Summary of Significant Accounting Policies

The Department of Sustainability, Environment, Water, Population and Communities (DSEWPaC / the Department) is an Australian Government controlled entity. It is a not-for-profit entity. The objective of the Department is to advance a sustainable Australia focussing on environment, water, heritage and communities.

The Department is structured to meet the following outcomes:

• 
  the transfer of housing affordability matters from DSEWPaC to the Department of Families, Housing, Community Services and Indigenous Affairs; and
  
• 
  the transfer of housing supply policy matters from DSEWPaC to the Department of the Treasury.
  

The continued existence of the Department in its present form and with its present programs is dependent on Government policy and on continuing funding by Parliament for the Department’s administration and programs.

The Department’s activities contributing toward these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income 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’s activities are identified under ten Programs. The relationship of Programs to Outcomes is as follows:

The financial statements are general purpose financial statements and are required by section 49 of the Financial Management and Accountability Act 1997.

The financial statements have been prepared in accordance with:

• 
  Finance Minister’s Orders (FMOs) for reporting periods ending on or after 1 July 2011; and
  
• 
  Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.
  

The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.

Unless an alternative treatment is specifically required by an accounting standard or the FMOs, assets and liabilities are recognised in the balance sheet when and only when it is probable that future economic benefits will flow to the Department or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under executor contracts are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the schedule of commitments or the schedule of contingencies.

Unless alternative treatment is specifically required by an accounting standard, income and expenses are recognised in the Statement of Comprehensive Income when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

In the process of applying the accounting policies listed in this note, the Department has made the following estimates and judgements that have the most significant impact on the amounts recorded in the financial statements:

• 
  The estimated values for make good provisions and related assets have been arrived at on a reasonableness basis.
  
• 
  Water entitlements are carried at cost where there is no active market. When an active market exists they are carried at fair value.
  

No accounting standard has been adopted earlier than the application date as stated in the standard.

The following amending standards were issued prior to the sign-off date, were applicable to the current reporting period and did not have a financial impact on the Department. They are disclosed to provide users with information about the main changes and why there is no impact:

AASB 124: Related Party Disclosure (issued December 2009)

This Standard simplifies the definition of a related party, clarifies its intended meaning and eliminates inconsistencies from the definition. A partial exemption is provided from the disclosure requirements for government-related entities. Entities that are related by virtue of being controlled by the same government can provide reduced related party disclosures.

This Standard makes amendments to a range of Australian Accounting Standards and Interpretations for the purpose of closer alignment to IFRSs and harmonisation between Australian and New Zealand Standards. The subjects of these amendments to the Standard include:

Australian Accounting Standard or Interpretation	Subject of amendment
AASB 101 Presentation of Financial Statements	The main amendments are: Deletion of disclosure requirements relating to capital and expenditure commitments. However, the FMOs still require disclosure of commitments. Deletion of a number of Australian-specific guidance. Relocation to AASB 1054 Australian Additional Disclosures of a number of Australian-specific disclosure requirements.
AASB 107 Statement of Cash Flows	Relocation to AASB 1054 of the disclosure requirement relating to reconciliation of net operating cash flow to profit or loss.

The following new and amending standards were issued by the Australian Accounting Standards Board prior to the sign-off date, are not expected to have a financial impact on the Department for future reporting periods. They are disclosed to provide users with information about the main changes and why there is no impact:

This Standard includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the IASB's project to replace AASB 139 Financial Instruments: Recognition and Measurement. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are: financial assets are classified based on (a) the objective of the entity's business model for managing the financial assets; and (b) the characteristics of the contractual cash flows. This replaces the categories of financial assets in AASB 139, each of which had its own classification criteria. AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Financial assets can be designated and measured at fair value through profit or loss at initial recognition, if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

This Standard has been released as a result of the International Accounting Standards Board (IASB)’s project to ensure consistency of fair value measurement and disclosure within financial statements. AASB 13 defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements. The definition of fair value focuses on assets and liabilities because they are a primary subject of accounting measurement.

This Standard makes amendments to twenty one Australian Accounting Standards and six Interpretations. These amendments arise from the issuance of AASB 9 Financial Instruments as issued in December 2010. When applied or operative, this Standard supersedes AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 issued in December 2009. However, for annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2013, an entity may elect to apply AASB 9 issued in December 2009 instead of applying AASB 9 (December 2010) and therefore will apply the amendments to other Australian Accounting Standards in AASB 2009-11 instead of this Standard.

