Annual Report 2002–03 > Table of Contents > Financial Statements 2002–03 > Notes to and forming part of the Financial Statements > Note 1

Note 1–Summary of Significant Accounting Policies

1.1 Objectives of Joint House Department (JHD)

OUR VISION

Our vision is that Parliament House continues into the next century and beyond as one of the finest legislative buildings in the world and that the services provided by JHD are commensurate with that ideal.

OUR MISSION

We will continue to earn the privilege of maintaining Australia’s Parliament House and managing its facilities because we best understand and capably satisfy its unique servicing requirements.

JHD is structured to meet one outcome.

An effectively functioning legislative building for the Parliament of Australia which preserves its value as a heritage complex and raises public awareness of the Australian Federal Parliamentary system and the Parliament House building.

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

The departmental outcome is measured by the following outputs:
Output 1—Total Asset Management Services
Output 2—Building Occupant & Visitor Services.

The administered outcome has only one output:
Output 1—Total Asset Management Services.

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 financial statements have been prepared in accordance with:

Finance Minister’s Orders (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 the Australian Accounting Standards Board;
other authoritative pronouncements of the Board; and
Consensus Views of the Urgent Issues Group.

The statements have also been prepared having regard to the Explanatory Notes to Schedule 1, and Finance Briefs issued by the Department of Finance and Administration.

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 the financial position.

Assets and liabilities are recognised in the Statement of Financial Position when and only when it is probable that future economic benefit will flow and the amounts of the assets or liabilities can be reliably measured. Assets and liabilities arising under agreements equally proportionally unperformed are, however, 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. JHD has no remote and unquatifiable contingencies at reporting date.

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 JHD in its present form, and with its present outputs, is dependent on Government policy and on continuing appropriations by Parliament for JHD’s administration.

Administered revenues, expenses, assets, liabilities and cash flows are presented in the Schedule of Administered Items and related Notes. Except where otherwise stated, administered items are reported on the same bases and using the same policies as for departmental items. Refer Note 1.20 for administered items.

1.3 Changes in Accounting Policy

The accounting policies used in the preparation of these financial statements are consistent with those used in 2001–02, except in respect of:

measurement of certain employee benefits at nominal amounts (refer to Note 1.6);
valuation of Non-Financial Assets (refer to Notes 1.11 and 1.13);
presentation and disclosure of administered items (refer to Note 17);
accounting for output appropriations (refer to Note 1.4); and
recognition of equity injections (refer to Note 1.5).

1.4 Revenue

The revenues described in this note are revenues relating to JHD’s core operating activities.

Revenues from Government

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

As a result of the Budget Estimates Framework Review (BEFR) , current policy will affect future reporting periods. From July 2003, JHD will draw down appropriations on a "just-in-time" basis. This is expected to improve the whole of government cashflow position and central treasury cash management. Departmental appropriations not drawn down at the end of the financial reporting period will be accrued in the same manner as administered appropriations.

Resources Received Free of Charge

Services received free of charge are recognised in the Statement of Financial Performance 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 under accrual principles upon delivery of goods and services to customers. These revenues are mainly comprised of:

rental income received from Parliament House (PH) occupants
catering revenue received under contracts in place between JHD and the PH catering service provider.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. The investment function was discontinued during the year as part of the (BEFR) recommendations. This accounts for the drop in the current year’s interest revenue and there will be no interest revenues reported in future accounting periods.

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

1.5 Transactions by the Government as Owner

Equity Injections

From 1 July 2002, the FMOs require that amounts of appropriations designated as ‘equity injections’ are recognised directly in Contributed Equity as at 01 July or later date of effect of the appropriation. This is a change of accounting policy from 2001–02 to the extent that any part of an equity injection that was dependent on specific future events occurring was not recognised until the appropriation was drawn down.

This change in policy had no financial effect in 2002–03, as there have been no equity injections since the 1999–2000 reporting period.

Restructuring of Administrative 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 Charges

A Capital Usage Charge of 11% (2002: 11%) is imposed by the Government on the departmental net assets of the department at year end. The net assets figure is adjusted to take account of assets gifted and revaluation adjustments during the financial year. The charge is accounted for as a dividend to Government.

In accordance with the recommendations of the BEFR, the government has decided to discontinue the capital usage charge after 30 June 2003.

1.6 Employee Entitlements

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

Liabilities for employee entitlements include provisions for annual leave, long service leave and superannuation on-costs associated with the anticipated usage of leave entitlements prior to retirement or separation.

