Notes to and forming part of the Financial Statements
Note 1: Summary of Significant Accounting Policies
1.1 Objective 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.
Professional Services Review reports under the single outcome of 'Australians are protected from meeting the cost and associated risks of inappropriate practice of health service providers' and it also reports under the single output group - Program Management.
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 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 1 July 2005));
- Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period; and
- Interpretations issued by the AASB and Urgent Issues Group that apply for the reporting period.
This is the first financial report to be prepared under Australian Equivalents to International Financial Reporting Standards (AEIFRS). The impacts of adopting AEIFRS are disclosed in Note 2.
The Income Statement and Balance Sheet have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets and liabilities, which as noted, are at fair value or amortised cost. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.
The financial report is presented in Australian dollars and the full amount has been disclosed.
Unless alternative treatment is specifically required by an accounting standard, assets and liabilities are recognised in the Balance Sheet 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).
Unless alternative treatment is specifically required by an accounting standard, revenues and expenses are recognised in the Income Statement when and only when the flow or consumption or loss of economic benefits has occurred and can be reliably measured.
1.3 Statement of Compliance
The financial report complies with Australian Accounting Standards, which include AEIFRS.
Australian Accounting Standards require Professional Services Review to disclose Australian Accounting Standards that have not been applied, for standards that have been issued but are not yet effective.
The AASB has issued amendments to existing standards, these amendments are denoted by year and then number, for example 2005-1 indicates amendment 1 issued in 2005.
The table below illustrates standards and amendments that will become effective for Professional Services Review in the future. The nature of the impending change within the table, has been out of necessity abbreviated and users should consult the full version available on the AASB's website to identify the full impact of the change. The expected impact on the financial report of adoption of these standards is based on Professional Services Review's initial assessment at this date, but may change. Professional Services Review intends to adopt all standards upon their application date.
| Title | Standard affected | Application date* | Nature of impending change | Impact expected on financial report |
|---|---|---|---|---|
| 2005-4 | AASB 139, AASB 132, AASB 1, AASB 1023 and AASB 1038 | 1-Jan-06 | Amends AASB 139, AASB 1023 and AASB 1038 to restrict the option to fair value through profit or loss and makes consequential amendments to AASB 1 and AASB 132. | No expected impact. |
| 2005-5 | AASB 1 and AASB 139 | 1-Jan-06 | Amends AASB 1 to allow an entity to determine whether an arrangement is, or contains, a lease. | No expected impact. |
| Amends AASB 139 to scope out a contractual right to receive reimbursement (in accordance with AASB 137) in the form of cash. | ||||
| 2005-10 | AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 and AASB 1038 | 1-Jan-07 | Amended requirements subsequent to the issuing of AASB 7. | No expected impact. |
| 2006-1 | AASB7 Financial Instruments: Disclosures | 1-Jan-07 | Revise the disclosure requirements for financial instruments from AASB 132 requirements. | No expected impact. |
- * Application date is for annual reporting periods beginning on or after the date shown
1.4 Revenue
Revenues from Government
Amounts appropriated for Departmental outputs appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue, except for certain amounts which 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 Revenue
Revenue from the sale of goods is recognised when:
- The risks and rewards of ownership have been transferred to the buyer;
- The seller retains no managerial involvement nor effective control over the goods;
- The revenue 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.
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
- The probable economic benefits 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 provision for bad and doubtful debts. Collectability of debts is reviewed at balance date. Provisions are made when collectability of the debt is no longer probable.
Dividends are recognised when the right to receive payment is established.
Interest revenue is recognised using the effective interest method as set out in AASB 139.
1.5 Gains
Resources Received Free of Charge
Services received free of charge are recognised as gains 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 gains 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 1.6).
Other Gains
Gains from disposal of non-current assets is recognised when control of the asset has passed to the buyer.
1.6 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 Commonwealth agency or authority under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.
1.7 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) and termination benefits due within 12 months of balance date are measured at their nominal amounts. The liability for wages and salaries recognised as at 30 June represent outstanding contributions for the final day of the year.
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.
