Financial Statements

Independent Auditor’s Report

To the Attorney-General

Opinion

In my opinion, the financial statements of the Australian Financial Security Authority (the Entity) for the year ended 30 June 2019:

  1. comply with Australian Accounting Standards – Reduced Disclosure Requirements and the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
  2. present fairly the financial position of the Entity as at 30 June 2019 and its financial performance and cash flows for the year then ended.

The financial statements of the Entity, which I have audited, comprise the following statements as at 30 June 2019 and for the year then ended:

  • Statement by the Accountable Authority and Chief Finance Officer;
  • Statement of Comprehensive Income;
  • Statement of Financial Position;
  • Statement of Changes in Equity;
  • Cash Flow Statement;
  • Administered Schedule of Comprehensive Income;
  • Administered Schedule of Assets and Liabilities;
  • Administered Reconciliation Schedule;
  • Administered Cash Flow Statement; and
  • Notes to the financial statements, comprising a Summary of Significant Accounting Policies and other explanatory information.

Basis for opinion

I conducted my audit in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing Standards. My responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Entity in accordance with the relevant ethical requirements for financial statement audits conducted by the Auditor-General and his delegates. These include the relevant independence requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) to the extent that they are not in conflict with the Auditor-General Act 1997. I have also fulfilled my other responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Other information

The Accountable Authority is responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019 but does not include the financial statements and my auditor’s report thereon.

My opinion on the financial statements does not cover the other information and accordingly I do not express any form of assurance conclusion thereon.

In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard.

Accountable Authority’s responsibility for the financial statements

As the Accountable Authority of the Entity, the Chief Executive and Inspector-General in Bankruptcy is responsible under the Public Governance, Performance and Accountability Act 2013 (the Act) for the preparation and fair presentation of annual financial statements that comply with Australian Accounting Standards – Reduced Disclosure Requirements and the rules made under the Act. The Chief Executive and Inspector-General in Bankruptcy is also responsible for such internal control as the Chief Executive and Inspector-General in Bankruptcy determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Chief Executive and Inspector-General in Bankruptcy is responsible for assessing the ability of the Entity to continue as a going concern, taking into account whether the Entity’s operations will cease as a result of an administrative restructure or for any other reason. The Chief Executive and Inspector-General in Bankruptcy is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the assessment indicates that it is not appropriate.

Auditor’s responsibilities for the audit of the financial statements

My objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian National Audit Office Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with the Australian National Audit Office Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also:

  • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
  • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control;
  • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Accountable Authority;
  • conclude on the appropriateness of the Accountable Authority’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern; and
  • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

I communicate with the Accountable Authority regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

Australian National Audit Office

Lorena Skipper
A/g Executive Director
Delegate of the Auditor-General

Canberra
24 September 2019

Statement by the Accountable Authority and Chief Finance Officer

In our opinion, the attached financial statements for the year ended 30 June 2019 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.

In our opinion, at the date of this statement, there are reasonable grounds to believe that the Australian Financial Security Authority will be able to pay its debts as and when they fall due.

Signed
Hamish McCormick
Accountable Authority
September 2019

Signed
Joanna Stone
Chief Finance Officer
September 2019

Statement of Comprehensive Income for the period ended 30 June 2019

Budget Variances Commentary

The policy for explanation of major budget variances is included in the Overview section. The budget variance relating to depreciation and amortisation reflects the lower than budgeted expenses following a revised approach to infrastructure system enhancement and replacement plans. The budget variance for rendering of services reflects the reduction of the Personal Properties and Securities Register (‘PPSR’) revenue due to efficiencies achieved that allowed for a reduction in fees for PPSR searches and registrations.

Statement of Financial Position as at 30 June 2019

Budget Variances Commentary

The policy for explanation of major budget variances is included in the Overview section. The budget variances for financial assets and contributed equity relates to greater than forecast PPSR surplus funds transferred to government during the year. The lower than forecast balance for land and buildings is attributable to changes in planned property lease arrangements. The variances against original budget for property, plant and equipment, intangibles, prepayments and suppliers are largely attributable to significant investment in infrastructure and systems during the year, as well as changes in their related servicing, support and maintenance arrangements. The intangibles balance was also impacted by reclassification of a lease incentive to property plant and equipment (refer Overview note for further disclosure including prior year statements impact). The independent tri-annual revaluation of non-financial assets also yielded an overall increase to non-financial assets of $0.833 million. The budget variance for other payables reflects the recognition of a new lease incentive liability.

Statement of Changes in Equity for the period ended 30 June 2019


Accounting Policy

Returns of Equity

The Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 requires that distributions to owners be debited to contributed equity unless it is in the nature of a dividend.

Other Distributions To Owners

AFSA relinquished control of additional PPSR accumulated operating reserve surplus funds to the government during the year as outlined in AFSA’s PPSR cost recovery implementation statement (refer to note 5.3).

Departmental Capital Budget

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.

