Summary of Significant Accounting Policies
2. Summary of significant accounting policies
2.1 Objectives and Funding
The Department of Infrastructure, Energy and Resources brings together those arms of government which provide infrastructure for the social and economic development of Tasmania.
The Department's charter is to support the existing commercial and social structure and to facilitate new development that will enable Tasmania to prosper. In pursuing this purpose, the Department aims to ensure the effective integration of the key infrastructure serving the community. This comprises the physical transport and energy assets (for example roads, bridges, ports and powerlines), the information systems capturing, maintaining and providing data (for example in transport, mining and forestry) and the policy environment and regulatory systems in which business is conducted. A collaborative approach by the Department is a critical dimension to achieving its purpose.
The delivery areas within the Department comprise:
infrastructure policy;
land transport safety;
roads and public transport;
workplace standards;
minerals resources; and
racing services.
On behalf of the Minister for Infrastructure, Energy and Resources, the Department also provides independent strategic policy advice and support in relation to the Government's relationships with many Government Business Enterprises (GBEs), State-owned Companies (SOCs) and Statutory Authorities. Operations of many of these organisations are described in Chapter 11 of Budget Paper No 1 Budget Overview 2003-04.
The Department aims to deliver a strategic approach to the provision of both physical and regulatory infrastructure through its corporate plan. The corporate plan has been developed ensuring that all key Government outcomes are addressed including those outlined in Tasmania Together, Industry Development Plans and Partnerships with Local Government. The strategic focus of the Department is on contributing to the achievement of the following major outcomes:
facilitation of a safe, accessible and equitable transport system that enhances economic development;
promotion of reliable, efficient and safe energy systems;
promotion of productive, safe workplaces where the rights of employees, employers, principals and the community are being met;
facilitation of mineral exploration and land management for Tasmanian land and offshore waters; and
maintenance of probity and integrity in the racing industry.
Department activities contributing towards these outcomes are classified as either controlled or administered.
Controlled activities involve the use of assets, liabilities, revenues and expenses controlled or incurred by the Department in its own right. Administered activities involve the management or oversight by the Department on behalf of the Government of items controlled or incurred by the Government.
The Department is predominantly funded by parliamentary appropriations. Other funding sources include direct Commonwealth grants, industry grants and miscellaneous recoveries from various sources. The WorkCover Tasmania Board and Forest Practices Board are funded by industry contributions. The financial report encompasses all funds through which the Department controls resources to carry on its functions
2.2 Basis of Accounting
The financial statements are a general purpose financial report and have been prepared in accordance with:
the Treasurer’s Instructions issued under the provisions of the Financial Management and Audit Act 1990 ; and
Australian Accounting Standards, in particular AAS 29 ‘Financial reporting by Government Departments’ and Urgent Issues Group Abstracts.
In the process of preparing accrual based reports for the Department as a single entity, all intra?entity transactions and balances have been eliminated.
The financial statements have been prepared using historical cost accounting, with the exception that land, buildings, infrastructure, heritage and cultural assets are valued at their current value to the Department, determined by reference to the asset’s fair value.
Assets and liabilities are recognised in the Department’s Statement of Financial Position when it is probable that future economic benefits will flow and the amounts of the assets or liabilities can be reliably measured.
Revenues and expenses are recognised in the Department’s Statement of Financial Performance when the flow or consumption or loss of economic benefits has occurred and can be reliably measured.
The financial statements are prepared on the basis that the Department will continue to operate in its present form. The continued existence of the Department in its present form, undertaking its current activities, is dependent on Government policy and on continuing appropriations by Parliament for the Department’s administration and activities.
2.3 Adoption of Australian Equivalents to International Financial Reporting Standards
The Department is managing the transition to Australian Equivalents to International Financial Reporting Standards (AIFRS) by analysing pending standards, Urgent Issues Group Abstracts and changes to Treasurer’s Instructions to identify key areas regarding policies, procedures, systems and financial impacts affected by the transition.
