Notes to and forming part of the financial statements



for the period ended 30 June 2011

Note 1: Summary of significant accounting policies

1.1 Objectives of the Treasury

The Treasury is an Australian Government controlled entity.

The Treasury's mission is to improve the wellbeing of the Australian people by providing sound and timely advice to the Government, based on objective and thorough analysis of options, and by assisting Treasury Ministers in the administration of their responsibilities and the implementation of government decisions.

The Treasury is structured to meet one outcome:

Outcome 1: Informed decisions on the development and implementation of policies to improve the wellbeing of the Australian people, including by achieving strong, sustainable economic growth, through the provision of advice to government and the efficient administration of federal financial relations.

The reporting entity, hereafter referred to as 'the Treasury', comprises the Treasury and the Australian Government Actuary.

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

Departmental activities are identified under Program 1.1. Administered activities are identified under programs 1.1 to 1.10 listed below:

• Program 1.1 — Department of the Treasury
• Program 1.2 — Payments to International Financial Institutions
• Program 1.3 — Support for Markets and Business
• Program 1.4 — General Revenue Assistance
• Program 1.5 — Assistance to the States for Healthcare Services
• Program 1.6 — Assistance to the States for Schools
• Program 1.7 — Assistance to the States for Skills and Workforce Development
• Program 1.8 — Assistance to the States for Disability Services
• Program 1.9 — Assistance to the States for Affordable Housing
• Program 1.10 — National Partnership Payments to the States

Program 1.2 provides for administered payments to International Financial Institutions as required to:

• promote international monetary cooperation, exchange stability and orderly exchange arrangements;
• strengthen the international financial system; and
• support development objectives through the multilateral development banks.

Program 1.3 provides for administered activities in respect of:

• insurance claims arising from the residual Housing Loans Insurance Corporation (HLIC) portfolio;
• assistance under the HIH Claims Support Scheme (HCSS);
• the Guarantee of State and Territory Borrowing in assisting state and territory governments to access funding;
• the Guarantee Scheme for Large Deposits and Wholesale Funding to promote financial system stability in Australia; and
• support for car dealership financing through the OzCar Special Purpose Vehicle (SPV).

Program 1.4 provides for administered payments of general revenue assistance to the States and Territories, including payments of revenue received from the GST.

Programs 1.5 to 1.9 provide for administered payments to the States and Territories for healthcare services, schools services, skills and workforce development services, disability services and affordable housing services; according to the payment arrangements specified in the Intergovernmental Agreement on Federal Financial Relations.

Program 1.10 provides for administered payments to the States and Territories, according to National Partnership agreements, providing financial support for the States and Territories to be spent on improving outcomes in the areas specified.

The continued existence of the Treasury in its present form and with its present programs is dependent on government policy and on continuing appropriations by parliament for the Treasury's policy advice, administration and programs.

1.2 Basis of preparation of the financial statements

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

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 the 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 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 Treasury 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 Agreements Equally Proportionately Unperformed are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the schedule of commitments and the schedule of contingencies.

Unless alternative treatment is specifically required by an accounting standard or the FMOs, 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.

1.3 Significant accounting judgments and estimates

Apart from the Australian Government Actuary's reconsideration of its 2008-09 review of employee benefits, which resulted in changes to on-cost calculations and discount factors, no accounting assumptions or estimates have been identified for departmental items that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period.

Changes in 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. None of the new standards, amendments to standards and interpretations issued by the AASB that are applicable to the current period have had a material financial impact on the Treasury. The following standards or amendments to standards have become effective but have had no financial impact to the operations of the Treasury.

Standards

• AASB 1 — First–time Adoption of Australian Accounting Standards (Compilation)
• AASB 2 — Share–based Payment (Compilation)
• AASB 3 — Business Combinations (Compilation)
• AASB 7 — Financial Instruments: Disclosures (Compilation)
• AASB 8 — Operating Segments (Compilation)
• AASB 118 — Revenue (Compilation)
• AASB 121 — The Effects of Changes in Foreign Exchange Rates (Compilation)
• AASB 128 — Investments in Associates (Compilation)
• AASB 131 — Interests in Joint Ventures (Compilation)
• AASB 132 — Financial Instruments: Presentation (Compilation)
• AASB 139 — Financial Instruments: Recognition and Measurement (Compilation)
• Interp. 19 Extinguishing Financial Liabilities with Equity Instruments (Principal)

Future Australian Accounting Standard requirements

Of the new standards, amendments to standards and interpretations issued by the AASB that are applicable to future periods, it is estimated that the impact of adopting the pronouncements when effective will have no material financial impact on future reporting periods, but may affect disclosures in future financial reports.