Budget Variances Commentary

The policy for explanation of major budget variances is included in the Overview section. The budget variance for other comprehensive income reflects the impact of the 30 June 2019 revaluation of tangible non-financial assets.

The budget variance for distributions to owners reflects the return of the PPSR surplus.

Cash Flow Statement for the period ended 30 June 2019

Budget Variances Commentary

The policy for explanation of major budget variances is included in the Overview section. The original budget cash flow statement was prepared net of GST. The budget variance for Suppliers relates to additional maintenance and licencing costs for the PPSR. The budget variance for Cost Recovery Funds Transferred to OPA relates to PPSR accumulated operating reserve surplus funds transferred to government and s74 receipts for the year.

Administered Schedule of Comprehensive Income for the period ended 30 June 2019

Budget Variances Commentary

The policy for explanation of major budget variances is included in the Overview section. The budget variance for impairment loss allowance on financial instruments relates to Pecuniary Penalty Orders (PPOs) which will vary from year to year as they are based on the individual circumstances of each matter. Payments made through Special Accounts budget variance relates to proceeds of crime expenditure which is not within the control of AFSA and it is therefore not possible to predict with certainty. Charges revenue variance is a result of higher than forecast gross asset realisations by trustees. The budget variance relating to fees and fines is difficult to forecast as it includes proceeds of crime related revenue. The budget variance for interest relates to changes made by the Department of Finance in September 2017 whereby they now earn the interest on the Confiscated Assets Special Account and Confiscated Assets Account balances that had previously been earned and forwarded on by AFSA. Return of payments made through Special Accounts budget variance relates to the refund of monies not within the control of AFSA and therefore not possible to predict.

Administered Schedule of Assets and Liabilities as at 30 June 2019

Budget Variances Commentary

The policy for explanation of major budget variances is included in the Overview section. Cash and cash equivalents is higher than budget forecast due to the unpredictable nature of proceeds of crime cash movements. The taxation receivables budget variance relates to higher than forecast gross asset realisations by trustees from lodgements due on 2 August 2019. The higher than budgeted other receivables is a result of highly variable proceeds of crime matters activities which makes it difficult to forecast revenues and proceeds of crime accruals. Other payables is lower than budget forecast due to changes in the interest earning arrangements for the Special Accounts maintained by AFSA.

Administered Reconciliation Schedule as at 30 June 2019

Accounting Policy

Administered Cash Transfers to and from the Official Public Account

Revenue collected by AFSA for use by the Government rather than the entity 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 administered reconciliation schedule.

Administered Cash Flow Statement for the period ended 30 June 2019

AFSA does not have any administered cash flows for investing or financing activities.

Overview

Objectives of Australian Financial Security Authority

Australian Financial Security Authority (AFSA) is an Australian Government not for profit entity and operates on a cost recovered basis. AFSA is an executive agency with the objective of facilitating improved and equitable financial outcomes for consumers, business and the community through excellence in service delivery.

For the financial year ended 30 June 2019, AFSA was structured to meet the following outcome:

Outcome 1: Maintain confidence in Australia’s personal insolvency and personal property securities systems through delivering fair, efficient and effective trustee and registry services, and risk-based regulation.

AFSA operates two programs to achieve this outcome – Personal Insolvency and Trustee Services and Operation of a National Register of Security Interests in Personal Property.

The continued existence of AFSA in its present form and with its present programs is dependent on Government policy.

AFSA’s activities contributing towards this outcome are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by AFSA in its own right. Administered activities involve the management or oversight by AFSA on behalf of the Government of items controlled or incurred by Government. AFSA’s departmental and administered activities include:

Regulation and enforcement

  • regulating personal insolvency practitioners
  • investigating alleged Bankruptcy Act 1966 and Personal Property Securities Act 2009 (PPS Act) offences and, where appropriate, referring for prosecution.

Insolvency and trustee services

  • acting on behalf of the Official Trustee (OT) for personal insolvency administrations
  • acting as trustee pursuant to court orders, particularly under the proceeds of crime legislation
  • acting as special trustee for government
  • providing practical information about options to deal with unmanageable debt
  • preserving the security and integrity of a large volume of personal insolvency records.

Personal property securities

  • operation of an online register of security interests in personal property
  • making administrative decisions to resolve disputes between secured parties and grantors
  • exercising discretion in response to applications made under the PPS Act
  • providing sector-specific information to help users to effectively use the Personal Properties Securities Register
  • preserving the security and integrity of a large volume of economically significant registration data

The Basis of Preparation

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

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

  • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
  • Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements 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 are 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.

Significant Accounting Judgements and Estimates

Significant accounting judgements and estimates are used for impairment assessment on proceeds of crime related receivables. There is risk that material adjustments to carrying amounts of assets may occur in future accounting periods in the event that these judgements and estimates change.

No other 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.

