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Note 1 : Summary of Significant Accounting Policies

1.1 Objectives of Department of Transport and Regional Services (DOTARS)

The Department contributes to the achievement of the Portfolio outcomes:

  1. A better transport system for Australia; and
  2. Greater recognition and opportunities for local, regional and territory communities.

DOTARS activities contributing towards these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, revenues and expenses controlled or incurred by DOTARS in its own right. Administered activities involve the management or oversight by DOTARS on behalf of the Government of items controlled or incurred by the Government.

Departmental activities are identified under five headings for Outcome 1 and six for Outcome 2. The Outcome 1 Outputs are Transport Policy Advice, Transport Regulation and Standards, Transport Safety Investigations, Transport Programmes, and Transport Research and Data. And the Outcome 2 Outputs are Regional Development Policy Advice, Regional Development Programmes, Services to Territories, Services to Local Governments, Natural Disaster Mitigation and Relief Arrangements, and Regional Research and Data.

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:

  • The Finance Minister's Orders (or FMO's, being the Financial Management and Accountability (Financial Statements for reporting periods ending on or after 30 June 2003 ) Orders);
  • Australian Accounting Standards and Accounting Interpretations issued by Australian Accounting Standards Boards; and
  • Consensus Views of the Urgent Issues Group.

The Statements of Financial Performance and Financial Position have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets which, 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 14 and 25).

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 DOTARS in its present form, and with its present outputs and programmes, is dependent on the Government's policy and on continuing appropriations by Parliament for the Department's administration and programmes.

Administered revenues, expenses, assets, liabilities and cash flows reported in the Schedule of Administered Items and related notes are accounted for on the same basis and using the same policies as for Agency items, except where otherwise stated at Note 1.21.

1.3 Changes in Accounting Policy

The accounting policies used in the preparation of these financial statements are consistent with those used in 2001-2002, except in respect of:

  • The accounting for output appropriations (refer to Note 1.4);
  • Recognition of equity injections (refer to Note 1.5);
  • Measurement of certain employee benefits at nominal amounts (refer to Note 1.6);
  • The initial revaluation of land and buildings and property, plant and equipment on a fair value basis (refer to Note 1.12); and
  • The imposition of an impairment test for non-current assets carried at cost (refer to Note 1.13)

1.4 Revenue

Revenues from Government

Departmental outputs appropriations for the year (less any savings offered up at Additional Estimates) 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.

In 2002-03, DOTARS was undertaking two activities funded on a reciprocal basis. The recognition of certain output appropriation when earned is a change of accounting policy resulting from changed funding arrangements (Refer Note 6B).

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 is recognised upon the delivery of goods to customers.

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

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

Dividend revenue is recognised when the right to receive a dividend has been established.

Revenue from 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

From 1 July 2002, the FMO's require that amounts of appropriations designated as 'equity injections' (less any savings offered up in Portfolio Additional Estimates Statements) are recognised directly in Contributed Equity as at 1 July or later date of effect of the appropriation.

This is a change of accounting policy from 2001-02 to the extent any part of an equity injection that was dependent on specific future events occurring was not recognised until the appropriation was drawn down.

The change in policy has had a $3 800 000 effect in 2002-03.

Restructuring of Administered 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 Usage Charge of 11% (2002: 11%) is imposed by the Government on departmental net assets of DOTARS at year-end. The net assets figure is adjusted to take account of asset gifts and revaluation increments during the financial year. The Charge is accounted for as a dividend to Government.

In accordance with the recommendations of a review of Budget Estimates and Framework, the Government has decided that the Charge will 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, DOTARS by agreement with Finance returned $413,000 surplus Output Appropriation (or cash) to the Official Public Account.

1.6 Employee Benefits

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

Liabilities for wages and salaries (including non-monetary benefits) 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. This is a change in accounting policy from last year required by initial application of a new Accounting Standard AASB 1028 from 1 July 2002. This change in policy had no financial effect at 1 July, however, it resulted in an increase of $400,853 at 30 June 2003.

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

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of DOTARS is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees' remuneration, including the DOTAR'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 in 2001-02. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Separation and Redundancy

Provision is also made for separation and redundancy payments in circumstances where DOTARS has a detailed plan for terminations and has informed the employees affected that it will carry out terminations.

