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Financial Statements - Notes Note 2 - Summary of Significant Accounting Policies 2.1 Basis of Accounting The financial statements are required by section 49 of the Financial Management and Accountability (FMA) Act 1997 and are a general purpose financial report. The financial statements have been prepared in accordance with:
The statements have been prepared having regard to:
The financial statements 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. The continued existence of Customs in its present form, and with its present programs, is dependent on Government policy and on continuing appropriations by Parliament for its administration and programs. 2.2 Changes in Accounting Policy Changes in accounting policy have been identified in this note under their appropriate headings.
Agency assets, liabilities, revenues and expenses are those items that are controlled by Customs. They are used by Customs in producing its outputs, including:
Administered items are those items that are controlled by the Government and managed or oversighted by Customs on behalf of the Government. These items include Customs duty. The purposes of separation of agency and administered items is to enable assessment of the efficiency of Customs in providing goods and services. The basis of accounting described in Note 2.1 applies to both agency and administered items. Administered items are distinguished from agency items in the financial statements by shading.
In the process of reporting Customs as a single unit, and in preparation of the program statements, all intra and inter-program transactions and balances have been eliminated in full.
A comparison of budget and actual figures by outcome specified in the Appropriations Acts relevant to Customs is presented in Note 13. The net cost to Budget outcomes shown includes intra-government costs that are eliminated in calculating the actual budget outcome for the Government overall.
Revenues from Government are revenues relating to the core operating activities of Customs. Policies for accounting for revenue
from government follow; amounts and other details are given in Agency appropriations From 1 July 1999, the Commonwealth Budget has been prepared under an accrual framework. Appropriations to Customs for its agency outputs are recognised as revenue to the extent that they have been recognised into Customs bank account or are entitled to be received by Customs at the year's end. Appropriations to Customs for agency capital items are recognised directly in equity, to the extent that the appropriation has been received into Customs bank account or is entitled to be received by Customs at year end. The appropriations for agency capital items for 1999-2000 include, as carryovers, the re-appropriation to Customs of the certain unspent amounts from 1998-1999. These amounts were recognised directly in equity in the financial statements for 1998-1999. This is a change in the policy adopted in prior years when agency appropriations, other than the running costs, were recognised as revenue to the extent that the appropriations were spent. Amounts appropriated for agency running costs were recognised as revenue in the year of appropriation, except to the extent of
Administered appropriations Appropriations for administered expenses are recognised as revenue to the extent that expenses have been incurred up to the limit, if any, of each appropriation. Appropriations for administered capital are recognised as the amount appropriated by Parliament. Resources Received Free of Charge Services received free of charge are recognised in the Operating Statement 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. In the latter case, the assets are initially recognised at the amounts at which they were recognised by the transferring agency immediately prior to the transfer. In prior years, net assets received under a restructuring of administrative arrangements were recognised as revenue. From 1 July 1999, such asset transfers are designated as transactions of owners and adjusted directly against equity.
Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from disposal of non-current assets is recognised when the control of the asset has passed to the buyer.
Schedule 2 effectively provides for sales of Commonwealth interests in controlled entities conducted by the Office of Asset Sales and Information Technology Outsourcing (OASITO) to be fully reported by the OASITO. At the time of sale, Customs writes back the carrying amount of the investment against the investment's share of the Administered Investments Reserve. Customs had no major asset sales through OASITO to report for 1999-2000 (1998-1999: Nil)
Leave The liability for employee entitlements 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 Customs is estimated to be less than the annual entitlement for sick leave. The liability for annual leave reflects the value for total annual leave entitlements of all employees at 30 June 2000 and is recognised at the nominal amount. The non-current portion of the
liability for long service leave is recognised and measured at the
present value of the estimated future cash flows to be made in respect of
all employees at Separation and redundancy Provision is also made for separation and redundancy payments in circumstances where Customs has formally identified positions as excess to requirements and a reliable estimate of the amount of the payments can be determined. Superannuation Staff of Customs contribute to the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. Employer contributions amounting to $22,781,686 (1998-1999: $28,876,101) in relation to these schemes have been expensed in these financial statements. No liability is shown for superannuation in the Balance Sheet as the employer contributions fully extinguish the accruing liability which is assumed by the Commonwealth. Employer Superannuation Productivity Benefit contributions totalled $4,867,833 (1998-1999: $4,862,356).
A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets and operating leases under which 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 inception of the lease and a liability recognised for the same amount. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense. Operating lease payments are charged to Customs Operating Statement on a basis which is representative of the pattern of benefits derived from the leased assets. The net present value of future net outlays in respect of surplus space under the non-cancellable lease agreements is expensed in the period in which the space becomes a surplus. Lease incentives taking the form of `free' leasehold improvements and rent holidays are recognised as liabilities. Allocating lease payments between rental expense and reduction of the liability reduces these liabilities.