The Department of Treasury and Finance will take a key role in assisting the Department to manage the transition. Key strategies for managing the transition are:
analysis of AIFRS and the changes from the current AAS;
determining new AIFRS policies, including mandating policies where appropriate;
development of new or revised Treasurer’s Instructions, including mandatory accounting policies and model financial statements; and
providing information for agencies and encouraging attendance at training seminars
Once changes to accounting policies and standards have been identified, the Department will determine the extent of system impacts and will develop a strategy for implementing any necessary changes to financial systems. Strategies for training staff and informing stakeholders of major changes will then be implemented.
The Department’s accounting policies may also be affected by a proposed standard to harmonise accounting standards with Government Finance Statistics (GFS). However, the standard is yet to be finalised and the impact cannot be assessed with certainty until the standard is issued.
The agency has identified a number of significant differences in accounting policies that will arise from adopting AIFRS. Some differences arise because AIFRS requirements are different from existing AASB requirements. Other differences could arise from options in AIFRS.
Based on current information, the following key differences in accounting policies are expected to arise from adopting AIFRS:
AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards requires retrospective application of the new AIFRS from 1 July 2004, with limited exemptions. Similarly, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors requires voluntary changes in accounting policy and correction of errors to be accounted for retrospectively by restating comparatives and adjusting the opening balance of accumulated funds. This differs from current Australian requirements, because such changes must be recognised in the current period through profit or loss, unless a new standard mandates otherwise.
AASB 116 Property, Plant and Equipment requires the value of property, plant and equipment to be increased to include restoration costs, where restoration provisions are recognised under AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
AASB 136 Impairment of Assets requires an entity to assess at each reporting date whether there is any indication that an asset is impaired and if such indication exists, the entity must estimate the recoverable amount. Impairment testing largely replicates the recoverable amount test in AASB1010 and AASB1041. However, the scope of impairment testing is wider in that it applies to all assets, rather than only non-current assets.
AASB 138 Intangibles enables an intangible asset to be recognised where the asset is separable and arises from contractual or other legal rights. The cost of the asset must be capable of reliable measurement and may only be revalued where the fair value can be determined by reference to an active market. The standard specifically requires that all research costs must be expensed, however, development costs can be recognised if specific criteria are met.
2.4 Transactions and Balances Administered on a Whole-of-Government Basis
The Department administers, but does not control, certain resources on behalf of the Government as a whole. It is accountable for the transactions involving such administered resources, but does not have the discretion to deploy resources for the achievement of the Department’s objectives.
Administered assets, liabilities, expenses and revenues are disclosed in the notes to the financial statements, forming a part of the general purpose report for the Department. The administered items are disclosed on the same basis as is described for the financial statements of the Department.
2.5 Activities Undertaken Under a Trustee or Agency Relationship
Transactions relating to activities undertaken by the Department in a trust or fiduciary (agency) capacity do not form part of the Department’s activities. Trustee and agency arrangements, and transactions/balances relating to those activities, are neither controlled nor administered.
Fees, commissions earned and expenses incurred in the course of rendering services as a trustee or through an agency arrangement are recognised as controlled transactions.
Transactions and balances relating to a trustee or an agency arrangement are not recognised as department revenues, expenses, assets or liabilities in this financial report.
2.6 Revenue
Revenues are recognised in the Statement of Financial Performance when it is probable that the inflow or other enhancement or saving in outflows of future economic benefits has occurred and can be measured reliably.
a) Revenues from Government
Appropriations, whether recurrent or capital, are recognised as revenues in the period in which the Department gains control of the appropriated funds. Except for any amounts identified as carried forward in Note 3, control arises in the period of appropriation.
b) Commonwealth Grants
Grants payable by the Australian Government are recognised as revenue when the Department gains control of the underlying assets. Where grants are reciprocal, revenue is recognised as performance occurs under the grant. Non-reciprocal grants are recognised as revenue when the grant is received or receivable. Conditional grants may be reciprocal or non-reciprocal depending on the terms of the grant.
c) User Charges
Amounts earned in exchange for the provision of goods and services are recognised when the good or service is provided.
d) Interest
Interest revenue is recognised as it accrues.
e) Taxation, Fees and Fines
Revenue from State taxation and from fees and fines is recognised upon the first occurrence of either:
receipt by the State of a Taxpayer’s self-assessed taxes and fees; or
the time the obligation to pay arises, pursuant to the issue of an assessment.