Superannuation

Staff of DOTARS are members of the Commonwealth Superannuation Scheme or 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.

DOTARS 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 DOTARS employees.

The liability for superannuation recognised as at 30 June represent outstanding contributions for the final fortnight of the year.

1.7 Leases

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.

Operating lease payments are charged to the Statement of Financial Performance on a basis which is representative of the pattern of benefits derived from the leased assets. The lessor effectively retains the risks and benefits incidental to ownership. The net present value of future net outlays in respect of surplus space under non-cancellable lease agreements is expensed in the period in which the space becomes surplus.

DOTARS entered into a sale and leaseback operating lease in 1999-2000 for IT equipment. The carrying amounts of relevant assets were written down to fair value with effect from 1 July 1999 with the consequent loss on sale of $3.4m being amortised over the period of the lease.

Lease incentives taking the form of 'free' leasehold improvements and rent holidays are recognised as liabilities. These liabilities are reduced by allocating lease payments between rental expense and reduction of the liability over the estimated useful life or the unexpired period of the lease.

1.8 Borrowing Costs

All borrowing costs are expensed as incurred except to the extent that they are directly attributable to qualifying assets, in which case they are capitalised. The amount capitalised in a reporting period does not exceed the amounts of costs incurred in that period.

DOTARS had no qualifying assets for which funds were borrowed specifically in 2002-03.

1.9 Cash

Cash includes notes and coins held, and any deposits held at call with a bank or financial institution, and term deposits with a bank or financial institutions.

1.10 Financial Instruments

Accounting policies for financial instruments are summarised at Note 19 and Note 28.

1.11 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 as contributions by owners at the amounts at which they were recognised in the transferor agency's accounts immediately prior to the restructuring.

1.12 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 $5,000. These are expensed in the year of acquisition, other than where they form part of a group of similar items, which are significant in total.

Items of plant and equipment acquired as part of a leasehold fitout are capitalised in the year of acquisition regardless of historical cost. Leasehold improvements are valued on a project basis and therefore include items of plant and equipment with a unit value of less than $5,000.

Revaluations

Basis

Land, buildings, 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.

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

Asset Class Fair value measured at: Deprival value measured at:
Land Market selling price or the best available market evidence Current market buying price
Buildings on Freehold land Market selling price or the best available market evidence Depreciated replacement cost
Leasehold Improvements Depreciated replacement cost Depreciated replacement cost
Infrastructure, Plant & Equipment Market selling price or the best available market evidence Depreciated replacement cost
Heritage assets Market selling price or the best available market evidence Depreciated replacement cost

Under both deprival and fair value, assets that are surplus to requirements are measured at their net realisable value. At 30 June 2003, DOTARS had no such assets in this situation. (30 June 2002: $0)

The financial effect for 2002-03 of this change in policy relates to those assets recognised at fair value at 30 June 2003. The financial effect of the change is given by the difference between the carrying amounts at 30 June 2002 of these assets and their fair values as at 1 July 2002. The financial effect by class is as follows:

Asset Class Adjustment Contra Account
Infrastructure, Plant & Equipment $12 880 DR Revaluation Reserve
Land Administered on Behalf of Government $3 091 335 CR Accumulated Results
Buildings on Freehold land Administered on Behalf of Government $153 DR Revaluation Reserve
Heritage assets Administered on Behalf of Government $1 283 162 DR Revaluation Reserve

The total financial effect was to:

  • Increase Departmental Infrastructure, Plant and Equipment by $12 880 and increase the Departmental Asset Revaluation Reserve by $12 880;
  • Decrease Administered Land and Buildings by $3 091 182 and increase Administered Heritage assets by $1 283 162, decrease Administered accumulated results by $3 091 335 and increase Administered Asset Revaluation Reserve by $1 283 315;

Accounting Standard AAS 6 Accounting Policies requires, where practicable, presentation of the information that would have been disclosed in the 2001-02 had the new accounting policy always been applied. It is impracticable to present this information.

Frequency

Land, buildings on freehold land, leasehold improvements, infrastructure, plant and equipment are revalued progressively in successive three-year cycles. DOTARS is implementing this cyclical asset valuation on a geographical basis and in 2002-2003, valuations were completed for Norfolk Island and Regional Office assets.

