Accounting Policy Manual

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1 Approved by Council 9 th December 2015 (Resolution C 195/15) G

2 Catergory: Finance Index 1 Introduction Purpose Statement of Compliance Not for profit status Application of Treasurer s Instructions Principles of consolidation Revenue recognition Student fees Commonwealth Supported student income Research Income Other government grants Consultancy fees Other contributions revenue Acquisition and disposal of assets Non-current assets Recognition Depreciation Non-current assets held for sale Impairment Intangible assets Leases Inventories Receivables Investments Employee benefits Annual leave Long service leave Superannuation Unfunded superannuation Accrued or prepaid salaries Employee benefits on-costs Foreign currency Foreign currency monetary items and transactions Foreign currency hedges G

3 Catergory: Finance Index 12 Taxes Income Tax Goods and Services Tax (GST) Fringe Benefits Tax Payroll Tax Other expenses Borrowing costs Repairs and maintenance Statement of Comprehensive Income format Appendix 1 - Accounting Treatment of Early Stage Investments Appendix 2 - Accounting for Collaborative Ventures Appendix 3 - Employee Benefit Provision Calculation Methods Appendix 4 - Not-for profit status for application of Accounting Standards Appendix 5 - Application of Treasurer s Instructions Appendix 6 - Accounting treatment of Research Grants Appendix 7 - Accounting for Trust monies Responsibilities and Revision History G

4 Catergory: Finance Policies 1 Introduction 1.1 Purpose The purpose of this document is to provide guidance on the appropriate accounting treatment for determining Curtin s financial position and financial performance. This manual will be updated from time to time as necessary to reflect any changes in accounting policies by Curtin. Changes to accounting policies must be approved by Council on the recommendation of Audit Committee. Bold text reflects policy whereas normal text provides application guidance. 1.2 Statement of Compliance Curtin complies with Accounting Standards and Interpretations. This manual provides guidance on the application of Accounting Standards and Interpretations in the Curtin context, but is not intended to repeat the content or requirements of these Standards and Interpretations. Curtin s accounting policies should not be regarded as a substitute or replacement for Accounting Standards and Interpretations. In preparing its annual statutory financial statements, Curtin also applies the disclosure requirements of the Department of Education and Training, the Financial Management Act 2006 (WA) and relevant Treasurer s Instructions. Policies, Accounting Standards and Interpretations will be applied by Curtin in the context of materiality to the extent permitted by each Accounting Standard and Interpretation. 1.3 Not for profit status Some Accounting Standards require or permit different accounting treatments, depending on whether an entity is considered to be for-profit or not-for-profit. Not-for-profit entities do not have the generation of profit as a principal objective and are generally not concerned with obtaining a financial return but are usually more interested in the ability of an entity to achieve its non-financial objectives, which in turn may depend on the entity s financial position and performance. For the purposes of application of Accounting Standards and Interpretations, Curtin is considered to be a not-for-profit entity. This matter is considered in further detail at Appendix Application of Treasurer s Instructions The application of Treasurer s Instructions is limited by the Curtin University of Technology Act 1966 (WA) to the financial statements disclosure elements only. This matter is considered in further detail at Appendix Principles of consolidation Consolidated financial statements are prepared by combining the financial statements of all entities that comprise the consolidated entity, being the University (the parent entity) and any controlled entities, in accordance with AASB 127 Consolidated and Separate Financial Statements and modified by Treasurer s Instruction G

5 Catergory: Finance Policies Accounting policies of subsidiaries are changed on consolidation where necessary to ensure consistency with the accounting policies adopted by the University and prepared using the same reporting period. Note: Curtin currently has no material controlled entities. In the event that Curtin has any controlled entity it is expected that there would be no inconsistent application of accounting policies with significant impact. G