1.5 Revenue

Revenue from Government

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

Appropriations receivable are recognised at their nominal amounts.

Other types of revenue

Revenue from the sale of goods is recognised when:

• the risks and rewards of ownership have been transferred to the buyer;
• the agency retains no managerial involvement or effective control over the goods;
• the revenue and transaction costs incurred for the transaction 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
• it is probable that the economic benefits associated with the transaction will flow to the entity.

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 impairment allowance account. Collectability of debts is reviewed at balance date. Allowances are made when collectability of the debt is no longer probable.

Gains

Resources received free of charge

Resources received free of charge are recognised as gains when and only when 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 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 (refer to Note 1.7).

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

Sale of Assets

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

1.7 Transactions with the Government as owner

Equity injections

Amounts appropriated which are designated as 'equity injections' for a year (less any formal reductions) are recognised directly in contributed equity in that year.

Restructuring of administrative arrangements

Net assets received from or relinquished to another Australian Government agency or authority under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.

Other distributions to owners

The FMOs require that distributions to owners be debited to contributed equity unless in the nature of a dividend.

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 by 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 total net present value of the defined benefit obligation at the end of the reporting period minus the fair value at the end of the reporting period of the plan's assets (if any) out of which the obligations are to be settled directly.

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 Treasury 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 Treasury'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 both annual and long service leave has been determined by reference to the work of the Australian Government Actuary as at 30 June 2009. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and general pay increases.

Separation and redundancy

No provision has been made for separation and redundancy benefit payments during the year (2010: Nil).

Superannuation

Staff of the Treasury are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan or other defined contribution scheme.

The CSS and PSS are defined benefit schemes of the Australian Government. The PSSap is a defined contribution scheme which opened for new employees on 1 July 2005.

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 Treasury 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 Treasury's employees. The Treasury accounts for the contribution as if they were contributions to defined contribution plans.

The liability for superannuation recognised as at 30 June 2011 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 substantially all the risks and benefits incidental to ownership of leased non-current assets from the lessor to the lessee. In operating leases, 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 either the fair value of the leased property or, if lower, the present value of minimum lease payments at the inception of the contract. A liability is recognised at the same time and for the same amount.

The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense. The interest rate implicit in leases was zero as all leases had expired by 30 June 2011 (2010: 5.92 per cent).

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. Any interest receivable is credited to revenue as it accrues. The Treasury maintains bank accounts with the Reserve Bank of Australia for administration of the receipt and payment of monies.

1.12 Financial risk management

The Treasury's activities expose it to normal commercial financial risk. As a result of the nature of the Treasury's business and internal and Australian Government policies dealing with the management of financial risk, the Treasury's exposure to market, credit, liquidity, cash flow and fair value interest rate risk is considered to be low.

1.13 Other financial instruments

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'. They are included in current assets, except for maturities greater than 12 months after the balance date. These are classified as non-current assets. Loans and receivables are measured at amortised cost using the effective interest methods less impairment. Interest is usually recognised by applying the effective interest rate. Collectability of debts is reviewed regularly throughout the year and at balance date. Provisions are made when collection of the debt is judged to be less rather than more likely. Credit terms are net 30 days (2010: 30 days).

Trade creditors

Trade creditors and accruals 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). Settlement is usually made net 30 days.

1.14 Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period. No indicators of impairment were indentified assets as at 30 June 2011.

Financial assets held at amortised cost

If there is objective evidence that an impairment loss has been incurred for loans and receivables or held to maturity investments 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.