Interest is charged on outstanding amounts and is brought to account, where possible, on an accrual basis, otherwise as it is received. The collectability of debts is assessed at balance date and specific provision is made for doubtful debts.
f) Gross Proceeds from the Disposal of Assets
Revenue from the sale of non-current assets is recognised when control of the asset has passed to the buyer.
g) Resources Received Free of Charge
Services received free of charge by the Department are recognised as revenue when a fair value can be reliably determined and at the time the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.
h) Assets Assumed (Liabilities Transferred)
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 restructuring of administrative arrangements. In these circumstances, book values from the transferor Department may be used.
i) Other Revenue
Revenue from sources other than those identified above are recognised when it is probable that the inflow or other enhancement or saving in outflows of future economic benefits has occurred and can be measured reliably
j) Correction of Fundamental Errors
Fundamental errors, which render past financial reports unreliable, are disclosed separately on the face of the Statement of Financial Performance. The nature of the error is disclosed in the notes, as well as the amount of the correction relating to prior periods including, where practicable, a restatement showing the information that would have been recognised had the error not been made.
2.7 Expenses
Expenses are recognised in the Statement of Financial Performance when it is probable that the consumption or loss of future economic benefits resulting in a reduction in assets and/or an increase in liabilities has occurred and the consumption or loss of future economic benefits can be measured reliably.
a) Employee Entitlements
Employee entitlements include entitlements to wages and salaries, annual leave, long service leave, superannuation and other post-employment benefits.
b) Depreciation and Amortisation
All non-current assets having a limited useful life are systematically depreciated over their useful lives in a manner that reflects the consumption of their service potential. Depreciation on assets is provided for using the following rates and methods which are reviewed annually.
| Area | Estimated Useful Life (Years) | Depreciation Rate (Per Annum) | Method |
| Road Infrastructure | |||
| Long-life components | 100 | 1.00% | Straight Line |
| - Earthworks, drainage, landscape, project specific (services, sound mounds etc) | |||
| Medium life components | 40 | 2.50% | Straight Line |
| Pavement | |||
| Short-life components | 15 | 6.67% | Straight Line |
| Surfacing, traffic facilities | |||
| Bridge Infrastructure | |||
| Steel, Concrete | 70 | 1.43% | Parabolic |
| Timber | 25 | 4.00% | Parabolic |
| T-Beam | 50 | 2.00% | Parabolic |
| Historic | 250 | 0.40% | Parabolic |
| Major Structures | 100 | 1.00% | Parabolic |
| Traffic Signal Facilities | |||
| Cable | 50 | 2.00% | Straight Line |
| Above and below ground | 30 | 3.33% | Straight Line |
| Electronics | 5 | 20.00% | Straight Line |
| Buildings | 20 | 5.00% | Straight Line |
| Electrical and Office Equipment | 5 | 20.00% | Straight Line |
| Technical Equipment | 5 | 20.00% | Straight Line |
| Plant | 10 | 10.00% | Straight Line |
| Computer Hardware | 3 | 33.33% | Straight Line |
| Computer Software | 3 | 33.33% | Straight Line |
| Motor Vehicles | 5 | 20.00% | Straight Line |
| Marine Vessels and Equipment | 20 | 5.00% | Straight Line |
Road Infrastructure
Road assets have a limited useful life and are systematically depreciated over their useful lives in a manner which reflects the consumption of service potential embodied in those assets and which specifically recognises the varying useful lives of the identifiable components which comprise these roads. As detailed above the components of the road infrastructure have been grouped into three areas in terms of assigning an estimated useful life. Useful lives are based on analysis of historical data whilst also taking into account comparability with other State Road Authority practices.
Bridge Infrastructure
Bridges are depreciated systematically over their useful life having regard to their unique rate of deterioration. Bridge values are depreciated parabolically to reflect the greater depreciation towards the end of a bridge’s life, i.e.:
Present Value = Replacement Cost x (1-(age/life)2)
c) Grants and Subsidies
Grants are recognised to the extent that (i) the services required to be performed by the grantee have been performed or (ii) the grant eligibility criteria have been satisfied. A liability is recorded when the Department has a binding agreement to make the grants but services have not been performed or criteria satisfied. Where grant monies are paid in advance of performance or eligibility, a prepayment is recognised.
d) Written Down Value of Disposed Physical Assets
The written down value reflects the carrying value of the asset at the time of disposal.
e) Write Down of Assets
A revaluation decrement is recognised as an expense in the Statement of Financial Performance except to the extent that the decrement reverses a revaluation increment previously credited to, and still included in the balance of, an asset revaluation reserve in respect of that same class of asset. In this case, it is debited direct to that revaluation reserve.