6 Catergory: Finance Policies 2 Revenue recognition Revenue from the sale of goods and disposal of other assets and the rendering of services is recognised when the University has passed control and the significant risks and rewards of ownership have passed to the buyer of the goods or other assets or has provided the service to the customer. 2.1 Student fees Student fees are recognised when the University has provided the service(s) to the student. In practice, this means that fees in advance (ie the fees have been invoiced and/or received but the service(s) has not yet been provided) are deferred at each quarter end as a liability in the Statement of Financial Position. Fees receivable, ie where the service has been provided but the fee has not been paid (regardless as to whether the amount has been invoiced or not) are recognised as an asset in the Statement of Financial Position, less any necessary provision for impaired receivables (refer Policy 8.1). 2.2 Commonwealth Supported student income Universities are funded for Commonwealth Supported students on a unit taught basis, by way of two components, the Commonwealth Grant Scheme amount, paid by the Commonwealth Government, and the Student Contribution amount. In the case of the latter, this is either paid directly by the student or is deferred by the student, in which case it is paid by the Commonwealth Government (known as HECS-HELP ). Income for Commonwealth Supported students is recognised when the University has provided the service(s) to the student. In practice the amounts receivable from the Commonwealth Government are received in fortnightly instalments through the year to which the payments relate, based on estimated amounts. At the end of the financial year an adjustment is made to recognise any amounts receivable or repayable under the funding agreement, based on the units taught and the actual amount of deferred Student Contributions. 2.3 Research Income Research income is receivable from various sources including Commonwealth and State Government grants and contractual arrangements with other entities such as corporations or foundations. Research grants from government are recognised as revenue when the University obtains control over the asset comprising the contributions. When the University does not have control of the contribution, does not have the right to receive the contribution or, in the case of reciprocal grants, has not fulfilled grant conditions, the grant contribution is treated as deferred income as a liability in the Statement of Financial Position. G

7 Catergory: Finance Policies Research and other grants from government are usually considered to be non-reciprocal. A reciprocal grant is where the grant provider receives approximately equal value in exchange. In practice, this means that most research grants are recognised as income when the cash or asset is received. Refer Appendix 9 for further detail. Commonwealth Government research funding includes the following: Research Block grants, including: o Research Training Scheme (RTS); o Research Infrastructure Blocks Grants Scheme (RIBG); o Joint Research Engagement Program (JRE); o Sustainable Research Excellence (SRE); o Australian Postgraduate Awards (APA); and o International Postgraduate Research Scholarships (IPRS). Other research grants, including: o Cooperative Research Centres (CRCs); o Australian Research Council (ARC) National Competitive Grants Program; and o National Health and Medical Research Council (NHMRC) research grants. Research grants from other entities may be reciprocal or non-reciprocal, depending on the nature of the agreement. Reciprocal research income from other entities is recognised as revenue when the University has provided the service to the customer. Non-reciprocal research income from other entities is recognised as revenue when the University obtains control over the asset comprising the contributions. 2.4 Other government grants Other grants from government are recognised as revenue when the University obtains control over the asset comprising the contributions. When the University does not have control of the contribution, does not have the right to receive the contribution or, in the case of reciprocal grants, has not fulfilled grant conditions, the grant contribution is treated as deferred income as a liability in the Statement of Financial Position. 2.5 Consultancy fees Consultancy fees are recognised when the University has provided the service(s) to the customer. In practice, this means that fees in advance (ie the fees have been invoiced and/or received but the service(s) has not yet been provided) are deferred as a liability in the Statement of Financial Position. Fees receivable, ie where the service has been provided but the fee has not been paid (regardless as to whether the amount has been invoiced or not) are recognised as an asset in the Statement of Financial Position, less any necessary provision for impaired receivables (refer Policy 8.1). G

8 Catergory: Finance Policies 2.6 Other contributions revenue Donations, gifts and other non-reciprocal contributions are recognised as revenue when the University obtains control over the assets comprising the contributions. Donations, gifts and other non-reciprocal contributions (including endowments, scholarship funds, prize monies etc) are received by the University to fund research activities, scholarships, donations, prizes and lectures. Most donations, gifts and other non-reciprocal contributions have specific conditions attached and are therefore restricted assets, in that they are not available to the University for general expenditure. However, to the extent that the University has direct control over the funds, they are included within revenue in the Statement of Comprehensive Income and any unspent amounts with specific conditions attached are categorised as restricted assets in the Statement of Financial Position. Control is normally obtained upon receipt. When the University does not have control of the contribution or does not have the right to receive the contribution or has not fulfilled the associated conditions, the contribution is treated as deferred income. Contributions of assets are recognised at their fair value. Contributions of services are only recognised when a fair value can be reliably determined and the services would be purchased if not donated. G