New Australian Accounting Standards

Adoption of new Australian Accounting Standard requirements

No accounting standard has been adopted earlier than the application date as stated in the standard. No new, revised or amended Standards or Interpretation were issued prior to the signing of the statement by the Chief Executive and Chief Finance Officer, that were applicable to the current reporting period and had a material effect on the AFSA’s financial statements.

Future Australian Accounting Standard Requirements

AASB 16 Leases – This new standard is effective from 2019-20 and requires leases be recognised as lease liabilities and right-of-use assets on the Statement of Financial Position. Based on AFSA’s assessment, it is expected that the first time adoption of AASB 16 will have a material impact on the transactions and balances recognised in the financial statements, in particular:

  • Lease assets and financial liabilities on the balance sheet will increase by between $28 million and $32 million;
  • Operating cash outflows will be lower and financing cash flows will be higher in the statement of cash flows as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities; and
  • There will be an increase in retained earnings at the date of implementation for the unwinding of liabilities previously recognised under AASB 117 of between $6.2 million and $6.6 million.

Change in Accounting Policy

During the year, AFSA changed its accounting policy in respect of the accounting treatment of lease incentive amounts received as a contribution to fitout. AFSA now applies AASB 116 Property, Plant and Equipment to the classification and ongoing accounting treatment of relevant transactions. Prior to this change in policy, AFSA applied AASB 138 Intangibles.

The impact of this change in accounting policy on the financial statements of AFSA is primarily to decrease the intangible assets and increase property, plant and equipment balances. This change did not result in a material impact on the current year or any years included within the financial statements. The impact of each line item of the primary financial statements is shown in the table below:

  As Reported
$’000
2018
Adjustment
$’000
Restated
$’000
Statement of Financial Position
Property, Plant and Equipment 2,982 4,519 7,501
Intangibles 17,190 (4,519) 12,671

Taxation

AFSA is exempt from all forms of taxation except fringe benefits tax (FBT) and the goods and services tax (GST).

Reporting of Administered Activities

Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules 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.

Trustee Roles

Official Receiver

Courts occasionally make orders which require the Official Receiver (OR) to take control of and administer real or personal property in accordance with orders, such as under the Child Support Assessment Act 1989.

Details of monetary and non-monetary assets held in trust are reported at Note 8.2.

Official Trustee

The OT acts as trustee for assets vested in the Commonwealth under the Bankruptcy Act 1966, Customs Act 1901, Mutual Assistance in Criminal Matters Act (1987) and Proceeds of Crime Act (1987) and Proceeds of Crime Act (2002) legislation (forfeited and restrained matters).

Details of monetary and non-monetary assets held in trust are reported at Note 8.2.

Events After the Reporting Period

There are no significant events that occurred after balance date that warrant disclosure, or must be brought to account in the financial statements.

Breach of Section 83 of the Constitution

Section 83 of the Constitution provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation made by law.

AFSA annually completes a risk assessment of payments made from special appropriations, including Special Accounts, long service leave and goods and services tax to identify if there are any matters upon which to report. AFSA reviews of special appropriations, Special Accounts and goods and services tax transactions in 2018-19 did not identify any breaches of statutory conditions.

AFSA engaged a third party to undertake a review of long service leave transactions in the 2018-19 year. The review did not identify any breaches of statutory conditions.

Explanation of major budget variances

AASB 1055: Budgetary Reporting requires explanations of major variances between the original budget as presented in the 2018-19 PBS. The variance commentary that appears in face statements should be read in the context of the following:

  1. It should be noted that the original budget was prepared before AFSA’s 2017-18 final results were known. As a consequence, the opening balance of the Statement of Financial Position needed to be estimated and in some cases variances between the 2018-19 final results and budget estimates can be at least in part attributed to unanticipated movement in the prior year period figures. Variances attributable to factors which would not reasonably have been identifiable at the time of the budget preparation, such as revaluation or impairment of assets or reclassifications of asset reporting categories have not been included as part of the analysis.
  2. AFSA considers that major variances are those greater than 10% of the original estimate. Variances below this threshold are not included unless considered significant by their nature. Variances relating to cash flows are a result of the factors detailed under expenses, own source income, assets or liabilities. Unless otherwise individually significant or unusual, no additional commentary has been included.
  3. The Budget is not audited.

1. Departmental Financial Performance

This section analyses the financial performance of the Australian Financial Security Authority for the year ended 30 June 2019.

1.1. Expenses

Note 1.1A: Employee Benefits

Accounting Policy

Accounting policies for employee related expenses are contained in the People and Relationships section.

Note 1.1B: Suppliers

Leasing Commitments

Nature of lease General description of leasing arrangement
Lease for office accommodation

Some lease payments are subject to regular increases in accordance with rent reviews; others are subject to pre-determined percentage increases.

For some office accommodation leases, the initial periods are still current with the majority having an option to renew for up to 5 years at AFSA’s discretion, following a once-off adjustment of rentals to current market levels.

Agreements for the provision of copiers to site offices

No contingent rentals exist.