Assets in each class acquired after the commencement of the progressive revaluation cycle will be reported on the basis of the value initially recognised on acquisition until the next revaluation for that asset class and location.

Conduct

All valuations are conducted by an independent qualified valuer.

Depreciation and Amortisation

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

Depreciation/amortisation rates (useful lives) and methods are reviewed at each 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 price only when assets are revalued.

Depreciation and amortisation rates applying to each class of depreciable asset are as follows:

2002-2003 2001-2002
Buildings on freehold land 25 to 60 years 25 to 60 years
Leasehold improvements Lease term Lease term
Infrastructure, plant and equipment 3 to 80 years 3 to 80 years

The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 4C.

Recoverable amount test

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 net cash inflows.

No assets have been written down to recoverable amount per AAS 10, so this change in policy has had no financial effect.

1.13 Intangibles

DOTAR'S intangibles comprise purchased software configured 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 net 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 and 30 June 2003 and none were found to be impaired.

Software is amortised on a straight-line basis over its anticipated useful life. The useful life of DOTARS software is five years (2001-02: 5 years)

1.14 Inventories

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

Inventory not held for resale is valued at cost, unless it is no longer required, in which case it is valued at net realisable value.

Costs incurred in bringing each item of inventory to its present location and condition are assigned as follows:

  • stores - purchase cost on a 'First In First Out' basis; and
  • finished goods - cost of direct materials and labour plus attributable costs that are capable of being allocated on a reasonable basis.

1.15 Taxation

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

Revenues, expenses and assets are recognised net of GST:

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

1.16 Foreign Currency

Transactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. Foreign currency balances are translated at the exchange rates current as at balance date. Associated currency gains and losses are not material.

1.17 Insurance

DOTARS 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 Comparative Figures

Comparative figures have been adjusted to conform with changes in presentation in these financial statements where required.

1.19 Budget

To assist in meeting the responsibilities of the Government to public accountability, these financial statements present Budget comparatives as presented in the Portfolio Additional Estimates Statements (PAES). The PAES supplement the original Portfolio budget statements for the year to support the Parliament's consideration of DOTARS Budget.

1.20 Rounding

Amounts have been rounded to the nearest $1,000 except in relation to the following:

  • remuneration of executives;
  • remuneration of auditors; and
  • act of grace payments and waivers.

1.21 Reporting of Administered Activities

Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the Schedule of Administered Items and related Notes.

Except where otherwise stated below, administered items are accounted for on the same basis and using the same policies as for Agency items, including the application to the greatest extent possible of Accounting Standards, Accounting Interpretations and UIG Consensus Views.

Administered appropriations received or receivable from the Official Public Account (OPA) are not reported as administered revenues or assets respectively. Similarly, administered receipts transferred or transferable to the OPA are not reported as administered expenses or payables. These transactions or balances are internal to the Administered entity.

These transfers of cash are reported as administered (operating) cash flows and in the administered reconciliation table in Note 24.

Accounting policies, which are relevant to, administered activities only of DOTARS are disclosed below.

Grants Liabilities and Commitments

DOTARS administers a number of grant programmes on behalf of the Commonwealth.

Grant liabilities are recognised to the extent that:

(i) the services required to be performed, by the grantee have been performed, or
(ii) the grant eligibility criteria have been satisfied.

A commitment is recorded when the Commonwealth has a binding agreement to make the grants but services have not been performed, or criteria satisfied. Where grant moneys are paid in advance of performance or eligibility, a prepayment is recognised.

Administered Investments

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

The Commonwealth's investment in other controlled authorities and companies in this portfolio is valued at the aggregate of the Commonwealth's share of the net assets or net liabilities of each entity fixed at 30 June 1997, as adjusted for any subsequent capital injections or withdrawals.

Non-Financial Assets - Airport Land

The Department has not placed a monetary valuation on freehold land at airports leased by the Commonwealth to private sector interests. This policy takes account of the fact that land at the 20 civilian airports owned by the Commonwealth are subject to lease arrangements whereby the land is leased for 50 years with a 49 year extension option. Consideration consists of upfront payments from the lessors, without any subsequent annual lease payments. For the purpose of financial reporting the land at these airports is therefore assessed as having no deprival value because of the extended period before which any future revenue stream will accrue.

Infrastructure built on the freehold land is an asset of the lessor and is also not reflected in the accompanying financial statements.

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