9 Catergory: Finance Policies 3 Acquisition and disposal of assets Assets are resources that are controlled by the University as a result of past transactions or other past events and that will deliver future economic benefit. Assets may be classified as current or non-current. A current asset satisfies any of the following criteria: it is expected to be realised in, or is intended for sale or consumption in, the University s normal operating cycle (usually 12 months); or it is held primarily for the purpose of being traded; or it is expected to be realised within twelve months after the reporting date; or it is cash or a cash equivalent asset (unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date). Current assets usually include receivables (refer Policy 8), inventory (refer Policy 7), investments (refer Policy 9) and cash, although as can be seen from the definition of current assets above, each of these asset categories may also include non-current components. Non-current assets (often referred to as fixed assets ) usually include, but are not restricted to property, plant & equipment (refer Policy 4) and intangible assets (refer Policy 5). Assets acquired at no cost or for nominal consideration, are initially recognised at their fair value at the date of acquisition. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the Net Result for the Year. Cost comprises the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction. The cost of an asset comprises: (a) (b) (c) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; any costs directly attributable to bringing the Asset to the location and condition necessary for it to be capable of operating in the manner intended by management; and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. Fair Value is determined based on the best information available to reflect the amount that the University could obtain, at the reporting date, from the disposal of the Asset in an arm s length transaction between knowledgeable, willing parties. G

10 Catergory: Finance Policies 4 Non-current assets 4.1 Recognition Property, plant and equipment includes the following categories: land buildings leasehold land and improvements capital work in progress computing equipment other equipment and furniture motor vehicles library collections; and works of art All property, plant and equipment with a cost of greater than $5,000 (excluding GST) is recorded as a non-current asset at cost, less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items and is defined in detail below. Costs after acquisition, such as upgrades, for example, are included in the asset carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the additional costs will flow to the University and the cost of the item can be measured reliably. Asset costs that do not meet the above criteria are expensed as incurred to the Statement of Comprehensive Income. In the case of assets acquired at no cost or for nominal consideration, only those with a fair value of greater than $5,000 (excluding GST) at the date of acquisition are recorded as a non-current asset, at fair value. An equivalent revenue is also recognised in the Statement of Comprehensive Income. Prior to 1 January 2004, the University valued land, buildings and works of art at fair value. Valuations occurred every 3 years. In accordance with AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, deemed cost was used on first time implementation of AIFRS for assets held at 1 January Thereafter, all acquisitions are recorded at cost. Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale shall be capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation shall be determined in accordance with Accounting Standard AASB 123 Borrowing Costs Capital Work in Progress G

11 Catergory: Finance Policies Capital construction costs directly attributable to projects under construction are to be capitalised under work in progress until the date that the project is completed. Any costs subsequent to this date are to be expensed to the Net Result for the Year in the period in which they are incurred. Once the project is completed, the asset is transferred to the relevant category(s) of property, plant and equipment and is depreciated in accordance with Policy Depreciation Depreciation is the allocation of the cost of an asset over its estimated useful life as an expense for accounting purposes. All non-current assets with a limited useful life are depreciated or amortised over their estimated useful lives, in a manner which reflects the consumption of their future economic benefits. Useful Life is the shorter of: the period over which an asset is expected to be available for use by the University; or the estimated total service period that is expected to be obtained from the asset. Depreciation is calculated on a straight-line basis from the time the asset becomes available for use. Estimated useful lives are as follows: Land Not depreciated Buildings 5-50 years Leasehold land and improvements Shorter of 50 years or life of lease Library collection 10 years Road works 45 years Computing equipment 3 years Other equipment and furniture 8 years Motor vehicles 5 years Leased plant & equipment Shorter of 8 years or lease period Works of art Not depreciated Land and works of art controlled by the University are classified as non-current assets. They are anticipated to have indeterminate useful lives, since their service potential is not, in any material sense, consumed. As such, no amount for depreciation is recognised. Assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. A class of assets carrying amount is written down immediately to its recoverable amount if the class of asset s carrying amount is greater than its estimated recoverable amount (refer Policy 4.3). G

12 Catergory: Finance Policies 4.3 Non-current assets held for sale In accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations, noncurrent assets classified as held for sale are measured at the lower of carrying amount, and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Curtin currently has no significant non-current assets held for sale. 4.3 Impairment In accordance with AASB 136 Impairment of Assets, at each reporting date, the University reviews the carrying amounts of each class of asset within property, plant and equipment to determine whether there is any indication that those asset classes have suffered an impairment loss. Where the recoverable amount of an asset is less than its carrying amount, the carrying amount is to be reduced to the recoverable amount. That reduction is an impairment loss, which is recognised as an expense to the Net Result for the Year for accounting purposes. Recoverable Amount is the higher of the asset s fair value less costs to sell and its value in use. Value in use is the depreciated replacement cost of the asset. In assessing value in use, the depreciated replacement cost is used because the future economic benefits of the University s assets are not primarily dependent on the assets ability to generate net cash inflows. If the recoverable amount of a class of asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense to the Net Result for the Year immediately. Net Realisable Value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale (as applicable). G