These provisions are recorded at their nominal amount, being the rate at which the liability is expected to be paid on settlement. This is a change in accounting policy from last year as a result of the initial adoption of Accounting Standard AASB 1028 Employee Benefits from 01 July 2002, highlighted in Note 1.3 above. JHD’s Certified Agreement provides for increase in rate of pay from 01 July each year.

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

Leave

Sick Leave is not provided for as sick leave is non-vesting, and the average sick leave taken in future years by JHD employees is estimated to be less than the annual entitlement for sick leave.

Recreational Leave liabilities at 30 June 2003 are calculated on the basis of employee’s remuneration, including the department’s employer superannuation contributions to the extent that the leave is likely to be taken during service rather than paid out on termination.

Long Service Leave liabilities are determined by reference to the present value of the estimated future cash flows to be made in respect of all employees as at 30 June 2003. The estimation of the present value of the liability has taken into account attrition rates and pay increases through promotion and inflation.

Separation and redundancy

Provision would be made for separation and redundancy payments in circumstances where JHD has formally identified positions as excess to requirements and a reliable estimate of the total amounts of the payments can be determined.

No redundancies have been identified at reporting date.

Superannuation

JHD staff are members of the Commonwealth Sector Superannuation or the Public Sector Superannuation Schemes. Liability for their superannuation benefits is recognised in JHD’s financial statements and is settled by the Commonwealth in due course.

JHD 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 JHD’s employees. Employer contributions of $1 606 090 (2001–02: $1 602 184) have been expensed in these financial statements.

No liability is shown for superannuation in the Statement of Financial Position as the employer contributions fully extinguish the accruing liability which is assumed by the Commonwealth.

Employer Superannuation Productivity Benefit contributions of $343 430 (2001–02: $330 806) have also been expensed in these financial statements.

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 risk and benefits.

Non-current assets that have been acquired under finance leases are capitalised at the present value of the minimum lease payments at the inception of the lease, with a corresponding liability being recognised for the same amount. The leased assets are amortised over the term of the lease. Lease payments are allocated between the principal component and the interest expense.

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.

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 the reporting period does not exceed the amounts of costs incurred in the period. Refer to Note 4E.

1.9 Cash

Cash includes notes and coins held and the balances of JHD's bank accounts. In previous years, cash included term deposits. As part of the BEFR, this function was discontinued in this financial period.

1.10 Financial Instruments

Accounting policies for financial instruments are stated in Note 16.

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 as outlined in Note 1.5: Restructuring of Administrative Arrangements.

1.12 Property, plant and equipment

Asset recognition threshold

Purchases of property, plant and equipment in excess of $2 000 are recognised at cost in the Statement of Financial Position. Purchases costing less than $2 000 are expensed in the year of acquisition in the Statement of Financial Performance (other than where they form part of a group of similar items that are in excess of $2 000).

Revaluations

The buildings, infrastructure, plant and equipment were revalued at 30 June 2003 at fair value. In previous accounting periods the basis of valuation has been deprival values. This is a change in accounting policy required by adoption of the 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 subject to restricted use clause.	Market selling price subject to restricted use clause.
Buildings	Current replacement cost.	Current replacement cost.
Plant & Equipment	Current market value, or Current replacement cost.	Current market value, or Current replacement cost.
Furniture & Fittings	Current market value, or Current replacement cost, or Current reproduction cost.	Current market value, or Current replacement cost, or Current reproduction cost.
Artworks	Current market value, or Current replacement cost.	Current market value, or Current replacement cost.

Under both deprival and fair value, assets that are surplus to requirement are measured at their net realisable value. JHD has no surplus assets at reporting date.

The financial effect for 2002–03 of this change in policy relates to those assets to be recognised at fair value at 30 June 2003. The financial effect of the change is given by the difference between the carrying values at 30 June 2002 and their fair values at 01 July 2002. The independent valuer has determined that the fair value and deprival values are the same and there was no change.

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

Frequency

Assets are revalued progressively in successive three-year cycles. The current cycle commenced 01 July 2002 and finishes on 30 June 2005.

Land, buildings, plant and equipment have been revalued in 2002–03, in accordance with AASB1041 Revaluation of Non-current Assets, and future revaluations will be dependent on the materiality of the revaluation adjustment.