This Standard replaces the existing definition and fair value guidance in other Australian Accounting Standards and Interpretations to ensure consistency with AASB 13 Fair Value Measurement. AASB 13 establishes a new definition of "fair value" and general requirements when measuring the fair value of assets and liabilities.

The main change resulting from the amendments is a requirement to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). These amendments do not remove the option to present profit or loss and other comprehensive income in two statements. The subjects of these amendments to the Standard which may affect the presentation of the financial statements include:

Australian Accounting Standard

Subject of amendment

AASB 101 Presentation of Financial Statements

A single statement of profit or loss and other comprehensive income may be presented, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section. The profit or loss section may be presented in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss.

This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards; and (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements. Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements.

The following entities apply Tier 1 requirements in preparing general purpose financial statements: for-profit entities in the private sector that have public accountability (as defined in this Standard) and the Australian Government and State, Territory and Local Governments.

The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: for-profit private sector entities that do not have public accountability; all not-for-profit private sector entities; and public sector entities other than the Australian Government and State, Territory and Local Governments.

Whilst Tier 2 requirements would be available to all not-for-profit private sector entities and most public sector entities, regulators might exercise a power to require the application of Tier 1 requirements by the entities they regulate. In the case of Commonwealth agencies and authorities, the Department of Finance and Deregulation is the regulator and could provide authorisation through the FMOs.

Other new standards, revised standards, interpretations and amending standards that were issued prior to the sign-off date and are applicable to the future reporting period are not expected to have a future financial impact on the Department.

Subsection 43(1) of the Natural Heritage Trust of Australia Act 1997 requires financial statements to be prepared for the Natural Heritage Trust of Australia Account (NHT). Reporting by the NHT reflects the NHT as a separate reporting entity, with all transactions between the NHT and parties outside the NHT being reported.

Reporting of the NHT as part of the Department’s administered disclosure in these financial statements takes account of the treatment of administered items as a whole and the administered presentation rules as prescribed in the FMOs. The financial statements of the NHT are consolidated into the Department's administered financial statements. Where accounting policies and disclosure requirements differ between the NHT and the Department adjustments are made on consolidation to bring any dissimilar accounting policies and disclosures into alignment.
1.6 Revenue

Revenue from the sale of goods is recognised when:

1. 
   the risks and rewards of ownership have been transferred to the buyer;
   
2. 
   the Department retains no managerial involvement or effective control over the goods;
   
3. 
   the revenue and transaction costs incurred can be reliably measured; and
   
4. 
   it is probable that the economic benefits associated with the transaction will flow to the Department.
   

1. 
   the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
   
2. 
   the probable economic benefits associated with the transaction will flow to the Department.
   

Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance account. Collectability of debts is reviewed at end of the reporting period. Allowances are made when collectability of the debt is no longer probable.

Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.

Revenue from Government

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the Department gains control of the appropriation, 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. Appropriations receivable are recognised at their nominal amounts.

Resources 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.

Resources received free of charge are recorded as either revenue or gains depending on their nature.

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 entity as a consequence of a restructuring of administrative arrangements (Refer to Note 1.8).

Gains from disposal of assets are recognised when control of the asset has passed to the buyer.

Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets (DCBs) are recognised directly in contributed equity in that year.

Net assets received from or relinquished to another Government entity under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.

The FMOs require that distributions to owners be debited to contributed equity unless in the nature of a dividend. In 2011-12, by agreement with the Department of Finance and Deregulation, the Department relinquished control of surplus appropriation funding of $496,000 which was returned to the Official Public Account (2010-11: $5,886,000).

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve months of the end of reporting period are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Other long-term employee benefits are measured as net total of the present value of the defined benefit obligation at the end of the reporting period minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.

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 the Department is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the Department’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 an actuary as at 30 June 2011 and using updated discount factors provided by the actuary as at 30 June 2012. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Provision is made for separation and redundancy benefit payments. The Department recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

The Department’s staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap), the Australian Government Employees Superannuation Trust (AGEST) or other superannuation schemes held outside the Commonwealth.

The CSS and PSS are defined benefit schemes for the Australian Government. 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. This liability is reported by the Department of Finance and Deregulation’s administered schedules and notes.

The Department makes employer contributions to the employees’ superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. The Department accounts for the contributions as if they were contributions to defined contribution plans.

The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.