Available for sale financial assets

If there is objective evidence that an impairment loss on an available for sale financial asset has been incurred, the amount of the difference between its cost, less principal repayments and amortisation, and its current fair value, less any impairment loss previously recognised in expenses, is transferred from equity to the statement of comprehensive income.

Financial assets held at cost

If there is objective evidence that an impairment loss has been incurred the amount of the impairment loss is the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate for similar assets.

1.15 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 an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are reported when settlement is probable but not virtually certain and contingent liabilities are recognised when the probability of settlement is greater than remote.

1.16 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.

1.17 Property, plant and equipment

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the balance sheet, 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 and total $20,000 or more).

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 agency's accounts immediately prior to the restructuring.

Revaluations

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

Following initial recognition at cost, 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 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 the operating result. Revaluation decrements for a class of assets are recognised directly through the operating result 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.

The Treasury performed a valuation of leasehold improvements, infrastructure, plant and equipment assets on 30 November 2007. The valuation was performed by independent valuers Preston Rowe Paterson NSW Pty Limited and was based on valuing the assets at fair value. Preston Rowe Paterson NSW Pty Limited confirmed that net asset values materially reflected fair value at 30 June 2011.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Treasury 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 useful lives:

The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 3D.

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.

No indicators of impairment were found for departmental assets at fair value during the year.

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 Treasury were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

1.18 Intangibles

The Treasury's intangible assets comprise internally developed and purchased software for internal use. These assets are carried at cost less accumulated depreciation and any accumulated impairment losses. Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the Treasury's software are 3 to 5 years (2010: 3 to 5 years).

The Treasury's largest intangible asset is for Standard Business Reporting (SBR). SBR is a multi-agency initiative that will simplify business-to-government reporting by introducing a single secure way to interact on-line with participating agencies. For further information visit www.sbr.gov.au.

All software assets were assessed for indications of impairment as at 30 June 2011. No indicators of impairment were identified as at 30 June 2011.

1.19 Taxation/competitive neutrality

The Treasury is exempt from all forms of taxation except Fringe Benefits Tax (FBT) 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 recovered from the Australian Taxation Office; and
• except for receivables and payables.

1.20 Foreign currency

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.

1.21 Insurance

The Treasury is insured for risks through the government's insurable risk managed fund, Comcover. Workers compensation is insured through the government's insurable risk managed fund, Comcare Australia.

Note 2: Events occurring after reporting date

The RBA has not declared a dividend to Government for 2011.

Note 3: Operating Expenses

1 The 2010 balances have been adjusted by $0.94 million to reflect the reclassification of expenses from external entities to related entities.

2 Operating lease rentals comprise minimum lease payments only.

Note 4: Income

Note 5: Financial assets

Note 6: Non-financial assets

No indicators of impairment were found for land and buildings. No land and buildings are expected to be sold or disposed of within the next 12 months. All revaluations are independent and are conducted in accordance with the revaluation policy stated at Note 1.17.

No indicators of impairment were found for plant and equipment. No other plant and equipment is expected to be sold or disposed of within the next 12 months. All revaluations are independent and are conducted in accordance with the revaluation policy stated at Note 1.17.

No indicators of impairment were found for Intangibles.

Table A: Reconciliation of the opening and closing balances of property, plant and equipment and intangibles (2010-11)

* Disaggregated additions information are disclosed in the Schedule of Asset Additions

Table A: Reconciliation of the opening and closing balances of property, plant and equipment and intangibles (2009-10)

* Disaggregated additions information are disclosed in the Schedule of Asset Additions

Table B: Property, plant and equipment and intangibles held under finance lease (2010-11)

Table C: Property, plant and equipment and intangibles under construction (2010-11)

 

Note 7: Payables

Note: Settlement is usually made net 30 days.

Note 8: Interest bearing liabilities

Note: Finance leases existed in relation to certain major office equipment assets in 2010. The leases were non-cancellable and for fixed terms averaging 2.75 years, with a maximum of 3.25 years. The interest rate implicit was zero in 2011 as all leases have expired (2010: 5.92 per cent). The Treasury guaranteed the residual values of all assets leased. There were no contingent rentals.

