Appendixes
Appendix 1: Financial statements
Note 1–Summary of Significant Accounting Policies
1.1 Objectives of Professional Services Review
The objective of Professional Services Review is to examine health practitioners’ conduct to ascertain whether or not they have practiced inappropriately in relation to services which attract Medicare rebates or have prescribed inappropriately under the Pharmaceutical Benefits Schedule.
The continued existence of Professional Services Review in its present form and with its present programs is dependent on Government policy and on continuing appropriations by Parliament for Professional Services Review’s administration and programs.
1.2 Basis of Accounting
The financial statements are required by section 49 of the Financial Management and Accountability Act 1997 and are a general-purpose financial report.
The statements have been prepared in accordance with:
- Finance Minister’s Orders (or FMOs, being the Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 30 June 2005));
- Australian Accounting Standards and Accounting Interpretations issued by the Australian Accounting Standards Board; and
- Consensus Views of the Urgent Issues Group.
The Statements of Financial Performance and Financial Position have been prepared on an accrual basis and are in accordance with historical cost convention, except for certain assets, which, as noted, are at valuation. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.
Assets and liabilities are recognised in the Statement of Financial Position when and only when it is probable that future economic benefits will flow and the amounts of the assets or liabilities can be reliably measured. 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 (other than unquantifiable or remote contingencies, which are reported at Note 12).
Revenues and expenses are recognised in the Statement of Financial Performance when and only when the flow or consumption or loss of economic benefits has occurred and can be reliably measured.
1.3 Revenue
(a) Revenues from Government
Amounts appropriated for agency outputs appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue, 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.
(b) Resources Received Free of Charge
Services received free of charge are recognised as revenue when and only when a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.
Contributions of assets at no cost of acquisition or for nominal consideration are recognised as revenue 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 1.4).
(c) Other Revenue
Revenue from the sale of goods is recognised upon the delivery of goods to customers.
Revenue from rendering of services is recognised by reference to the stage of completion of contracts or other agreements to provide services. The stage of completion is determined according to the proportion that costs incurred to date bear to the estimated total costs of the transaction.
Receivables for goods and services are recognised at the nominal amounts due less any provision for bad and doubtful debts. Collectability of debts is reviewed at balance date. Provisions are made when collectability of the debt is judged to be less rather than more likely.
Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the relevant asset.
Revenue from disposal of non-current assets is recognised when control of the asset has passed to the buyer.
1.4 Transactions with the Government as Owner
(a) Equity injections
Amounts appropriated which are designated as ‘equity injections’ for a year (less any savings offered up in Portfolio Additional Estimates Statements) are recognised directly in Contributed Equity in that year.
(b) 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.
1.5 Employee Benefits
Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.
Liabilities for wages and salaries (including non-monetary benefits), annual leave and sick leave are measured at their nominal amounts. Other employee benefits expected to be settled within 12 months of the reporting date are also measured at their nominal amounts.
The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.
All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.
(a) 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 Professional Services Review estimated to be less than the annual entitlement for sick leave.
The leave liabilities are calculated on the basis of employees’ remuneration, including Professional Services Review employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.
The liability for long service leave has been determined by reference to the work of an actuary as at 30 June 2005. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.
(b) Separation and Redundancy
Provision is made for separation and redundancy benefit payments. Professional Services Review has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.
(c) Superannuation
Professional Services Review staff are members of the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. The liability for their superannuation benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course.
Professional Services Review makes employer contributions to the Australian Government at rates determined by an actuary to be sufficient to meet the cost to the Government of the superannuation entitlements of Professional Services Review’s employees.
The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.
1.6 Leases
A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets. 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 the present value of minimum lease payments at the beginning of the lease term and a liability 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.
Operating lease payments are expensed on a basis that is representative of the pattern of benefits derived from the leased assets. The net present value of future net outlays in respect of surplus space under non-cancelable lease agreements is expensed in the period in which the space becomes surplus.
Lease incentives taking the form of ‘free’ leasehold improvements are recognised as liabilities. These liabilities are reduced by allocating lease payments between rental expense and reduction of the liability.
1.7 Cash
Cash means notes and coins held and any deposits held at call with a bank or financial institution. Cash is recognised at its nominal amount.
1.8 Other Financial Instruments
Government loans are carried at the balance yet to be repaid. Interest is expensed as it accrues unless it is directly attributable to a qualifying asset.
(a) Trade Creditors
Trade creditors and accruals are recognised at their nominal amounts, being the amounts at which the liabilities will be settled. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).
(b) Contingent Liabilities and Contingent Assets
Contingent liabilities (assets) are not recognised in the Statement of Financial Position but are discussed in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability (asset), or represent an existing liability (asset) in respect of which settlement is not probable or the amount cannot be reliably measured. Remote contingencies are part of this disclosure. Where settlement becomes probable, a liability (asset) is recognised. A liability (asset) is recognised when its existence is confirmed by a future event, settlement becomes probable or reliable measurement becomes possible.
1.9 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 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.
1.10 Property, Plant and Equipment (PP&E)
(a) Asset Recognition Threshold
Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).
(b) Revaluations
(i) Basis
Land, buildings, plant and equipment are carried at valuation, being revalued annually with sufficient frequency such that the carrying amount of each asset class is not materially different, at reporting date, from its fair value. Valuations were undertaken in as at 30 June 2005.
Fair values for each class of asset are determined as shown below.
| Asset class | Fair value measured at: |
|---|---|
| Leasehold improvements | Depreciated replacement cost |
| Plant & equipment | Market selling price |
(ii) Depreciation
Depreciable property plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Agency using, in all cases, the straight-line method of depreciation. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.
Depreciation rates (useful lives) and methods are reviewed at each reporting 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 applying to each class of depreciable asset are based on the following useful lives:
| 2005 | 2004 |
|---|---|
| Lease term | Lease term |
| 4 to 9 years | 3 to 7 years |
The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 5C.
1.11 Impairment of Non-Current Assets
Non-current assets carried at up to date fair value at the reporting date are not subject to impairment testing.
1.12 Intangibles
Professional Services Review’s intangibles comprise purchased software which is carried at cost.
Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of Professional Services Review software is 5 years (2003–04: 5 years).
1.13 Inventories
No inventories were held for resale at Professional Services Review during 2004–05.
1.14 Taxation/Competitive Neutrality
Professional Services Review is exempt from all forms of taxation except fringe benefits tax 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 recoverable from the Australian Taxation Office; and
- except for receivables and payables.
Competitive Neutrality
Professional Services Review did not provide services on a for-profit basis in 2004–05.