There are no renewal or purchase options available to AFSA.

Accounting Policy

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

Note 1.1C: Write-Down and Impairment of Other Assets

1.2. Own-Source Revenue and Gains

Own-Source Revenue

Note 1.2A: Rendering of Services

Accounting Policy

Revenue from rendering of services is recognised, in line with AASB 15, by reference to:

  1. when control of the services transfers to the customer; and
  2. the amount that reflects the consideration entitled in exchange for the transfer of control.

The decrease in PPSR revenue is due to efficiencies achieved by AFSA that allowed for a reduction in the fees charged.

Note 1.2B: Other Revenue

Accounting Policy

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. The 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.

Note 1.2C: Revenue from Government

Accounting Policy

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue when AFSA 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.

2. Income and Expenses Administered on Behalf of Government

This section analyses the activities that the Australian Financial Security Authority does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental reporting.

2.1. Administered – Expenses

Note 2.1A: Impairment Loss Allowance on Financial Instruments

Note 2.1B: Payments Made Through Special Accounts

Accounting Policy

Section 297 of the Proceeds of Crime Act 2002 specifies permitted payments from the Confiscated Assets Account maintained by AFSA. Program payments are made pursuant to written Ministerial orders and are used for crime prevention or law enforcement initiatives, or for measures related to diversion from illegal drug use including treatment. Equitable sharing payments are made to other states or territories (including foreign countries) from proceeds of unlawful activities in recognition of their contributions to recovery, investigation or prosecution. Restitution payments are payments the Commonwealth is directed to make by an order pursuant to section 297(fa) of the Proceeds of Crime Act 2002.

2.2. Administered – Income

Revenue

Taxation Revenue

Note 2.2A: Charges

Accounting Policy

Charges revenue relates to levies on asset realisations and interest paid by the Official Trustee and Registered Practitioners. Registered Practitioners were required to lodge Annual Administration Returns by 2 August 2019 for the 2018-19 financial year. AFSA recognises charges revenue based on amounts paid by the Official Trustee and Annual Administration Return lodgements.

Non-Taxation Revenue

Note 2.2B: Fees and Fines

Accounting Policy

Administered Revenue

All administered revenues are revenues that relate to ordinary activities performed by AFSA on behalf of the Australian Government. As such, administered appropriations are not revenues of the individual entity that oversees distribution or expenditure of the funds as directed.

Fees and Fines

Fees for activities performed by AFSA under the Bankruptcy Act 1966 and Proceeds of Crime legislation are outlined in the Cost Recovery Impact Statements referred to in note 5.3.

PPO’s and Forfeiture Orders are statutory revenues recorded and collected by AFSA on behalf of the Commonwealth.

Note 2.2C: Interest

Accounting Policy

In September 2017, the Department of Finance commenced daily sweeping of the balances in the Confiscated Assets Account and Confiscated Assets Special Account which means that they now earn any interest related to these balances.

3. Departmental Financial Position

This section analyses the Australian Financial Security Authority’s assets used to conduct its operations and the operating liabilities incurred as a result.

Employee related information is disclosed in the People and Relationships section.

3.1. Financial Assets

Note 3.1A: Cash and Cash Equivalents

Note 3.1B: Trade and Other Receivables

Credit terms for goods and services were within 30 days (2018: 30 days).

Accounting Policy

Financial assets

Trade receivables, loans and other receivables that are held for the purpose of collecting the contractual cash flows where the cash flows are solely payments of principal and interest, that are not provided at below-market interest rates, are subsequently measured at amortised cost using the effective interest method adjusted for any loss allowance.

AASB 9 replaces the ‘incurred loss’ model previously used under AASB 139 with an ‘expected credit loss’ (ECL) model. This new impairment model applies to financial assets measured at amortised cost, contract assets and debt instruments measured at fair value through other comprehensive income.

Trade and other receivable assets at amortised cost are assessed for impairment at the end of each reporting period. The simplified approach has been adopted in measuring the impairment loss allowance at an amount equal to lifetime ECL.

Appropriations receivable are recognised at their nominal amounts.

3.2. Non-Financial Assets

Note 3.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles

Reconciliation of the opening and closing balances of property, plant and equipment and intangibles for 2019

  1. The carrying amount of buildings included $2.80 million leasehold improvements and $0.53 million make good assets.
  2. Land, buildings and other property, plant and equipment that met the definition of a heritage and cultural item were disclosed in the heritage and cultural asset class.
  3. The carrying amount of computer software included $1.70 million purchased software and $9.40 million internally developed software.
Contractual commitments for the acquisition of property, plant, equipment and intangible assets

Capital commitments for leasehold improvements, property, plant, equipment and intangibles was $0.72 million (2018: $5.25 million). Contractual payments are payable within the next 1 year and capital commitments primarily relate to infrastructure refresh.

Accounting Policy
Acquisition of Assets

Assets are recorded at cost of acquisition except as stated elsewhere. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at 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 amounts at which they were recognised in the transferor agency’s accounts immediately prior to the restructuring.