Cash includes notes and coins held and deposits held at call with a bank or financial institution.
Accounting policies for financial instruments are stated at Note 18 Customs is complying with the requirements of AAS33 Presentation and Disclosure of Financial Instruments.
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.
Asset recognition threshold Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, except for purchases costing less than $3,000, which are expensed in the year of acquisition (other than when they form part of a group of similar items which are significant in total). Revaluations Schedule 2 requires that buildings, infrastructure, plant and equipment be revalued progressively in accordance with the `deprival' method of valuation in successive three year cycles. Land is to be valued annually on the basis of its highest and best use, unless disposal is restricted by legislation, zoning or Government policy. In the latter cases, the deprival basis should be used and the valuations at highest and best use shown in a note. Customs is implementing the requirements of Schedule 2 as follows:
Assets in each class acquired after the commencement of the progressive revaluation cycle are not captured by the progressive revaluation then in progress. Assets in each class acquired after the commencement of the progressive revaluation cycle will be reported at cost for the duration of the progressive revaluation then in progress. The financial effect of the move to progressive revaluations is that the carrying amounts of assets will reflect current values and that depreciation charges will reflect the current cost of the service potential consumed in each period. The application of the deprival method values land at its current market buying price and other assets at their depreciated replacement cost. Any assets which would not be replaced or are surplus to requirements are valued at net realisable value. Customs had no assets in this situation as at 30 June 2000. During 1998-1999 internally developed software was valued for the first time using current replacement cost under the deprival method at 30 June 1999 and brought in as an adjustment to accumulated results. The valuation was undertaken by the Australian Valuation Office. All valuations are performed by independent parties. Recoverable amount test Schedule 2 requires the application of the recoverable amount test to agency non-current assets in accordance with AAS 10 Accounting for the Revaluation of Non Current Assets. The carrying amounts of these non-current assets have been reviewed to determine whether they are in excess of their recoverable amounts. In assessing recoverable amounts, the relevant cash flows have been discounted to their present value. Depreciation and Amortisation Depreciable property plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to Customs 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. Land, as it is an asset with an unlimited useful life is not depreciated. Depreciation/amortisation rates (useful lives) and methods are reviewed at each balance 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. The useful life of the ACS Customs vessels has been reviewed and is more accurately reflected as 12 years instead of the previous estimate of 20 years. Depreciation and amortisation rates applying to each class of depreciable asset are based on the following useful lives:
The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 4C.
Inventories are goods, publications and software held for sale or being developed for sale. Inventories also include consumable stores and supplies held ready for use in Customs operations. Inventories held for resale are valued at the lower of cost and net realisable value. Inventories of seized and surrendered goods are brought to account at estimated net proceeds from sale. Consumable stores and supplies are inventories not held for sale. Where material in value they will be valued at cost, unless they are no longer required, in which case they are valued at net realisable value.
Customs is exempt from all forms of taxation except fringe benefits tax and the goods and services tax.
A capital usage charge of 12% is imposed by the Commonwealth on the net agency assets of Customs. The charge is adjusted to take account of asset gifts and revaluation increments during the financial year.
Transactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. Foreign currency receivables and payables are translated at the exchange rates current as at balance date. Associated currency gains and losses are not material.
The Commonwealth's insurable risk managed fund, called `Comcover', commenced operations in 1998-1999. Customs has insured with the fund for risks other than workers compensation, which is dealt with via continuing arrangements with Comcare.
Comparative figures have been adjusted to conform to changes in presentation in these financial statements where required. Comparatives are not presented in Notes dealing with the Reporting on Outcomes, due to 1999-2000 being the first year of the implementation of accrual budgeting.
Amounts have been rounded to the nearest $1,000 except in relation to the following items:
2.22 Receivables All known bad debts are written off when identified and provision is made for doubtful debts annually. The write-off is charged as an expense or, to the extent a provision for doubtful debt already existed, as a reversal of that provision. The provision is based upon a review of all receivables existing at year end. Amounts owed to Customs by importers in relation to customs duty are included in receivables where the amounts can be reliably measured and the realisation of the debts are likely. Receivables also include amounts owing from incorrect self-assessment of duties. For those which have been identified as incorrect but are awaiting determination, an estimate of such amounts is provided. Receivables exclude amounts expected to be recovered on behalf of other agencies (such as sales tax).
Creditors include amounts owing at the reporting date from the refunds of duty, drawbacks, employee salary entitlements and other creditors. Also included are trade creditors and any liabilities arising from goods or services received but not yet paid for (accruals). Creditors exclude amounts expected to be paid on behalf of other agencies.
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