Professional Services Review Annual Report 2004–05

• Contents
• Letter of Transmittal
• Director’s report
• 2004–05 Key events at a glance
• 1. Agency overview
• 2. Report on performance
• 3. Management and accountability
• Appendixes
  • Independent Audit Report
  • Statement by the Chief Executive Officer
  • Appendix 1: Financial statements
    • Statement of Financial Performance for the Year Ended 30 June 2005
    • Statement of Financial Position as at 30 June 2005
    • Statement of Cash Flows for the Year Ended 30 June 2005
    • Schedule of Commitments as at 30 June 2005
    • Schedule of Contingencies as at 30 June 2005
    • Notes to and Forming Part of the Financial Statements as at 30 June 2005
    • Note 1–Summary of Significant Accounting Policies
    • Note 2–Adoption of Australian Equivalents to International Financial Reporting Standards from 2005-2006
    • Note 3–Events Occurring after Reporting Date
    • Note 4–Operating Revenues
    • Note 5–Operating Expenses
    • Note 6–Financial Assets
    • Note 7–Non-Financial Assets
    • Note 8–Provisions
    • Note 9–Payables
    • Note 10–Equity
    • Note 11–Cash Flow Reconciliation
    • Note 12–Contingent Liabilities and Assets
    • Note 13–Executive Remuneration
    • Note 14–Remuneration of Auditors
    • Note 15–Average Staffing Levels
    • Note 16–Financial Instruments
    • Note 17–Appropriations
    • Note 18–Specific Payment Disclosures
    • Note 19–Reporting of Outcomes
  • Appendix 2: Freedom of information statement
  • Appendix 3: Legislative overview
• Glossary

Appendixes

Appendix 1: Financial statements

Note 2–Adoption of Australian Equivalents to International Financial Reporting Standards from 2005-2006

The Australian Accounting Standards Board has issued replacement Australian Accounting Standards to apply from 2005–06. The new standards are the Australian Equivalents to International Financial Reporting Standards (AEIFRS). The International Financial Reporting Standards are issued by the International Accounting Standards Board. The new standards cannot be adopted early. The standards being replaced are to be withdrawn with effect from 2005–06, but continue to apply in the meantime, including reporting periods ending on 30 June 2005.

The purpose of issuing AEIFRS is to enable Australian reporting entities reporting under the Corporations Act 2001 to be able to more readily access overseas capital markets by preparing their financial reports according to accounting standards more widely used overseas.

For-profit entities complying with AEIFRS will be able to make an explicit and unreserved statement of compliance with International Financial Reporting Standards (IFRS) as well as a statement that the financial report has been prepared in accordance with Australian Accounting Standards.

AEIFRS contain certain additional provisions that will apply to not-for-profit entities, including Australian Government agencies. Some of these provisions are in conflict with IFRS, and therefore Professional Services Review will only be able to assert that the financial report has been prepared in accordance with Australian Accounting Standards.

AAS 29 Financial Reporting by Government Departments will continue to apply under AEIFRS.

Accounting Standard AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards requires that the financial statements for 2004–05 disclose:

• an explanation of how the transition to AEIFRS is being managed;
• narrative explanations of the key policy differences arising from the adoption of AEIFRS;
• any known or reliably estimable information about the impacts on the financial report had it been prepared using AEIFRS; and
• if the impacts of the above are not known or reliably estimable, a statement to that effect.

Where an entity is not able to make a reliable estimate, or where quantitative information is not known, the entity should update the narrative disclosures of the key differences in accounting policies that are expected to arise from the adoption of AEIFRS.

The purpose of this Note is to make these disclosures.

