Appendix 9: Financial statements

Australian Institute of Health and Welfare

Note 1: Summary of Significant Accounting Policies

1.1 Basis of Preparation of the Financial Report

The financial statements are required by clause 1(b) of Schedule 1 to the Commonwealth Authorities and Companies Act 1997 and are general purpose financial statements.

The continued existence of the Australian Institute of Health and Welfare (AIHW) in its present form and with its present programs is dependent on Government policy and on continuing appropriations by Parliament for the AIHW's administration and programs.

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

• Finance Minister's Orders (FMOs) for reporting periods ending on or after 1 July 2010; and
• Australian Accounting Standards and interpretations 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 historical cost convention, except for certain assets 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 and values are rounded to the nearest thousand dollars unless otherwise specified.

Unless an alternative treatment is specifically required by an accounting standard or the FMOs, assets and liabilities are recognised in the balance sheet when and only when it is probable that future economic benefits will flow to the AIHW or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under executor contracts are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the schedule of commitments or the schedule of contingencies.

Unless alternative treatment is specifically required by an accounting standard, income and expenses are recognised in the statement of comprehensive income when, and only when, the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

1.2 Objectives of the Australian Institute of Health and Welfare

The AIHW is structured to meet a single outcome:

• Better health and wellbeing for Australians through better health and welfare statistics and information. (This outcome is included in the Department of Health and Ageing's Portfolio Budget Statements).

1.3 Significant Accounting Judgements and Estimates

In the process of applying the accounting policies listed in this note, the AIHW has made the following judgements that have the most significant impact on the amounts recorded in the financial statements:

• the fair value of leasehold improvements has been taken to be the depreciated replacement cost as determined by an independent valuer.

No 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.

1.4 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 standards, revised standards, interpretations or amending standards that were issued prior to the signing off date and are applicable to the current reporting period had a material financial impact on the AIHW.

Future Australian Accounting Standard requirements

New standards, revised standards and interpretations that were issued by the Australian Accounting Standards Board prior to the signing off date and are applicable to the future reporting period are not expected to have a material future financial impact.

1.5 Revenue

Revenue from the sale of goods is recognised when:

• the risks and rewards of ownership have been transferred to the buyer;
• the seller retains no managerial involvement nor effective control over the goods;
• the revenue and transaction costs incurred can be reliably measured; and·
• it is probable that the economic benefits associated with the transaction will flow to the entity.

Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:

• the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
• the probable economic benefits with the transaction will flow to the AIHW.

The stage of completion of contracts at the reporting date is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the transaction.

Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any allowance for impairment. Collectability of debts is reviewed at balance date. Allowances are made when collectability of the debt is no longer probable.

Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.

Revenues from Government

Funding received or receivable from the Department of Health and Ageing (appropriated to the Department as a CAC Act body payment item for payment to AIHW) is recognised as Revenue from Government unless they are in the nature of an equity injection or a loan.

1.6 Gains

Resources received free of charge

Resources received free of charge are recognised as gains 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.

Resources received free of charge are recorded as either revenue or gains depending on their nature.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another Government agency or authority as a consequence of a restructuring of administrative arrangements.

Sale of assets

Gains from disposal of assets are recognised when control of the asset has passed to the buyer.

1.7 Transactions with the Government as Owner

Equity injections

Amounts that are designated as equity injections for a year are recognised directly in contributed equity in that year.

1.8 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 'short-term employee benefits' (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve months of balance date are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Other long-term employee benefits 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 the AIHW 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 AIHW's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

The liability for long service leave is recognised and measured at the present value of the estimated future cashflows to be made in respect of all employees at 30 June 2011. 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 made for separation and redundancy benefit payments. AIHW 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 the AIHW are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).

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 by the Department of Finance and Deregulation as an administered item.

The AIHW makes employer contributions to the employee superannuation scheme at rates determined by an actuary to be sufficient to meet the cost to the Government of the superannuation entitlements of the AIHW's employees. The AIHW accounts for the contributions as if they were contributions to defined contribution plans.

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

1.9 Leases

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.

The AIHW has no finance leases.

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

1.10 Borrowing Costs

All borrowing costs are expensed as incurred.

1.11 Cash

Cash and cash equivalents includes notes and coins held and any deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.

1.12 Financial Assets

The AIHW classifies its financial assets as loans and receivables.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon 'trade date'.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.