Note 9: Provisions

Note 10: Cash flow reconciliation

Note 11: Contingent liabilities and assets

Quantifiable contingencies

The schedule of contingencies reports 'other' liabilities of $299,963 (2010: $271,856). This amount represents an estimate of the Treasury's liability in respect of studies assistance.

Unquantifiable contingencies

As at 30 June 2011, the Treasury had a number of legal claims against it. The Treasury has denied liability and is defending the claims. It is not possible to estimate the amounts of any eventual payments that may be required in relation to these claims.

The courts may award legal costs against the Treasury in the event it is unsuccessful in an action before the courts. As there is uncertainty over the outcome of outstanding and pending court cases, duration of court cases and the legal costs of the opposing party, these costs cannot be reliably measured.

Remote Contingencies

The Treasury's lease on its current premises contains a make good clause which has been estimated by an independent valuer at $2.7 million. The Treasury has assessed the likelihood of the make good provision being required and has deemed it as remote.

As at 30 June 2011, the Treasury has a number of contracts which may give rise to contingent liabilities based on certain events occurring. The Treasury has assessed the likelihood of such events occurring as being remote and unquantifiable.

Note 12: Executive remuneration

Note 12A: Senior Executive Remuneration Expense for the Reporting Period

The comparative aggregate total amount has been revised and does not match what was published in the 2009-10 financial statements due to new disclosure requirements.

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

The comparative figures have been revised and do not match what was published in the 2009-10 annual report due to new disclosure requirements.

Notes:

1 This table reports on substantive senior executives who are employed by the Treasury 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 (that is, the 'Total' column).

2 Represents average fixed allowances as per employment agreement. Six SES have a fixed allowance in their employment agreement with an average allowance of $29,647 (2010: 7 SES, average allowance $30,312).

3 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 Treasury does not pay bonuses. The bonuses included in the above table relate to secondees. No secondees received a bonus this financial year (2010: 1 secondee)

Variable Elements:

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

1. On average senior executives were entitled to the following leave entitlements:
   • Annual Leave: entitled to 20 days (2010: 20 days) each full year worked (pro-rata for part-time SES);
   • Personal Leave: entitled to 15 days (2010: 15 days) or part-time equivalent; and
   • Long Service Leave: in accordance with Long Service Leave (Commonwealth Employees) Act 1976.
2. Senior executives were members of one of the following superannuation funds:
   • Australian Government Employee Superannuation Trust (AGEST): this fund is for senior executives who were employed for a defined period. Employer contributions were set at 9 per cent (2010: 9 per cent). More information on AGEST can be found at www.agest.com.au;
   • Commonwealth Superannuation Scheme (CSS): this scheme is closed to new members, and employer contributions averaged 17.3 per cent (2010: 18.1 per cent) (excluding employer productivity contributions of approximately 3 per cent). More information on CSS can be found at www.css.gov.au;
   • Public Sector Superannuation Scheme (PSS): this scheme is closed to new members, with current employer contributions set at 14.4 per cent (2010: 15.4 per cent) (excluding employer productivity contributions of approximately 3 per cent). More information on PSS can be found at www.pss.gov.au;
   • 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 on PSSap can be found at www.pssap.gov.au; and
   • Other: there were some senior executives who had their own superannuation arrangements (for example, self-managed superannuation funds).
3. Variable allowances available to senior executives include: Travel allowance, Overtime meal allowance, First aid certificate allowance, Motor vehicle allowance and Establishment allowance.
4. Various salary sacrifice arrangements were available to senior executives including superannuation, motor vehicle and expense payment fringe benefits.

Note 12C: Other Highly Paid Staff

During the reporting period, there were two employees (2010: 1 employee) whose salary plus performance bonus were $150,000 or more. These employees did not have a role as a senior executive and are therefore not disclosed as senior executives in Note 12A and Note 12B.

Note 13: Remuneration of auditors

Note: The above amounts are exclusive of GST. No other services were provided by the Auditor General.

Note 14: Average staffing levels

Note 15: Financial instruments

Note 15A: Categories of financial instruments

Note: There is no implicit interest rate on finance leases for 2011 as all finance leases have expired (2010: 5.9 per cent)

Note 15B: Net income and expense from financial liabilities

Note 15C: Net fair values of financial assets and liabilities

The net fair values of cash and non-interest bearing monetary financial assets approximate their carrying amounts.