Management of the transition to AEIFRS

Professional Services Review has taken the following steps for the preparation towards the implementation of AEIFRS:

• Professional Services Review’s Audit Committee is tasked with oversight of the transition to and implementation of AEIFRS. The Chief Finance Officer is formally responsible for the project and reports regularly to the Audit Committee on progress against the formal plan approved by the Committee.
• The plan requires the following key steps to be undertaken and sets deadlines for their achievement:
  • All major accounting policy differences between current AASB standards and AEIFRS were identified.
  • System changes necessary to be able to report under the AEIFRS, including those necessary to capture data under both sets of rules for 2004–05 were completed.
    This included the testing and implementation of those changes.
  • A transitional balance sheet as at 1 July 2004 under AEIFRS was completed and presented to the Audit Committee.
  • An AEIFRS compliant balance sheet as at 30 June 2005 was also prepared during the preparation of the 2004–05 statutory financial reports.
  • The 2004–05 Balance Sheet under AEIFRS will be reported to the Department of Finance and Administration in line with their reporting deadlines.
• The plan also addresses the risks to successful achievement of the above objectives and includes strategies to keep implementation on track to meet deadlines.
• Consultants were engaged where necessary to assist with each of the above steps.

Major changes in accounting policy

Professional Services Review believes that the first financial report prepared under AEIFRS i.e. at 30 June 2006, will be prepared on the basis that Professional Services Review will be a first time adopter under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. Changes in accounting policies under AEIFRS are applied retrospectively i.e. as if the new policy had always applied except in relation to the exemptions available and prohibitions under AASB 1. This means that an AEIFRS compliant balance sheet has to be prepared as at 1 July 2004. This will enable the 2005–06 financial statements to report comparatives under AEIFRS.

A first time adopter of AEIFRS may elect to use exemptions under paragraphs 13 to 25E. When developing the accounting policies applicable to the preparation of the 1 July opening balance sheet, no exemptions were applied by Professional Services Review.

The results of Professional Services Review’s analysis of the impact of AEIFRS policies found that there were no accounting policy changes that would have a material impact on the 2004–05 Balance Sheet. The most significant change as a result of the implementation of AEIFRS was in relation to employee entitlements and is detailed below.

1.    Employee Entitlements

The 2003–04 financial report noted that the AEIFRS standards may require the market yield on corporate bonds to be used. The AASB has decided that a deep market in high quality corporate bonds does not exist and therefore national government bonds will be referenced.

AEIFRS require that annual leave that is not expected to be taken within 12 months of balance date is to be discounted. After assessing the staff leave profile, Professional Services Review have estimated the financial impact of discounting the non current portion of annual leave to be $500. This is not considered to be material and hence, the balances recorded for employee entitlements within the 2004–05 financial year will not be changed as a result of the implementation of AEIFRS.

2.    Impairment of Intangibles and Property, Plant and Equipment

Professional Services Review’s policy on impairment of non-current assets is at Note 1.11.

Under AEIFRS these assets will be subject to assessment for impairment and, if there are indications of impairment, an assessment of the degree of impairment. (Impairment measurement must also be done, irrespective of any indications of impairment, for intangible assets not yet available for use). The impairment test is that the carrying amount of an asset must not exceed the greater of (a) its fair value less costs to sell and (b) its value in use. ‘Value in use’ is the net present value of net cash inflows for cash generating units of Professional Services Review and depreciated replacement cost for other assets which would be replaced if Professional Services Review were deprived of them.

The most significant changes are that, for Professional Services Review’s cash generating units, the recoverable amount is only generally to be measured where there is an indication of impairment. Previously all assets’ recoverable amount was tested.

However, an impairment assessment of the agency’s assets indicated that no adjustments will be required.

3.    Financial Instruments

AEIFRS include an option for entities not to restate comparative information in respect of financial instruments in the first AEIFRS report. It is expected that Finance Minister’s Orders will require entities to use this option. Therefore, the amounts for financial instruments presented in the Professional Services Review’s 2004–05 primary financial statements are not expected to change as a result of the adoption of AEIFRS.

Professional Services Review will be required by AEFIRS to review the carrying amounts of financial instruments at 1 July 2005 to ensure they align with the accounting policies required by AEIFRS. It is expected that the carrying amounts of financial instruments held by Professional Services Review will not materially change as a result of this process.

Reconciliation of Impacts – AGAAP to AEIFRS

As a result of the implementation of AEIFRS no material changes have been identified to the financial statements that Professional Services Review is reporting under Australian Accounting Standards for 30 June 2005. Consequently, a table which reconciles the balances under Australian Accounting Standards to those that will be utilised under AEIFRS has not been provided as no differences exist.