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 $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 dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to “make-good‟ provisions in property leases taken up by AFSA where there exists an obligation to restore the property to its original condition. These costs are included in the value of AFSA’s leasehold improvements with a corresponding provision for the “make-good‟ recognised.

Revaluations

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

Asset Class Fair value measured at:
Leasehold improvements Depreciated replacement cost
Leasehold improvements - make good Depreciated replacement cost
Property, plant and equipment Market approach
  Depreciated replacement cost
Heritage and cultural Market approach

Following initial recognition at cost, leasehold improvements and 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 materially differ 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 revaluations increment is credited to equity under the heading of asset revaluation surplus 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 in the surplus/deficit except to the extent that they reverse a previous revaluation increment for that class. An independent valuation was undertaken on all asset classes as at 30 June 2019 by Jones Lang LaSalle Advisory Services Pty Ltd. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset is 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 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.

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:

  2019 2018
Leasehold improvements Lease term Lease term
Property, plant and equipment 2 to 10 years 3 to 10 years
Impairment

All assets were assessed for impairment at 30 June 2019. 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 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 AFSA were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

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

Heritage and Cultural

Heritage and cultural items include 15 paintings by indigenous artists. Heritage and cultural assets are stored and managed in ways to preserve their heritage and cultural value over time.

Intangibles

AFSA’s intangibles comprise internally developed software, externally purchased software and right to use assets. 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 life of AFSA’s software is 1 to 10 years (2018: 1 to 10 years).

All software assets were assessed for indications of impairment as at 30 June 2019 including assets under construction.

Note 3.2B: Prepayments

No indicators of impairment were found for prepayments.

3.3. Payables

Note 3.3A: Suppliers

Settlement terms are 30 days.

Note 3.3B: Other Payables

Accounting Policy

Salaries and wages and superannuation

The liability for salaries and wages and superannuation represents accruals at 30 June 2019.

Prepayments received

Prepayment received represents the revenue received in advance for rendering of future services.

Lease incentive

Lease incentive liability is associated with right to use intangible assets for leasing of premises.

3.4. Other Provisions

3.4: Other Provisions

AFSA currently has 4 agreements (2018: 4 agreements) for the leasing of premises which have provisions requiring the entity to restore the premises to their original condition at the conclusion of the lease. AFSA has made provision to reflect the present value of the ‘make good’ obligations. A revaluation was conducted by Jones Land LaSalle (JLL) on the provision for makegood at 30 June 2019.

4. Assets and Liabilities Administered on Behalf of Government

This section analyses assets used to conduct operations and the operating liabilities incurred as a result the Australian Financial Security Authority does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental reporting.

4.1. Administered – Financial Assets

Note 4.1A: Cash and Cash Equivalents

The closing balance of Cash in special accounts does not include amounts held in trust: [$149,311 in 2019 and $197,320 in 2018]. See note 5.2 Special Accounts and note 8.2 Assets Held in Trust for more information.

Note 4.1B: Taxation Receivables

Note 4.1C: Other Receivables

Reconciliation of the Impairment Allowance

Movements in relation to 2019

Accounting Policy

Pecuniary Penalty Orders

The value of PPOs due and owing to the Commonwealth at 30 June 2019 are disclosed as administered assets. AFSA is responsible for realisation of associated assets and debt management. Decisions on debt recovery action are the responsibility of Commonwealth Director of Public Prosecutions (CDPP) and the Australian Federal Police (AFP).

Official Trustee Fees

Official Trustee fees receivable are calculated with reference to funds balances in the Official Trustee body corporate accounts at financial year end.

Accounting Judgements and Estimates

Pecuniary Penalty Orders

Collectability is reviewed at the end of the reporting period with reference to the status of recovery action by CDPP and AFP. Impairment allowances are made when collectability of the debt is judged to be less, rather than more, likely based on availability of assets for realisation and application to the debt, as then confirmed with the CDPP or AFP respectively. A bad debt is recognised when no further recovery action will be undertaken by CDPP or AFP and they inform AFSA that they are closing their files.

Forfeiture Orders

Forfeiture Order receivables are based on an assessment of the cash balances held in the forfeited bank account at financial year end (see Note 8.2) where amounts are identified as considered likely to be paid to the Confiscated Assets Account.

5. Funding

This section identifies the Australian Financial Security Authority funding structure.

5.1. Appropriations

Note 5.1A: Annual Appropriations (‘Recoverable GST Exclusive’)

Annual Appropriations for 2019

Notes:

  1. In 2018-19, in accordance with a Section 51 direction, $14,221,130 has been withheld.
  2. In 2018-19, there were no appropriations that have been quarantined.
  3. Departmental Capital Budgets are appropriated through Appropriation Acts (No. 1, 3, 5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts. The agency did not have any administered capital budgets.

