as with the AASB Equivalents.

It is expected that the Finance Minister will continue to require compliance with the Accounting Standards issued by the AASB, including the AASB Equivalents to IFRSs, in his Orders for the Preparation of Agency financial statements for 2005-06 and beyond.

The AASB Equivalents contain certain additional provisions which will apply to not-for-profit entities, including Australian Government agencies. Some of these provisions are in conflict with the IFRSs and therefore the Department of the Senate will only be able to assert compliance with the AASB Equivalents to the IFRSs.

Existing AASB standards that have no IFRS equivalent will continue to apply, including in particular AAS 29 Financial Reporting by Government Departments.

Accounting Standard AASB 1048 Disclosing the impact of Adopting Australian Equivalents to IFRSs requires that the financial statements for 2003-04 disclose:

• An explanation of how the transition to the AASB Equivalents is being managed; and
• A narrative explanation of the key differences in accounting policies arising from the transition.

The purpose of this note is to make these disclosures.

Management of the transition to AASB Equivalents to IFRSs

The Department of the Senate has taken the following steps for the preparation towards the implementation of AASB Equivalents:

• The department’s Audit and Evaluation Committee is tasked with oversight of the transition to and implementation of the AASB Equivalents to IFRSs. The Chief Finance Officer is formally responsible for the project and reports regularly to the committee on progress against the formal plan approved by the committee.
• The plan requires the following key steps to be undertaken and sets deadlines for their achievement:
  • Identification of all major accounting policy differences between current AASB standards and the AASB Equivalents to IFRSs progressively to 30 June 2004.
  • Identification of systems changes necessary to be able to report under the AASB Equivalents, including those necessary to enable capture of data under both sets of rules for 2004-05, and the testing and implementation of those changes.
  • Preparation of a transitional balance sheet as at 1 July 2004, under AASB Equivalents, by 31 December 2004.
  • Preparation of a AASB Equivalent balance sheet at the same time as the 30 June 2005 statements are prepared.
  • Meeting reporting deadlines set by Finance for 2005-06 balance sheet under AASB Equivalent Standards.
• The plan also addresses the risks to successful achievement of the above objectives and includes strategies to keep implementation on track to meet deadlines.
• To date, all major accounting and disclosure differences and system changes have been identified and the system changes have been tested successfully.
• Consultants have been engaged where necessary to assist with each of the above steps.

Major changes in accounting policy

Changes in accounting policies under AASB Equivalents are applied retrospectively i.e. as if the new policy had always applied. This rule means that a balance sheet prepared under the AASB Equivalents must be made as at 1 July 2004, except as permitted in particular circumstances by AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. This will enable the 2005-06 financial statements to report comparatives under the AASB Equivalents also.

Changes to major accounting policies are discussed in the following paragraphs.

Property, plant and equipment

It is expected that the Finance Minister’s Orders will require property, plant and equipment assets carried at valuation in 2003-04 to be measured at up-to-date fair value from 2005-06.

This differs from the accounting policies currently in place for these assets which, up to and including 2003-04, have been revalued progressively over a 3 year cycle and which currently include assets at cost (for purchases since the commencement of a cycle) and at deprival value (which will differ from their fair value to the extent that they have been measured at depreciated replacement cost when a relevant market selling price is available).

However, it is important to note that the Finance Minister requires these assets to be measured at up-to-date for values as at 30 June 2005. Further, the transitional provisions in AASB 1 will mean that the values at which assets are carried as at 30 June 2004 under existing standards will stand in the transitional balance sheet as at 1 July 2004.

Intangible Assets

The department currently recognises internally-developed software assets on the cost basis. The carrying amounts include amounts that were originally measured at deprival valuation and subsequently deemed to be cost under transitional provisions available on the introduction of AAS 38 Revaluation of Non-current Assets in 2000-01 and AASB 1041 of the same title in 2001-02.

The AASB Equivalent on Intangibles does not permit intangibles to be measured at valuation unless there is an active market for the intangible. The department’s internally-developed software is specific to the needs to the department and is not traded. Accordingly, the department will derecognise the valuation component of the carrying amount of these assets on adoption of the AASB Equivalent.

Impairment of Non-Current Assets

The department’s policy on impairment of non-current assets is at Note 1.13. Under the new AASB Equivalent Standard, these assets will be subject to assessment for impairment and, if there are indications of impairment, measurement of any impairment. (Impairment measurement must also be done, irrespective of any indications of impairment, for intangible assets not yet available for use). The impairment test is that the carrying amount of an asset must not exceed the greater of a) its fair value less costs to sell and (b) its value in use. Value in use is the net present value of net cash inflows for for-profit assets of the department and depreciated replacement cost for other assets which would be replaced if the department were deprived of them.

Inventory

The department recognises inventory not held for sale at cost, except where no longer required, in which case net realisable value is applied. The new AASB Equivalent standard will require inventory held for distribution for no consideration or at a nominal amount to be carried at the lower of cost or current replacement cost.

Employee Benefits

The provision for long service leave is measured at the present value of estimated future cash outflows using market yields as at the reporting date on national government bonds. Under the new AASB Equivalent standard, the same discount rate will be used unless there is a deep market in high quality corporate bonds, in which case the market yield on such bonds must be used.

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