Impairment of financial assets

Financial assets are assessed for impairment at each balance date.

• Financial assets held at amortised cost – If there is objective evidence that an impairment loss has been incurred for loans and receivables held at amortised cost, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the statement of comprehensive income.

1.13 Financial Liabilities

Financial liabilities are classified as other financial liabilities.

Financial liabilities are recognised and derecognised upon 'trade date'.

Other financial liabilities

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

1.14 Contingent Liabilities and Contingent Assets

Contingent liabilities and contingent assets are not recognised in the balance sheet but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent a 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.

1.15 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. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

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 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 authority's accounts immediately prior to the restructuring.

1.16 Property, Plant and Equipment (PP&E)

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

Revaluations

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

Asset class	Fair value measured at:
Buildings-Leasehold Improvements	Depreciated replacement cost
Property, Plant and equipment	Market selling price
Library Collection	Market selling price

Following initial recognition at cost, property, plant and equipment are carried at fair value less 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 revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised through surplus and deficit. Revaluation decrements for a class of assets are recognised directly through surplus and deficit except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset 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 to the AIHW using, in all cases, the straight-line method of depreciation.

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 lives:

	2011	2010
Leasehold improvements	Lease term	Lease term
Property, plant and Equipment	3 to 10 years	3 to 10 years
Library Collection	7 years	7 years

Impairment

All assets were assessed for impairment at 30 June 2011. 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 the 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 the AIHW were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

1.17 Intangibles

The AIHW's intangibles comprise internally developed and purchased software for internal use. These assets are carried at cost less accumulated amortisation.

Intangibles are recognised initially at cost in the balance sheet, except for purchases costing less than $50,000, which are expensed in the year of acquisition.

Software is amortised on a straight-line basis over its anticipated useful life. The useful life of the AIHW's software is 3 to 5 years (2009–10: 3 to 5 years).

All software assets were assessed for indications of impairment as at 30 June 2011.

1.18 Inventories

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

Inventories held for distribution are measured at the lower of cost and current replacement cost.

Inventories acquired at no cost or nominal consideration are measured at current replacement cost at the date of acquisition.

1.19 Taxation

The AIHW is exempt from all forms of taxation except Goods and Services Tax (GST) and Fringe Benefits Tax (FBT).

Revenues, expenses, assets and liabilities 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.

Note 2: Events after the Balance Date

There were no events that occurred after the balance date that would affect the balances in the financial statements.

Note 3: Expenses 2011

Note 4: Revenues

Note 5: Financial Assets

Note 6: Non-Financial Assets

Note 7: Payables

Note 8: Provisions

The AIHW currently has 4 agreements for leasing premises which have provisions requiring the AIHW to restore the premises to their original condition at the conclusion of the lease. The AIHW has made a provision to reflect the present value of this obligation.

Note 9: Cash Flow Reconciliation

Note 10: Contingent Liabilities and Assets

As at 30 June 2011, the AIHW has no contingent assets, remote contingencies or unquantifiable contingencies (2010: Nil)

Note 11: Directors Remuneration

The Commonwealth Authorities and Companies Act 1997 defines members of the Board as directors. The number of directors included in these figures is shown below in the relevant remuneration bands:

Remuneration of executive directors is included in Note 12: Senior Executive Remuneration.

Note 12: Senior Executive Remuneration

Note 12A: Senior Executive remuneration expense for the Reporting Period

Notes:

1. Note 12A excludes acting arrangements and part-year service where remuneration expensed was less than $150,000.

Note 12B: Average Annual Remuneration Packages and Bonus Paid for Substantive Senior Executives as at the end of the Reporting Period

Notes:

1. This table reports on substantive senior executives who are employed by the entity as at the end of the reporting period. Fixed elements are based on the employment agreement of each individual - each row represents an average annualised figure (based on headcount) for the individuals in that remuneration package band (i.e. the 'Total' column).

2. Represents average actual bonuses paid during the reporting period. The 'Bonus paid' is excluded from the 'Total' calculation, (for the purpose of determining remuneration package bands). The 'Bonus paid' within a particular band may vary between financial years due to factors such as individuals commencing with or leaving the entity during the financial year.