The net fair values of the finance leases are based on discounted cash flows using current interest rates for liabilities with similar risk profiles. The Treasury entered into finance lease arrangements in relation to certain major office equipment assets. The leases were non-cancellable and for fixed terms averaging 2.75 years, with a maximum of 3.25 years. The Treasury guaranteed the residual values of all assets leased and there were no contingent rentals.

The net fair values for trade creditors and other liabilities are approximated by their carrying amounts.

The Treasury's financial assets and financial liabilities as disclosed in Note 15A are measured under Level 2 of the fair value hierarchy as they are based on observable inputs. There have been no reclassifications between levels of the fair value hierarchy.

Note 15D: Credit risk exposures

The Treasury is exposed to minimal credit risk as loans and receivables are cash and trade receivables. 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: $3,537,308 and 2010: $2,601,481). The Treasury has assessed the risk of default on payment as being minimal.

Other government agencies and staff members make up the majority of the Treasury's debtors. To aid the Treasury to manage its credit risk there are internal policies and procedures that guide employees on debt recovery techniques that are to be applied.

The Treasury holds no collateral to mitigate against credit risk.

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

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

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

Note 15E: Liquidity risk

The Treasury's financial liabilities are payables and finance leases. The exposure to liquidity risk is based on the notion that the Treasury will encounter difficulty in meeting its obligations associated with financial liabilities. This is highly unlikely due to the appropriation funding mechanisms available to the Treasury and internal policies and procedures put in place to ensure there are appropriate resources to meet its financial obligations.

The Treasury is appropriated funding from the Australian Government. The Treasury manages its budgeted funds to ensure it has adequate funds to meet payments as they fall due. In addition, the Treasury has policies in place to ensure timely payments are made when due and has no past experience of default.

Maturity of financial liabilities

Note 15F: Market risk

The Treasury holds only basic financial instruments that do not expose the department to certain market risks.

The Treasury's remaining finance leases expired during the current financial year, resulting in no further lease liability. All finance leases entered into bore interest at a fixed interest rate and will not fluctuate due to changes in the market interest rate. There is no implicit interest rate given there are no further finance leases (2010: 5.9 per cent).

Note 16: Income administered on behalf of Government

1 2011 COAG revenue has decreased as revenues and expenses in relation to non-government schools payments are now recorded in the Department of Education, Employment and Workplace Relations' financial statements. (Refer Note 1.26)

Note 17: Expenses administered on behalf of Government

1 HLIC claims expenses include an actuarial adjustment decreasing provision for insurance claims resulting in an offsetting negative expense in 2010.

Note 18: Assets administered on behalf of Government

1 Refer to Note 21 for more information on the IMF new arrangements to borrow.

1 The 2010 Investments balance has been reduced by $750 million to reflect the post dividend equity position of the Reserve Bank of Australia.

2 An administered investment with a nil balance has been recorded to reflect the Australian Government's control of the OzCar SPV. The OzCar SPV was wound up by 30 June 2011 with no outstanding assets or liabilities.

Note 19: Liabilities administered on behalf of Government

1 In 2011 the Treasury changed the accounting policy in relation to the recognition of liabilities under the Natural Disaster Relief and Recovery Arrangements. Refer to Note 1.3 and 1.26 for more information.

Note 20: Administered reconciliation table

Note 21: Administered contingent liabilities and assets

Significant Remote administered contingencies

Guarantees

The following borrowings have been guaranteed by the Australian Government and are the Treasury's responsibility:

1 Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government has guaranteed various liabilities of the Commonwealth Bank of Australia (CBA), and the Commonwealth Bank Officers' Superannuation Corporation (CBOSC). The guarantee for the CBA relates to both on and off balance sheet liabilities. The guarantee of the CBOSC covers the due payments of any amount that is payable to or from Officers' of the Superannuation Fund (the Fund), by CBOSC or by CBA, in respect of a person who was a member, retired member or beneficiary of the Fund immediately before 19 July 1996. The guarantee of the CBA and CBOSC reflected in the above table is the value at 31 December 2010.