Annual Appropriations for 2018

Notes:

  1. In 2017-18, $169,000 funding relating to the 2017-18 Appropriation Act 1 has been withheld under Section 51 direction. In accordance with Section 51 direction, $35,382,688 has been withheld.
  2. In 2017-18, there were no appropriations that have been quarantined.
  3. Departmental Capital Budgets are appropriated through Appropriation Acts (No. 1, 3, 5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts. The agency did not have any administered capital budgets.

Note 5.1B: Unspent Departmental Annual Appropriations (‘Recoverable GST Exclusive’)

AFSA did not receive any administered annual appropriations (2018: Nil).

Note 5.1C: Special Appropriations (‘Recoverable GST Exclusive’)

5.2. Special Accounts

  1. Appropriation: Public Governance, Performance and Accountability Act 2013 section 80.

Establishing Instrument: Bankruptcy Act 1966, section 20G

Purpose: For handling interest derived from the investment of money in the Common Investment Fund in accordance with sections 20H and 20J of the Bankruptcy Act 1966.

  1. Appropriation: Public Governance, Performance and Accountability Act 2013 section 80.

Establishing Instrument: Proceeds of Crime Act 1987, section 34A

Purpose: To receive and deal with proceeds of confiscated assets in accordance with sections 34B -34E of the Proceeds of Crime Act 1987.

  1. Appropriation: Public Governance, Performance and Accountability Act 2013 section 80.

Establishing Instrument: Proceeds of Crime Act 2002, section 295

Purpose: The purpose of the account is to receive and deal with proceeds of confiscated assets in accordance with sections 296 – 298 of the Proceeds of Crime Act 2002.

  1. Appropriation: Public Governance, Performance and Accountability Act 2013 section 78.

Establishing Instrument: Financial Management and Accountability Act 1997, section 20, Financial Management and Accountability Determination 2012/12.

Purpose: For the expenditure of moneys temporarily held on trust or otherwise for the benefit of a person other than the Commonwealth.

5.3. Regulatory Charging Summary

Regulatory Charging and Own Source Revenue

Departmental expenses are funded through Annual Appropriations and Own source revenue. In turn these resources are utilised to generate departmental and administered revenue.

The activities which AFSA performs regulatory charging for are:

Insolvency Activities

Fees and charges relate to the administration of the Bankruptcy Act 1966 including registry, estate administration, regulation and enforcement. It also includes charges for administration of matters under Proceeds of Crime legislation.

Documentation (the Cost Recovery Impact Statement) for Insolvency activities, is available at AFSA’s Cost recovery implementation statement webpage.

Personal Property Security Register (PPSR) Activities

Fees and charges related to the operation of the PPSR relate to the registration of security interests, and searches of the register by stakeholders.

Documentation (the Cost Recovery Impact Statement) for PPSR activities, is available at at the PPSR Cost recovery implementation statement webpage.

6. People and Relationships

This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.

6.1. Employee Provisions

Accounting Policy

Liabilities for ‘short term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits expected within twelve months of balance date are measured at their nominal amounts.

Leave

The liability for employee benefits includes provision for annual leave and long service 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 AFSA’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 has been determined by reference to the work of an actuary as at 30 June 2018. Actuarial reviews of employee provisions are undertaken every 3 years. 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 has been made for separations and redundancy benefit payments. AFSA 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

Staff of AFSA are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap) or other superannuation funds of the employee’s choice. 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 in the Department of Finance’s administered schedules and notes.

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

6.2. Key Management Personnel Remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The entity has determined the key management personnel to be Portfolio Minister, the Chief Executive, Chief People Officer, Independent Member and Senior Executive Officers (‘SES’).

Key management personnel remuneration is reported in the table below:

The total number of key management personnel that are included in the table above are 12 individuals (2018:12 individuals), 3 of those are included under acting arrangements (2018:4 acting arrangements). There was a new position added to the Key Management Personnel and this is the main cause of the variance from 2018. There was no increase in substantive SES positions during the year.

  1. The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister’s remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the entity.
  2. The Independent Member was paid $96,319 (2018: $86,502) under a fee for service arrangement for membership on various management boards.
  3. Due to an administrative oversight, a key management personnel was overpaid $5,059 during the year (2018: $4,255). Arrangements are being made for the employee concerned to repay these amounts.

6.3. Related Party Disclosures

Related party relationships:

The entity is an Australian Government controlled entity. Related parties to this entity are Key Management Personnel and other Australian Government entities.

Transactions with related parties:

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include the payment or refund of taxes, receipt of a Medicare rebate or higher education loans. These transactions have not been separately disclosed in this note.

There are no significant transactions with related parties (2018: Nil). Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the entity, it has been determined that there are no related party transactions to be separately disclosed.

This section analyses how the Australian Financial Security Authority manages financial risks within its operating environment.