Variable Elements:

With the exception of performance bonuses, variable elements are not included in the 'Fixed Elements and Bonus Paid' table above. The following variable elements are available as part of senior executives' remuneration package:

(a) Performance bonuses: The Director is entitled to a performance bonus.

(b) On average senior executives are entitled to the following leave entitlements: Each year senior executives are entitled to accrue 4 weeks annual leave, 18 days personal leave and 9 days long service leave.

(c) Senior executives are members of one of the following superannuation funds:

• Commonwealth Superannuation Scheme (CSS): this scheme is closed to new members, and employer contributions were averaged at 21.8 per cent (2010: 21.7 per cent)(including productivity component). More information can be found at www.css.gov.au  
• Public Sector Superannuation Scheme (PSS): this scheme is closed to new members. Current employer contributions were set at 15.0 per cent (2010: 15.1 per cent)(including productivity component). More information can be found at www.pss.gov.au, and
• Public Sector Superannuation accumulation plan (PSSap): employer contributions were set at 15.4 per cent (2010 15.4 per cent) and the fund has been in operation since July 2005. More information can be found at www.pssap.gov.au  

Note 12C: Other Highly Paid Staff

During the reporting period, there were no employees who did not have a role as senior executives whose salary plus performance bonus were $150,000 or more (2010 – nil).

Note 13: Remuneration of Auditors

No other services were provided by the auditors of the financial statements.

Note 14: Financial Instruments

Note 14C: Credit risk

The AIHW is exposed to minimal credit risk as the majority of loans and receivables are receivables from other Government organisations. The maximum exposure to credit risk is the risk that arises from potential default of a debtor. This amount is equal to the total amount of trade receivables (2011: $8,836,000 and 2010: $9,080,000). The AIHW has assessed the risk of the default on payment and has allocated $0 in 2011 (2010: $0) to an allowance for impairment account.

The AIHW has no significant exposure to any concentrations of credit risk.

Credit quality of financial instruments not past due or individually determined as impaired:

	Not Past Due Nor Impaired 2011 $'000	Not Past Due Nor Impaired 2010 $'000	Past Due or Impaired 2011 $'000	Past Due or Impaired 2010 $'000
Cash at bank	18,209	18,792	-	-
Receivables for goods and services	7,730	8,786	1,106	294
Total	25,939	27,578	1,106	294

Ageing of financial assets that are past due but not impaired for 2011:

	0 to 30 days $'000	31 to 60 days $'000	61 to 90 days $'000	90+ days $'000	Total $'000
Receivables for goods and services	1,099	7	-	-	1,106
Total	1,099	7	-	-	1,106

Ageing of financial assets that are past due but not impaired for 2010:

	0 to 30 days $'000	31 to 60 days $'000	61 to 90 days $'000	90+ days $'000	Total $'000
Receivables for goods and services	229	22	3	40	294
Total	229	22	3	40	294

Note 14D: Liquidity risk

The AIHW is funded by appropriation and the sale of goods and services. It uses these funds to meet its financial obligations.

Note 14E: Market risk

The AIHW holds basic financial instruments that do not expose the AIHW to certain market risks. The AIHW is not exposed to 'currency risk' or 'other price risk'.

Note 15: Compensation and Debt Relief

No waiver of amounts owing to the Commonwealth was made during the reporting period (2010: nil).

No Act of Grace or ex-gratia payments were made during the reporting period (2010: nil).

Note 16: Reporting of Outcomes

Note 16A: Net Cost of Outcome Delivery

	Outcome 1			Total
	2011 $'000	2010 $'000		2011 $'000	2010 $'000
Expenses
Departmental	53,818	44,268		53,818	44,268
Total expenses	53,818	44,268		53,818	44,268
Costs recovered from provision of goods and services to the non-government sector
Departmental	6,915	5,058		6,915	5,058
Total costs recovered	6,915	5,058		6,915	5,058
Other external revenues
Departmental
Sale of services—to related parties	24,483	19,886		24,483	19,886
Interest	1,146	754		1,146	754
Other	-	39		-	39
Total other external revenues	25,629	20,679		25,629	20,679
Net cost/(contribution) of outcome	21,274	18,531		21,274	18,531

Outcome 1 is described in note 1.2.

The primary statements of these financial statements represent tables B and C: Major classes of Departmental Expense, Income, Assets and Liabilities by outcome, as required by the FMOs. Accordingly these tables are not repeated in note 16.