2 All guaranteed liabilities of the OzCar SPV were settled prior to 30 June 2011.

3 The contingent liability for the RBA, relates to the Australian Government's guarantee of the liabilities of the RBA. It is measured as the Bank's total liabilities excluding the Bank's distribution to the Commonwealth and Australian Government deposits. The major component of the Bank's liabilities are notes (that is, currency) on issue.

Note 23: Administered financial instruments

Note 23A: Categories of financial instruments

Note 23B: Net income and expenses from financial assets

Note 23C: Net income and expenses from financial liabilities

Note 23D: Net fair value of financial assets and liabilities

There was no transfer of financial assets or liabilities between Level 1 and Level 2 in 2011 or 2010.

1 These gains and losses are presented in the schedule of administered items under Other gains, Net foreign exchange gains and Net foreign exchange losses.

2 These gains and losses are presented in Note 21: Administered reconciliation table.

3 These gains and losses are presented in the schedule of administered items under Other expenses.

Note 23E: Credit risk exposure

Note 23F: Liquidity risk

Note 23G: Market risk

Note 24: Administered consolidation

Note 25: Appropriations

Note 25A: Annual appropriations ('Recoverable GST exclusive')

(a) Appropriations reduced under Appropriation Acts (No. 1,3) 2010-2011: sections 10, 11, 12 and 15 and under Appropriation Acts (No. 2,4) 2010-2011: sections 12,13, 14 and 17. Departmental appropriations do not lapse at financial year-end. However, the Treasurer may decide that part or all of a departmental appropriation is not required and request the Finance Minister to reduce that appropriation. The reduction in the appropriation is effected by the Finance Minister's determination and is disallowable by Parliament. On 15 April 2011, the Finance Minister determined a reduction in departmental appropriations following a request by the Treasurer. The amount of the reduction determined under Appropriation Act (No. 3) 2010-2011 was: $926,000.

(b) Advance to the Finance Minister (AFM) — Appropriation Acts (No. 1,3) 2010-2011: section 13 and Appropriation Acts (No. 2,4) 2010-2011: section 15.

(a) Appropriations reduced under Appropriation Acts (No. 1,3) 2009-2010: sections 10, 11 and 12 and under Appropriation Acts (No. 2,4) 2009-2010: sections 13 and 14. Departmental appropriations do not lapse at financial year-end. However, the Treasurer may decide that part or all of a departmental appropriation is not required and request the Finance Minister to reduce that appropriation. The reduction in the appropriation is effected by the Finance Minister's determination and is disallowable by Parliament. On 13 May 2010, the Finance Minister determined a reduction in departmental appropriations following a request by the Treasurer. The amount of the reduction determined under Appropriation Act (No. 3) 2009-2010 was: $643,000. On 29 June 2010, the Finance Minister determined a reduction in departmental appropriations following a request by the Treasurer. The amount of the reduction determined under: Appropriation Act (No. 1) 2009-2010 was: $3,736,000; Appropriation Act (No. 2) 2009-2010 was: $7,438,000.

(b) Advance to the Finance Minister (AFM) — Appropriation Acts (No. 1,3) 2009-2010: section 13 and Appropriation Acts (No. 2,4) 2009-2010: section 15.

Note 25B: Unspent Departmental Annual Appropriations ('Recoverable GST exclusive')

Note 25C: Special Appropriations ('Recoverable GST exclusive')

The following table lists current special appropriations contained in legislation that the Treasury is responsible for administering. In 2010-11, the Treasury expanded the list to include special appropriations contained in legislation that are inactive but still current as at 30 June 2011.

The Treasury process to complete the 2010-11 financial statements identified 8 payments (2010: 6 payments) made from the COAG Reform Fund special account that resulted in technical breaches of Section 83 of the Constitution (refer to Note 26 for more information).

After reviewing the circumstances of Section 83 breaches in relation to the COAG Reform Fund special account, the Treasury considers that there is a risk of non-compliance with Section 83 of the Constitution where payments are made from special appropriations and special accounts in circumstances where the payments do not accord with conditions included in the relevant legislation.