13 Catergory: Finance Policies 5 Intangible assets An Intangible Asset shall be recognised if, and only if: (a) (b) it is probable that expected future economic benefits are attributable to the asset and will flow to the University; and the cost of the asset can be measured reliably. An Intangible Asset must: (a) (b) be separable, that is, capable of being separated or divided from the University and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, Asset or liability; or arise from contractual or other legal rights, regardless of whether those rights are transferable or separable from the University or from other rights and obligations. Currently no separately identifiable intangible assets meet Curtin s recognition criteria for accounting purposes. Research and development costs are expensed to the Net Result for the Year as incurred. It is extremely unlikely that any research and development costs would meet the criteria as stated above for recognition as an intangible asset in the Statement of Financial Position. G

14 Catergory: Finance Policies 6 Leases In accordance with AASB 117 Leases, leased assets classified as finance leases are recognised as assets. The amount initially brought to account as an asset is the present value of minimum lease payments. An equivalent finance lease liability is brought to account at the same time. A finance lease is one which effectively transfers from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property. A lease that does not meet these criteria is referred to as an operating lease. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: (a) (b) (c) (d) (e) (f) (g) (h) the lease transfers ownership of the asset to the lessee by the end of the lease term; the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for the major part of the economic life of the asset even if title is not transferred; at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and the leased assets are of such a specialised nature that only the lessee can use them without major modifications; if the lessee can cancel the lease, the lessor's losses associated with the cancellation are borne by the lessee; gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equalling most of the sales proceeds at the end of the lease); and the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent. Lease classification is made at the inception of the lease. Further guidance is available from AASB 117 Leases. Finance leased assets are amortised on a straight-line basis over the estimated useful life of the asset. Finance lease payments are allocated between interest expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period. Operating lease payments are recognised as an expense in the Net Result for the Year on a basis which reflects the pattern in which economic benefits from the leased asset are consumed. G

15 Catergory: Finance Policies 7 Inventories Inventory comprises assets that are: held for sale in the ordinary course of business; or in the process of production for such sale; or in the form of materials or supplies to be consumed in the rendering of services; and held for the short-term, i.e. are expected to be realised within twelve months of the reporting date. Inventories are valued at the lower of cost and current replacement cost. Costs are assigned by the method most appropriate to each particular class of inventory, with the majority being measured on a weighted average cost basis. In practice, Curtin s inventories are valued as follows: General Maintenance Stores - Properties Recreation Services (Food & drinks) Average Unit Cost Average Unit Cost G

16 Catergory: Finance Policies 8 Receivables Current accounts receivable are recognised at nominal amounts receivable, as they are due for settlement no more than 30 days from the date of recognition. Non-current accounts receivable, with the exception of unfunded superannuation, are recognised at the nominal amounts receivable. 8.1 Provision for Impaired Receivables Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off as bad debts. A provision for impaired receivables is raised where some doubt as to collection exists. The process for estimating the amount of a provision for impaired receivables takes into account all relevant information available before the financial report is issued about conditions existing at the reporting date. Separate provisions are provided for specifically identified impaired receivables and for impaired receivables on a group basis. Debtors are grouped on the basis of similar credit risk characteristics that are indicative of the debtor's ability to pay all amounts due according to the contractual terms. In Curtin s case, grouping is usually made on the basis of debtor ageing, being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated. Provisions for impaired receivables are estimated on the basis of historical loss experience for each group of debtors. Historical loss experience is adjusted if appropriate on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Curtin s practice in assessing provisions for impaired receivables is as follows: Non-student fee debtors are reviewed individually for recoverability and the need for a provision has been assessed on a specific debtor basis. Student fee debtors are reviewed on a class of asset basis by reviewing the student and sponsor debts separately and by reviewing each of those types based on the year in which the debt arose. By comparing the levels of debt year on year, the data demonstrates estimated future cash flows for each grouping. This is applied to calculate the provision necessary against remaining debt. G