7. Managing Uncertainties

7.1. Contingent Assets and Liabilities

Note 7.1A: Contingent Liabilities

Quantifiable Contingencies

The Schedule of Contingencies contains $Nil in contingent liabilities (2018: $Nil) for claims in respect of matters with expected cost orders against AFSA. This is an estimate based on information available to AFSA at year end.

Unquantifiable Contingencies

AFSA could be liable for legal costs, damages or other court awards against the Official Receiver, Official Trustee or Inspector-General for legal actions initiated with respect to their administration or regulation of the personal insolvency system in Australia, particularly under the Bankruptcy Act 1966.

AFSA advances moneys to the Official Trustee to ensure it can pay expenses incurred in performing its trustee duties when there are no funds in bankrupt estates or proceeds of crime matters. If funds eventually come into the estate or matter, then the Official Trustee is reimbursed.

At 30 June 2019, AFSA was involved in legal proceedings with a number of parties involving the administration of and possible claims against forfeited assets under Proceeds of Crime legislation. It is not possible to reliably estimate the total of any eventual amounts that may be received or paid in relation to these claims and subsequent reimbursement of costs to AFSA. One significant proceeds of crime matter is currently subject to legal proceedings and depending on the outcome there may be a contingent liability that is not currently quantifiable.

Accounting Policy

Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position but are reported in the notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or asset 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.

Note 7.1B: Administered Contingent Assets and Liabilities

Quantifiable Administered Contingencies

AFSA had no quantifiable contingencies at 30 June 2019 (2018: Nil).

Unquantifiable Administered Contingencies

AFSA could be liable for legal costs, damages or other court awards against the Official Trustee for legal actions initiated with respect to the Official Trustee’s role under the Bankruptcy Act, 1966, Proceeds of Crime Act 1987 and the Proceeds of Crime Act 2002.

At 30 June 2019, AFSA was involved in legal proceedings with a number of parties involving the administration of and possible claims against forfeited proceeds of crime assets. It is not possible to reliably estimate the total of any eventual amounts that may be received or paid in relation to these claims. Of particular note is a significant proceeds of crime matter currently subject to legal proceedings and depending on the outcome there may be a contingent liability that is not currently quantifiable.

7.2. Financial Instruments

Note 7.2A: Categories of Financial Instruments

The net fair value of the financial assets and liabilities are at their carrying amounts. AFSA derived no interest income from financial assets in either the current or prior year.

Reconciliation of carrying amounts of financial assets on the date of initial application of AASB 9

  1. The change in carrying amount based on measurement under AASB 139 is $nil. The change in measurement on transition to AASB 9 is $nil.

Accounting Policy

Financial Assets

With the implementation of AASB 9 Financial Instruments for the first time in 2019, the entity classifies its financial assets in the following categories:

  1. financial assets at fair value through profit or loss;
  2. financial assets at fair value through other comprehensive income; and
  3. financial assets measured at amortised cost.

The classification depends on both the entity’s business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when the entity becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

Comparatives have not been restated on initial application.

Financial Assets at Amortised Cost

Financial assets included in this category need to meet two criteria:

  1. the financial asset is held in order to collect the contractual cash flows; and
  2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective Interest Method

Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Impairment of Financial Assets

Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12‐month expected credit losses if risk has not increased.

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a derecognition event where the writeoff directly reduces the gross carrying amount of the financial asset.

Financial Liabilities

Financial liabilities are classified as either financial liabilities “at fair value through profit or loss” or financial liabilities at amortised cost. 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 (irrespective of having been invoiced).

7.3. Administered - Financial Instruments

Note 7.3A: Categories of Financial Instruments

Reconciliation of carrying amounts of financial assets on the date of initial application of AASB 9

  1. The change in carrying amount by category based on measurement under AASB 139 is $Nil. The change in measurement on transition to AASB 9 is $Nil.

Note 7.3B: Net Gains on Financial Assets

7.4. Fair Value Measurement

The following table provides an analysis of assets that are measured at fair value. The remaining assets and liabilities disclosed in the statement of financial position do not apply the fair value hierarchy.

Accounting Policy

A comprehensive valuation was conducted for 30 June 2019 by Jones Lang LaSalle (JLL) and is carried out at least once every three years (previous valuation review conducted for 30 June 2016).

Both the market and cost approaches were utilised by JLL to determine the fair value of assets:

Cost approach – reflects the amount that would be required to replace the service capacity of an asset at the reporting date. That is, the cost a market participant would be prepared to pay to acquire or construct a substitute asset of comparable utility. Often the asset being examined will be less attractive than the alternative because of age or obsolescence. Obsolescence incorporates physical deterioration, functional (or technical) obsolescence and economic obsolescence specific to the asset. This approach is referred to as the Current Replacement Cost under AASB 13

Market approach – provides an indication of value by comparing the subject asset with similar assets for which price information is available. The first step is to consider the prices for transactions of similar assets that have occurred recently in the market. If few recent transactions have occurred, it may also be appropriate to consider the prices of identical or similar assets that are listed or offered for sale provided the relevance of this information is clearly established and critically analysed.