The Treasury will investigate these circumstances and any impact on its special appropriations and special accounts shown below, seeking legal advice as appropriate.

Note 25C: Special Appropriations — other disclosures

Commonwealth Places (Mirror Taxes) Act 1998

The Treasury is responsible for administering the above Act for the purpose of paying compensation to the States in respect of constitutionally invalid States taxes levied on Commonwealth places. Under the Act, the Australian Government is liable to pay to a State amounts equal to amounts received by the Australian Government (including amounts received by a State on behalf of the Australian Government) under an applied law of the State. During the current reporting period and previous reporting period the States collected and provided the following estimates of taxes pursuant to the Act:

Note 25D: Disclosure by Agent in Relation to Annual and Special Appropriations ('Recoverable GST exclusive')

Note 25E: Reduction in Administered Items ('Recoverable GST exclusive')

Note 26: Special accounts

Note: This note is now prepared on a GST exclusive basis and has subsequently changed from what was reported in the 2009-10 financial statements.

Note: The Treasury makes payments to the States and Territories from the COAG Reform Fund special account based on information provided by other Government departments that have policy and program implementation responsibility. Several payments were discovered to have been made in error and were subsequently recovered at the next opportunity. In these circumstances the payments were made to the State or Territory without any legislative basis, which constitutes a technical breach of section 83 of the Constitution. The Treasury process to complete the 2010-11 financial statements identified 8 incorrect payments (2010: 6 incorrect payments). The incorrect payments totaled $25,963,775 (2010: $100,997) or 0.141 per cent (2010: less than 0.001 per cent) of payments from the COAG Reform Fund special account. All incorrect payments have been recovered from the States and Territories.

Note: This note is now prepared on a GST exclusive basis and has subsequently changed from what was reported in the 2009-10 financial statements.

Financial System Stability Special Account (Administered)

The Treasury's 'Financial System Stability' special account established under section 70E of the Banking Act 1959 for the making of payments authorised under specified sections of the Banking Act 1959, the Insurance Act 1973 and the Life Insurance Act 1975 and to meet expenses of administering the special account. For the years ended 30 June 2010 and 30 June 2011 this special account had nil balances and no transactions were credited or debited to the account

Services for other Governments and non agency bodies account (Departmental)

The Treasury 's 'Services for other Governments and non-agency bodies' special account established under section 20 of the Financial Management and Accountability Act 1997 (FMA Act) was abolished on 12 October 2010. For the years ended 30 June 2010 and 30 June 2011 this special account had nil balances and no transactions were credited or debited to the account.

Other trust moneys account (Departmental — Special Public Money)

The Treasury has an 'Other trust monies' special account established under section 20 of the FMA Act. The purpose of this special account is for expenditure of monies temporarily held on trust or otherwise for the benefit of a person other than the Australian Government. Any money held is thus special public money under section 16 of the FMA Act. For the years ended 30 June 2010 and 30 June 2011 this special account had nil balances and no transactions were credited or debited to the account.

Other trust moneys account (Administered — Special Public Money)

The Treasury has an 'Other trust monies' special account established under section 20 of the FMA Act. The purpose of this special account is for expenditure of monies temporarily held on trust or otherwise for the benefit of a person other than the Australian Government. Any money held is thus special public money under section 16 of the FMA Act.

For the year ended 30 June 2010 the money in this special account rounded to zero in relation to HIH recoveries received from the HIH Claims Manager. For the year ended 30 June 2011 this special account had nil balances and no transactions were credited or debited to the account.

Special Accounts investment of public money

For the periods 2009-10 and 2010-11, the Treasury has not used section 28 or 39 of the FMA Act in respect of all special accounts.

Note 27: Compensation and debt relief

Note 28: Reporting of outcomes

Note 28A: Net cost of outcome delivery

Note 28B: Major classes of Departmental expenses, income, assets and liabilities by outcome

Note 28C: Major classes of Administered revenues, expenses, assets and liabilities by outcome

Note 29: Comprehensive income (loss) attributable to the Department of the Treasury

Note 29: Comprehensive income (loss) attributable to the Department of the Treasury

for the period ended 30 June 2011

1 As per the Statement of Comprehensive Income