FINANCIAL STATEMENTS

Notes

2003-04

$

2002-03

$

ASSETS

Financial Assets

Cash (notes, coins and deposits at bank)

4

247 754

300 178

Receivables

1.6

Leave liability transfers

20 048

-

Fringe Benefits Tax Refund

5 799

-

GST receivable

3 645

371

Total receivables

29 492

371

Total financial assets

277 246

300 549

Non-financial assets

Prepayments

-

1 027

Plant and equipment

1.9

Equipment (at cost)

77 229

58 247

Less: accumulated depreciation

(16 173)

(54 900)

At 2004 valuation (fair value)

6

9 435

-

Total plant and equipment

70 491

3 347

Total non-financial assets

70 491

4 374

Total assets

347 737

304 923

LIABILITIES

Provisions – employees

Employee current liabilities

1.5

Salaries and wages

-

13 411

Annual leave

37 686

36 731

Long service leave

-

143 420

Superannuation

22 106

13 371

Accrued FBT

-

11 591

Total employee current liabilities

59 792

218 524

Employee non current liabilities

1.5

Annual leave

61 700

21 394

Long service leave

228 678

70 880

Total employee non current liabilities

290 378

92 274

Total provisions – employees

350 170

310 798

Payables

Payables - trade creditors (current)

1.6

4 597

2 735

Other payables (current)

1.6

17 906

-

Total payables

22 503

2 735

Total liabilities

372 673

313 533

Net Assets

(24 936)

(8 610)

EQUITY

3

Asset Revaluation Reserve

9 435

-

Contributed equity

66 000

66 000

Accumulated results

(100 371)

(74 610)

Total equity

(24 936)

(8 610)

Notes

2003-04

$

2002-03

$

OPERATING ACTIVITIES

Cash received

Appropriations

741 000

657 000

Interest

-

3 014

Net GST refunds

9 085

5 557

Total cash received

750 085

665 571

Cash used

Employees

(654 055)

(514 557)

Suppliers

(148 454)

(114 871)

Total cash used

(802 509)

(629 428)

Net cash from operating activities

4

(52 424)

36 143

Net increase/(decrease) in cash held

(52 424)

36 143

Cash at beginning of reporting period

300 178

264 035

Cash at the end of the reporting period

4

247 754

300 178

Note 1 - Summary of Significant Accounting Policies

1.1 Objective of the Office of the Inspector-General of Intelligence and Security

The objective of the Office is to meet the following outcome:

Assurance that Australia’s intelligence agencies act legally, ethically and with propriety.

The Office is structured to meet two outputs:

Output 1: Inspect and report on the activities of the intelligence and security agencies (60% of resources), and

Output 2: Conduct inquiries and provide a complaint service (40% of resources).

1.2 Basis of Accounting

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

The statements have been prepared in accordance with:

• Finance Minister Orders (or FMO’s, being the Financial Management and Accountability (Financial Statements for reporting periods ending on or after 30 June 2004))

• Australian Accounting Standards and Accounting Interpretations issued by the Australian Accounting Standards Board, and

• Consensus views of the Urgent Issues Group.

The Statements of Financial Performance and Financial Position have been prepared on an accrual basis and are in accordance with historical cost convention, except for certain assets, which, as noted, are at valuation.

Except where stated, no allowance is made for the effect of changing prices on the results or 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.

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.

1.3 Changes in Accounting Policy

The accounting policies used in the preparation of these financial statements are consistent with those used in 2002-03, except in respect of plant and equipment assets that have been revalued to fair value as explained in Note 1.9.

1.4 Revenues

Revenues from Government

The full amount of the departmental appropriation for departmental outputs for the year is recognised as revenue.

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. In 2003-04 the Office received control of an asset. This asset was received as a resource free of charge.

The main resources received free of charge are office space and an external secure network (from the Department of Prime Minister and Cabinet) and the internal secure computer network (from Defence Signals Directorate). Other resources received free of charge include auditor remuneration as disclosed in Note 9.

Interest

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

1.5 Employee Benefits

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

Liabilities for wages and salaries (including non-monetary benefits), annual leave, sick leave and long service leave are measured at their nominal amounts. Other employee benefits expected to be settled within twelve 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.

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 the Office 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 Office’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 liabilities for annual leave and long service leave reflect the value of the total leave entitlements of all employees as at 30 June 2004 and is recognised at the nominal amount.

Superannuation

Staff of the Office of the Inspector General of Intelligence and Security are members of the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. The liability for their superannuation benefits is recognised in the financial statements of the Commonwealth and is settled by the Commonwealth in due course.

The Office of the Inspector General of Intelligence and Security 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 Office’s employees.

1.6 Financial instruments

Receivables

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

All receivables are with Commonwealth entities. Credit terms are net 30 days (2002–03: 30 days)

Trade Creditors

Trade creditors and accruals are recognised at their nominal amounts, being the amounts at which the liabilities will be settled. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

All creditors are entities that are not part of the Commonwealth legal entity. Settlement is usually made net 30 days.