Where an increment reverses a revaluation decrement previously recognised as an expense in the Statement of Financial Performance in respect of that same class of non-current assets, the revaluation decrement is recognised as revenue.
f) Resources Provided Free of Charge
Services provided free of charge by the Department, to another entity, are recognised as an expense when fair value can be reliably determined.
g) Correction of Fundamental Errors
See note 2.6 (j).
h) Other Expenses from Ordinary Activities
Expenses from activities other than those identified above are recognised in accordance with the general criteria noted above.
2.8 Assets
Assets are recognised in the Statement of Financial Position when it is probable that the future economic benefits embodied in the asset will eventuate and the asset possesses a cost or other value that can be measured reliably.
a) Cash on Hand and Deposit Accounts
Cash means notes, coins and deposits held at call with a bank or financial institution, as well as funds held in the Special Deposits and Trust Fund.
b) Receivables
Receivables are recognised at the amounts receivable as they are due for settlement. Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for doubtful debts is raised where some doubts exist as to collection.
c) Other Financial Assets
Investments are brought to account at the lower of cost and recoverable amount.
d) Other Assets
Assets other than those identified above are recognised in accordance with the general criteria noted above.
e) Property, plant, equipment, vehicles and infrastructure
(i) Valuation basis
Valuation of assets is undertaken in accordance with the Department of Treasury and Finance publication “Guidelines for the Recording, Valuation and Reporting of Non?Current Physical Assets in Tasmanian Government Departments” using historical cost accounting, with the exception that land, buildings, infrastructure, heritage and cultural assets are valued at their current value to the Department, determined by reference to the asset’s fair value.
Road Infrastructure
The Road Infrastructure valuation is based on replacement value written down to reflect present condition where this is not as ‘new’. Valuation occurs annually based on road condition surveys conducted in February/March of each financial year.
Road replacement cost is based on a unit rate per square metre of road carriageway area. This rate is then adjusted to reflect the additional factors which contribute significantly to the replacement cost. These factors are as follows:
land use;
traffic volumes; and
national highway as the Commonwealth Government demands a higher standard.
The relative importance of each factor is determined by a statistical analysis of recent road construction project costs.
The road replacement cost gives the cost to provide a new road of the existing standard.
Bridge Infrastructure
Bridge valuations have been based on replacement values calculated from base unit rates for different bridge types. Rates are indexed using ABS indexes for materials (ABS 6407.0) and labour (ABS 6345.0). No provision has been made for upgrading to current geometric or hydraulic standards. Anticipated lives have been assumed for different classes of structures as follows:
Class of Structure Anticipated Life (Years)
Steel, Concrete 70
Timber 25
T-Beam 50
Historic 250
Major Structures 100
The major structures are the Tasman, Bowen, Batman and Paterson Bridges, which are expected to have a longer life.
Reduced lives have been adopted where structures are temporary or in poor condition.
Land Under Roads and Within Road Reserves
Land under roads and within road reserves is valued at the Valuer-General’s average rateable value per hectare for the urban and non-urban sectors in each Local Government area. Average rateable value per hectare is supplied by the Valuer-General and is based on adjacent land use type.
Property Acquired for Roadworks
Expenditure on the acquisition of land and buildings acquired for roadworks is recognised in the accounts at settlement date and is capitalised until such time as formal possession of the property takes place for the purpose of commencing construction on the roadway.
Three methods of valuation for property and land purchased for infrastructure purposes are used by the Department which are:
Valuer-General Sale Valuation.
A sale valuation is obtained from the Valuer-General for properties that are intended to be sold in the near future. In most cases, these are the pieces of property that are left over as a result of the completion of a road construction project.
Valuer-General Rates Valuation.
The rates valuation is considered to be a reasonable valuation of properties held, mostly for future roadwork purposes.