JLL select the most relevant valuation technique based on the nature of the asset being measured and the exit market within which the asset would transact. No individual assets were measured using multiple valuation techniques.

AFSA’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

Note 7.4A: Fair Value Measurements

  1. No non-financial assets were measured at fair value on a non-recurring basis as at 30 June 2019 (2018: Nil).
  2. AFSA’s assets are held for operational purposes and not held for the purposes of deriving a profit. The current use of all non-financial assets is considered their highest and best use.

8. Other Information

8.1 Aggregate Assets and Liabilities

Note 8.1A: Aggregate Assets and Liabilities

Note 8.1B: Administered - Aggregate Assets and Liabilities

8.2 Assets Held in Trust

AFSA fulfils the roles of the Official Trustee and Official Receivers under the Bankruptcy Act 1966, the Proceeds of Crime Act 1989 and the Proceeds of Crime Act 2002, and fulfils a trustee role under other legislation pursuant to court orders. As a result, it holds or controls assets in a trustee capacity. The following assets were held or controlled as at 30 June:

Held under Child Support Assessment Act 1989

Monetary Assets - Services for Other Entities and Trust Money’s Special Account

The Official Receiver holds monies in trust on behalf of individuals pursuant to Court Orders made under Child Support Assessment Act 1989.

Non-monetary assets

The Official Receiver also holds non-monetary assets in trust on behalf of individuals pursuant to Court Orders made under Child Support Assessment Act 1989. The assets are comprise of real estate and are not included in AFSA’s financial statements.

Held under Bankruptcy Act 1966

Monetary Assets - Common Investment Fund

The Official Trustee holds monies in trust on behalf of bankrupt estates in the Common Investment Fund. These monies were not available for other purposes and are not included in AFSA’s financial statements.

Monetary Assets - Official Trustee Body Corporate (Estate Administration) Account

The Official Trustee holds funds for both the Commonwealth and bankrupt estates in the Official Trustee Body Corporate (Estate Administration) bank account. Funds held on behalf of the Commonwealth include Official Trustee fees which are reflected in Note 2.2B in the financial statements.

Non-monetary assets

The Official Trustee also holds non-monetary assets in trust on behalf of bankrupt estates that are not included in AFSA’s financial statements. These represent assets that have vested in or have come under the control of the Official Trustee, or have been identified as requiring further action and reactivated by the Official Trustee, that the Official Trustee has not yet dealt with. The assets comprise of real estate, shares & investments, motor vehicles, business stock and equipment, tools of trade, marine vessels, jewellery, collectibles, antiques, debtors, deceased estate interests and other assets.

Held under Proceeds of Crime Act 1987, Proceeds of Crime Act 2002 and equivalent legislation* (Forfeited)

Monetary Assets - Official Trustee Proceeds of Crime Forfeited Account

The Official Trustee holds monies in trust relating to assets that have been forfeited to the Commonwealth. Once the matters have been finalised funds are deposited into the Confiscated Assets Account (‘CAA’) or the Confiscated Assets Special Account (‘CASA’). The CAA and CASA are reported in Note 5.2 in the financial statements.

Non-monetary assets

The Official Trustee holds non-monetary assets in trust on behalf of the Commonwealth that are not included in AFSA’s financial statements. The assets comprise of real estate, motor vehicles, marine vessels, jewellery, antiques and collectibles.

Held under Proceeds of Crime Act 1987, Proceeds of Crime Act 2002 and equivalent legislation* (Restrained)

Monetary Assets - Official Trustee Proceeds of Crime Restrained Accounts

The Official Trustee holds monies in trust (AUD, EUR and USD) on behalf of the third parties. Under the Proceeds of Crime Act 2002, these restrained monies are held in trust by the Official Trustee on behalf of defendants, are not available for other purposes and are not included in AFSA’s financial statements.

Non-monetary assets

The Official Trustee holds non-monetary assets in trust on behalf of third parties. The assets comprise of real estate, interests in leases, shares and superannuation holdings, motor vehicles, marine vessels, jewellery, antiques and collectibles and other assets and are not included in AFSA’s financial statements.

Held under Proceeds of Crime Act 1987, Proceeds of Crime Act 2002 and equivalent legislation*

Monetary Assets - Official Trustee Body Corporate (Proceeds of Crime) Account

The Official Trustee holds funds for both the Commonwealth and Proceeds of Crime and equivalent legislation matters in the Official Trustee Body Corporate (Proceeds of Crime) bank account. Funds held on behalf of the Commonwealth include Official Trustee fees which are reflected in Note 2.2B in the financial statements.

Non-monetary assets

The Official Trustee holds non-monetary assets in trust on behalf of Proceeds of Crime matters. The assets comprise of receivables.

* Equivalent legislation includes the Customs Act 1901 and the Mutual Assistance in Criminal Matters Act 1987, under which the Official Trustee has powers to deal with and dispose of property pursuant to orders.