1.7 Cash

Cash means notes and coins held and any deposits held at call with a bank or financial institution. Cash is recognised at its nominal amount.

1.8 Acquisition of Assets

Assets are recorded at cost on acquisition.

1.9 Plant and Equipment

The Office’s fixed assets comprise office equipment only.

Asset Recognition Threshold

Purchases of equipment are recognised 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).

Revaluations

Plant and equipment are carried at valuation.

Fair values for one class of asset has been determined by market selling price.

The financial effect of this change in policy relates to those assets recognised at fair value for the first time in the current period where the measurement basis for fair value is different to that previously used for historical cost.

 

Asset Class	Increment/ (decrement) to asset class	Contra Account
Plant and equipment	2004: $9 435	Asset Revaluation Reserve

Total financial effect was to increase the carrying amount of P&E by $9 435 and increase the asset revaluation reserve by $9 435.

Frequency

2004 is the first year plant and equipment has been revalued.

From 30 June 2005 onwards the Finance Minister’s Orders require the measuring of property plant and equipment assets at up-to-date fair values.

Conduct

The valuation was conducted by an independent qualified valuer.

Depreciation and Amortisation

Depreciable equipment assets are written-off to their estimated residual values over their estimated useful lives to the Office using the straight-line method of depreciation.

Depreciation 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.

Depreciation and amortisation rates are for 1 to 5 years for each class of depreciable assets.

1.10 Transactions by the Government as Owner

Equity Injections

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

This is a change of accounting policy from 2002-03 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 no financial effect in 2003-04 because the full amount of the equity injection was recognised in the year it was received.

1.11 Taxation

The Office is exempt from taxation except fringe benefits tax (FBT) and the goods and services tax (GST).

Revenues, expenses and assets are recognised net of GST except for receivables and payables or where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).

1.12 Insurance

The Office of the Inspector-General of Intelligence and Security has insured for risks through the Government’s insurable risk managed fund, called ‘Comcover’. Workers compensation is insured through the Government’s Comcare Australia.

1.13 Comparative Figures

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

1.14 Rounding

Amounts have been rounded to the nearest dollar.

Note 2 - Adoption of AASB Equivalents to International Financial Reporting Standards from 2005-2006

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

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

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

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

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

Accounting Standard AASB 1047 Disclosing the impact of AdoptingAustralian Equivalents to IFRSs requires that the financial statements for 2003-04 disclose:

• An explanation of how the transition to the AASB Equivalents is being managed, and

• A narrative explanation of the key differences in accounting policies arising from the transition.

The purpose of this Note is to make these disclosures.

Management of the transition to AASB Equivalents to IFRSs

The Office’s planned implementation of AASB Equivalents includes:

• Identification of all major accounting policy differences between current AASB standards and the AASB Equivalents to IFRSs progressively to 30 June 2004.

• Preparation of a transitional balance sheet as at 1 July 2004, under AASB Equivalents.

• Preparation of a AASB Equivalent balance sheet at the same time as the 30 June 2005 statements are prepared.

Consultants have been engaged where necessary to assist with each of the above steps.

Major changes in accounting policy

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

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

Property plant and equipment

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

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

Employee Benefits

The provision for long service leave is measured at the present value of estimated future cash outflows using market yields as at the reporting date on national government bonds.

Under the new AASB Equivalent standard, the same discount rate will be used.

Note 3 - Equity

Note 4 - Cash Flow Reconciliation

2003-04

$

2002-03

$

Reconciliation of Cash per Statement of Financial Position to Statement of Cash Flows:

• Cash at year end per Statement of Cash Flows

247 754

300 178

• Statement of Financial Position items comprising above cash - 'Financial Asset - Cash':

• Cash on Hand

159

73

• Cash at Bank

247 595

300 105

247 754

300 178

Reconciliation of net surplus to net cash from operating activities:

Net surplus / (deficit)

(25 761)

(15 280)

Depreciation

16 173

2 379

Resources received free of charge capitalised

(55 976)

Increase/(Decrease) in provision for employee liabilities

39 372

45 396

Increase/(Decrease) in supplier trade creditors

1 862

1 708

(Increase)/Decrease in other assets

(24 820)

595

(Increase)/Decrease in GST receivable

(3 274)

(41)

(Increase)/Decrease in accrued income

-

1 386

Net cash flow from operating activities

(52 424)

36 143

2003-2004

Particulars

Departmental Outputs

Total

$

$

Year Ended 30 June 2004

Balance carried from previous year

234 549

234 549

Appropriation Act 1 – basic appropriation

709 000

709 000

Appropriation Act (No.3)

32 000

32 000

GST credits (FMA s 30A)

12 359

12 359

Annotations to ‘net appropriations’ (FMA s 31)

-

-

Total Appropriations available for payments

987 908

987 908

Payments made (GST inclusive)

802 509

802 509

Balance carried to next year

185 399

185 399

Represented by:

Cash

181 754

181 754