Department of Infrastructure, Energy and Resources Valuation
This valuation is applied to properties that remain as a result of completion of the relevant road construction project, where the Valuer-General valuation is considered inappropriate. Due to factors such as non-accessibility, usefulness of land and marketability, the true value of a property may be close to zero when accounting for disposal costs or, in any case, significantly lower than the Valuer-General’s valuation.
Revaluations
(ii) Asset recognition threshold
In accordance with Treasurer’s Instructions, the asset capitalisation threshold adopted by the Department is $5,000. Assets valued at less than $5,000 are charged to the Statement of Financial Performance in the year of purchase.
(iii) Revaluations
Assets are revalued at least once in every 5 years with the following exceptions:
plant and equipment having a cost or revaluation less than the threshold of $50,000;
land and buildings that are to be utilised for future roadworks;
land remaining after the completion of the relevant roadworks project which is regarded as non-saleable due to, for example, limited or no access; and
transport infrastructure which is revalued annually based upon condition surveys conducted in February/March each year.
Assets are grouped on the basis of having a similar nature or function in the operations of the Department.
The recoverable amount test is not applicable to the Department of Infrastructure, Energy and Resources as its non-current assets are not held for the purpose of generating net cash inflows from services provided by the Department.
Those assets which are restricted by government directives or legislation are disclosed in the Statement of Financial Position as administered assets. The restriction on these assets includes the inability of the Department of Infrastructure, Energy and Resources to benefit from the asset in the pursuit of its objectives and to deny access of others to that benefit.
2.9 Liabilities
Liabilities are recognised in the Statement of Financial Position when it is probable that the future sacrifice of economic benefits will be required and the amount of the liability can be measured reliably.
a) Payables
Payables, including goods received and services incurred but not yet invoiced, are recognised when the Department becomes obliged to make future payments as a result of a purchase of assets or services.
b) Provisions for Employee Entitlements
Employee benefits include entitlements to wages and salaries, annual leave, sick leave, long service leave and superannuation benefits.
Liabilities for wages and salaries and annual leave are recognised and are measured as the amount unpaid at the reporting date at expected pay rates in respect of employees’ services up to that date. The liability for sick leave is not material and has not been recognised.
A liability for long service leave is recognised and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given, when assessing expected future payments, to expected future wage and salary levels plus on costs, experience of employee departures and periods of service. On-costs include payroll tax and employer superannuation contributions and exclude workers’ compensation premiums and fringe benefits tax. Expected future payments are discounted using interest rates attaching, as at the reporting date, to Commonwealth Government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows. The Department uses reliable estimations based on the process outlined above to determine its Long Service Leave Provision.
c) Superannuation
No superannuation liability is recognised for the accruing superannuation benefits of departmental employees. This liability is held centrally and recognised within the Finance-General Division of the Department of Treasury and Finance.
During the reporting period, the Department paid 11 percent of salary in respect of contributory members of the Retirement Benefits Fund into the Superannuation Provision Account within the Special Deposits and Trust Fund. The Department paid the appropriate Superannuation Guarantee Charge into the nominated superannuation fund in respect of non-contributors. Under these arrangements the Department has no further superannuation liability for the past service of its employees.
d) Other Liabilities
Liabilities other than those identified above are recognised in accordance with the general criteria noted above.
2.10 Leases
The Department of Infrastructure, Energy and Resources does not enter into finance leases.
The Department has entered into a number of operating lease agreements for buildings and office equipment, where the lessors effectively retain all of the risks and benefits incidental to ownership of the items leased. Equal instalments of lease payments are charged to the Statement of Financial Performance over the lease term as this is representative of the pattern of benefits to be derived from the leased property.
2.11 Comparative Figures
Comparative figures have been adjusted to conform to changes in presentation in these financial statements where required.
2.12 Rounding
All amounts in the financial statements have been rounded to the nearest thousand dollars unless otherwise stated.
2.13 Departmental Taxation
The Department is exempt from all forms of taxation except fringe benefits tax, payroll tax and the goods and services tax.
In the Statement of Cash Flows the GST component of cash flows arising from investing or financing activities which is recoverable from, or payable to, the Australian Taxation Office is, in accordance with the Australian Accounting Standards, classified as operating cash flows.