Artworks were last revalued in 2002 using the deprival method of valuation. The next valuation of artworks, in 2005, will be conducted using the fair value method in accordance with the standard AASB 1041 Revaluation of Non-current Assets. As the fair value and deprival value bases are the same, no material differences are expected.

Assets capitalised under finance leases have not been revalued and are accounted for under standard AAS 17 Leases.

Conduct

All valuations of property, plant and equipment were conducted by independent qualified valuers—Australian Valuation Office.

The artworks were valued in June 2002 by independent valuers—Sotheby’s Australia. McWilliam and Associates, registered art valuers, undertook the revaluation project as specialist subcontractors to Sotheby’s and are accredited with the National Cultural Heritage Committee (established under the Protection of Movable Cultural Heritage Act 1986).

Depreciation and Amortisation

Land is classified as a heritage asset and is not depreciated.

Artworks are classified as heritage assets and are not depreciated.

Depreciable property, plant and equipment assets are written off to their estimated residual values over their estimated useful lives to JHD using, in all cases, the straight-line method of depreciation.

Depreciation/amortisation rates (useful lives) and method 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 rates applicable to each class of depreciable asset are based on the following useful lives.

	2002–03	2001–02
Building—Superstructure	200 years	200 years
Building—External Services	50 years	50 years
Building—Internal Services	30 years	30 years
Building—Finishes, Fittings and Improvements	20 years	20 years
Computer Equipment	3 to 5 years	10 years
Plant & Equipment	3 to 50 years	5 to 50 years
Office Furniture	3 to 10 years	10 years
Artworks Furniture	10 years	10 years

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

Recoverable Amount Test

From 01 July 2002, Schedule 1 no longer requires the application of the recoverable amounts test in Australian Accounting Standard AAS 10 Recoverable Amount of Non-Current assets to assets belonging to JHD when the primary purpose of the asset is not the generation of net cash inflows.

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

1.13 Inventories

The Parliament Shop inventories are held for resale and are valued at the lower of cost or net realisable value. Costs are assigned to individual items of stock on a first-in-first-out basis.

1.14 Intangibles

JHD’s intangibles comprise internally developed software for own use and capital works-in-progress. These assets are carried at cost.

However Schedule 1 now requires such assets, if carried at cost, to be assessed for indications of impairment. The carrying amount of the impaired asset must be written down to the greater of its net market selling price or depreciated replacement cost.

All software assets were assessed for impairment at 01 July 2002 and 30 June 2003, and none were found to be impaired.

Intangible assets are amortised on a straight-line basis over their anticipated useful lives.

	2002–03	2001–02
Software	5 years	5 years

Capital works-in-progress are not depreciated.

1.15 Taxation

JHD's activities are exempt from all forms of taxation, except the Goods and Services Tax (GST) and Fringe Benefits Tax (FBT).

Revenues, expenses and assets are recognised net of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office.

Receivables and payables are recognised including the GST components receivable or payable.

1.16 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. Associated currency gains and losses are not material.

1.17 Insurance

JHD has insured for risks through the Government’s insurable risk managed fund ‘Comcover’. Workers’ compensation is insured through the Government’s Comcare Australia.

1.18 Comparative figures

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

1.19 Rounding

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

act of grace payments and waivers
remuneration of executives
remuneration of auditors, and
appropriations.

1.20 Reporting of Administered Activities

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

Except where otherwise stated below, administered items are reported on the same bases and using the same policies as for Departmental items, including the application to the greatest extent possible of Accounting Standards, Accounting Interpretations and Urgent Issues Group Consensus Views.

Administered appropriations received or receivable from the Official Public Account (OPA) are not reported as administered revenues and assets respectively. Similarly, administered receipts transferred or transferable to the OPA are not reported as administered expenses or payables. These transactions and 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 19.

Accounting policies that are relevant to the administered activities of JHD are disclosed below.

Revenue

JHD has negotiated an Administered Funding agreement with the Department of Finance and Administration. The agreement is supported by a Funding Proposal, which is reviewed every five years. The Funding Proposal contains a schedule of Projects based upon a 200-year life cycle planning model, prepared by an independent engineering consultant. It utilises a ‘criticality’ methodology to rank projects into a series of five-year plans for rolling upgrades, which are designed to keep Parliament House in a fully operational state, commensurate with its status as a ‘nationally significant building’.

This funding will be used for:

ongoing administered asset replacement, modification and upgrade;
construction of new minor works; and
purchases of artworks for the Historic Memorials Collection (HMC) and Parliament House Art Collection (PHAC).

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