Leave
The liability for employee benefits includes provision for annual leave and long service leave. No provision have 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 agency is estimated to be less than the annual entitlement for sick leave. In the case of program support unit staff at posts, where the entitlement is vested, a liability has been recognised.
The leave liabilities are calculated on the basis of employees' remuneration, including the agency'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 long service leave has been determined by reference to the work of the Australian Government Actuary as at 30 June 2006. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.
Superannuation
Staff of Professional Services Review are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).
The CSS and PSS are defined benefit schemes for the Commonwealth. The PSSap is a defined contribution scheme.
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. Where required Professional Services Review contributes superannuation to comply with local labour laws.
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.
From 1 July 2005, new employees are eligible to join the PSSap scheme.
The liability for superannuation recognised as at 30 June represents outstanding contributions for the final day of the year.
1.8 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 rewards incidental to ownership of leased non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.
Professional Services Review does not have any finance leases.
Operating lease payments are expensed on a straight line basis, which 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-cancellable lease agreements is expensed in the period in which the space becomes surplus.
1.9 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.
1.10 Financial Risk Management
Professional Services Review activities expose it to normal commercial financial risk. As a result of the nature of Professional Services Review's business and internal and Australian Government policies, dealing with the management of financial risk, Professional Services Review exposure to market, credit, liquidity and cash flow and fair value interest rate risk is considered to be low.
1.11 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).
1.12 Contingent Liabilities and Contingent Assets
Contingent Liabilities and Assets are not recognised in the Balance Sheet but are discussed in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or 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 or asset is recognised. A liability or asset is recognised when its existence is confirmed by a future event, settlement becomes probable (virtually certain for assets) or reliable measurement becomes possible.
1.13 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.
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.
1.14 Infrastructure, Plant and Equipment
Asset Recognition Threshold
Purchases of infrastructure, 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 in total).
The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to 'makegood' provisions in property leases taken up by Professional Services Review where there exists an obligation to restore the property to its original condition. These costs are included in the value of Professional Services Review's leasehold improvements with a corresponding provision for 'makegood' taken up.
Basis
Infrastructure, plant and equipment are carried at valuation. Revaluations undertaken up to 30 June 2002 were done on a deprival basis; revaluations since that date are at fair value. This accounting policy is required by Australian Accounting Standard AASB 1041 Revaluation of Non-Current Assets. Valuations undertaken as at 30 June 2005.
Fair values for each class of asset are determined as shown below.
| Asset Class | Fair Value measured at: |
|---|---|
| Lease Improvement | Market selling price |
| Plant and Equipment | Market selling price |
Plant and equipment assets are subject to a formal revaluation every three years. Formal valuations are carried out by an independent qualified valuer. In between formal valuations, Infrastructure, Plant and Equipment assets are revalued using an appropriate index reflecting movements in the value of similar assets.
Leasehold improvements subject to formal valuations are each revalued progressively on a geographical basis. In between formal valuations, these assets are revalued using an appropriate index reflecting movements in the value of similar assets.
All valuations are conducted by an independently qualified valuer.
Depreciation
Depreciable infrastructure, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to Professional Services Review 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:
| 2006 | 2005 | |
|---|---|---|
| Leasehold Improvements | Lease term | Lease term |
| Plant and Equipment | 3 to 25 years | 3 to 25 years |
The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 6C.
1.15 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. At reporting date all Leasehold Improvements, Infrastructure, Plant and Equipment were valued at fair value.
The non-current assets carried at cost, which are not held to generate cash inflows, have been assessed for indications of impairment. Where indications of impairment exist, the carrying amount of the asset is compared to the higher of its net selling price and depreciated replacement cost and is written down to that value if greater.
1.16 Intangibles
Professional Services Review's intangibles comprise internally developed and commercially purchased software packages for internal use. These assets are carried at cost.
Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of Professional Services Review's software is 5 to 10 years (2003-04: 5 to 10 years).
All software assets were assessed for impairment as at 30 June 2006. None were found to be impaired.
1.17 Taxation
The Agency 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 Tax Office; and
- except for receivables and payables.
1.18 Insurance
Professional Services Review has insured for risks through the government's insurable risk managed fund, called 'Comcover'. Workers compensation is insured through Comcare Australia.