Annual Report 2018-19

The commission is exposed to risk from its activities and outside factors. In addition, it is often necessary to make judgements and estimates associated with recognition and measurement of items in the financial statements. This section sets out financial instrument specific information, (including exposures to financial risks) as well as those items that are contingent in nature or require a higher level of judgement to be applied, which for the commission related mainly to fair value determination.

8.1. Financial instruments specific disclosures 8.1.1. Categorisation of financial instruments 8.1.2. Net holding gain/(loss) on financial instruments by category 8.1.3. Financial risk management objectives and policies 8.2. Contingent assets and contingent liabilities

8.1. Financial instruments specific disclosures

Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of the commission’s activities, certain financial assets and financial liabilities arise under statute rather than a contract. Such financial assets and financial liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation. For example, statutory receivables arising do not meet the definition of financial instruments as they do not arise under contract.

From July 2018, the commission applies AASB 9 Financial Instruments and classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms.

Categories of financial assets under AASB 9

Financial assets at amortised cost

Financial assets are measured at amortised costs if both of the following criteria are met and the assets are not designated as fair value through net result:

• the assets are held by the commission to collect the contractual cash flows, and
• the assets’ contractual terms give rise to cash flows that are solely payments of principal and interests.

These assets are initially recognised at fair value plus any directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method less any impairment.

The commission recognises the following assets in this category:

• Debtors

Categories of financial assets previously under AASB 139

Loans and receivables

Loans and receivables are financial instrument assets with fixed and determinable payments that are not quoted on an active market. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, loans and receivables are measured at amortised cost using the effective interest method, less any impairment.

Loans and receivables category includes cash and deposits, trade receivables and loans, but not statutory receivables.

Categories of financial liabilities under AASB 9 and previously under AASB 139

Financial liabilities at amortised cost

Financial instrument liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the interest-bearing liability, using the effective interest rate method.

Financial instrument liabilities measured at amortised cost include all of the Commission’s contractual payables and interest-bearing arrangements other than those designated at fair value through profit or loss.

Offsetting financial instruments

Financial instrument assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Commission concerned has a legal right to offset the amounts and intend either to settle on a net basis or to realise the asset and settle the liability simultaneously.

8.1.1. Categorisation of financial instruments

			Carrying amount
Financial assets	Note	Category	2019 $	2018 $
Receivables*	6.1	Financial assets at amortised cost	3,740	-
			3,740	-
Financial liabilities
Payables	6.2	Financial liabilities at amortised cost	1,864,051	1,440,255
Finance lease liability		Financial liabilities at amortised cost	42,995	58,711
			1,907,046	1,498,966

 

8.1.2. Net holding gain/(loss) on financial instruments by category

Financial liabilities
Finance lease liability		Financial liabilities at amortised cost	(439)	(2,421)
			(439)	(2,421)

 

*Receivables disclosed here exclude statutory receivables (i.e. amounts receivable from government departments and GST recoverable).

 

The net holding gains or losses disclosed relate to interest expense and are measured at amortised cost.

8.1.3. Financial risk management objectives and policies

Financial instruments: Credit risk

Credit risk arises from the financial assets of the Commission, which comprise cash, and trade and other receivables. The Commission’s exposure to credit risk arises from the potential default of counterparties on their contractual obligations resulting in financial loss to the Commission. Credit risk is measured at fair value and is monitored on a regular basis.

Credit risk associated with the Commission’s financial assets is insignificant because the main debtor is the Victorian Government. For debtors other than government, it is the Commission’s policy to only deal with entities with high credit ratings and to obtain sufficient collateral or credit enhancements where appropriate. The Commission does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Commission’s maximum exposure to credit risk without taking account of the value of any collateral obtained.

Financial instruments: Liquidity risk

Liquidity risk arises when the Commission is unable to meet its financial obligations as they fall due. The Commission operates under the Victorian Government’s fair payments policy of settling financial obligations within 30 days and in the event of a dispute, making payments within 30 days from the date of resolution.

The Commission’s exposure to liquidity risk is deemed insignificant based on prior periods’ data and current assessment of risk. Maximum exposure to liquidity risk is the carrying amounts of financial liabilities. The Commission manages its liquidity risk by maintaining an adequate level of uncommitted funds that can be drawn at short notice to meet its short term obligations.

Financial Instruments: Market risk

The Commission has no exposure to interest rate, foreign currency or other price risks. Interest rates on the Commission’s finance lease liabilities are fixed.

8.2. Contingent assets and contingent liabilities

The Commission had no contingent assets or contingent liabilities at 30 June 2019 (30 June 2018: Nil).