17 Catergory: Finance Policies 9 Investments The University bears the investment risk and reaps the rewards in respect of the returns generated by its various investments. Realised investment returns will directly affect the Net Result for the Year of the University. In accordance with AASB 139 Financial Instruments: Recognition and Measurement, investments other than unlisted shares are classified as available-for-sale and are measured at subsequent reporting dates at fair value. For available-for-sale investments, changes in fair value are recognised directly in Other Comprehensive Income, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the Operating Result for the period. Any decline in the fair value of previously impaired available-for-sale investments is to be recognised in the Net Result for the Year for the period. Any increase in the fair value of previously impaired available-for-sale debt investments is to be recognised in the Net Result for the Year for the period to the extent of the initial impairment and thereafter taken through Other Comprehensive Income to the Investments Revaluation Reserve in equity. Any increase in the fair value of previously impaired available-for-sale equity investments is to be recognised through Other Comprehensive Income in the Investments Revaluation Reserve in equity. Changes in fair value of investments are recorded by individual investment rather than, for example, by class of investment. Changes in fair value are recognised regardless of materiality. Fair value is defined as the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The valuation of Curtin's managed fund investments is based on the number of units held by Curtin and the redemption price as provided by each manager. The redemption price takes into consideration transaction costs associated with realising the investment. The fair value of Curtin s debt instrument investments is determined by market data if available or, if not available, amortised cost using the effective interest method, as defined by AASB 139 para 9. Refer Appendix 3 Accounting treatment of Investments for further detail regarding the accounting treatment of impaired investments. Unlisted shares are stated at historical cost unless there has been a permanent diminution in value, in which event a recoverable amount write-down is made. Early stage investments will be accounted for as follows: (a) (b) Investments in shares are to be recognised as an asset in the Statement of Financial Position at cost less any reduction for permanent diminution in value Investments in technology development are to be expensed to the Net Result for the Year as incurred. Refer Appendix 4 Accounting treatment of early-stage investments for further detail. Interest revenue and other investment income (such as dividends or managed fund distributions) are recognised when earned (i.e. on an accruals basis). G

18 Catergory: Finance Policies 10 Employee benefits Employee entitlements are accounted for in accordance with AASB 119 Employee Benefits Annual leave This benefit is recognised at the reporting date in respect of employees service up to that date and is measured at nominal amounts expected to be paid when the liabilities are settled, including anniversary increments and anticipated increases (for example enterprise bargaining agreements). It is assumed for accounting purposes that all annual leave is payable within 12 months of the reporting date. Detail of how Curtin s annual leave provision is calculated is provided at Appendix Long service leave Long service leave entitlements owing to employees are based on actuarial valuations. Curtin currently uses an independent valuer, Barton Consultancy. The liability for long service leave expected to be settled within twelve months of the reporting date is recognised in the provision for employee benefits as a current liability and is measured at the nominal amounts expected to be paid when the liability is settled. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits as a non-current liability and is measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given, when assessing expected future payments, to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Detail of how Curtin s long service leave provision is calculated is provided at Appendix Superannuation The University contributes to a number of superannuation schemes including both defined contribution (Unisuper Defined Benefit Division and Accumulation Schemes) and defined benefit (GESB Gold State Super Scheme, GESB Pension Scheme) schemes. Payments to defined contribution schemes are charged as an expense as they fall due. The University s obligation is limited to these contributions. The defined benefit schemes provide a defined benefit to scheme members based on years of service and final average salary. A defined benefit liability is included in the Statement of Financial Position equal to the present value of the defined benefit obligation at the reporting date (less any past service costs not yet recognised) less the fair value of the scheme assets at the reporting date. G

19 Catergory: Finance Policies The cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out on an annual basis. Actuarial gains and losses are recognised as income or an expense in the period in which they occur. Where appropriate, the University adopts the multi-employer provisions of AASB 119 Employee Benefits paragraph 30. This is currently relevant to the Unisuper Defined Benefit Division Unfunded superannuation An arrangement exists between the Commonwealth Government and the State Government to meet the unfunded liability for the University s beneficiaries of the GESB Superannuation Schemes on an emerging cost basis. This arrangement is evidenced by the State Grants (General Revenue) Amendment Act 1987, Higher Education Funding Act 1988 and subsequent amending legislation. The unfunded liability is recognised in the Statement of Financial Position under Provisions with a corresponding asset recognised in the Statement of Financial Position under Receivables. The recognition of both the asset and the liability consequently does not affect the year end net asset position of the University. The liability and equivalent receivable are measured actuarially on an annual basis Accrued or prepaid salaries Accrued salaries represent the amount due to staff but unpaid at the end of the financial period, as the last pay period does not always coincide with the end of the financial period. The University considers that the nominal carrying amount approximates net fair value. If the payroll is paid on a date prior to the end of the financial year, the amount prepaid which overlaps the year end is treated as a current asset Employee benefits on-costs Annual leave and long service leave on-costs are not categorised as employee benefit costs but are recognised and disclosed separately in accordance with AASB 119 Employee Benefits within the Statement of Comprehensive Income and Statement of Financial Position. Detail of how employee benefit on-costs are calculated is provided at Appendix 6. G

20 Catergory: Finance Policies 11 Foreign currency 11.1 Foreign currency monetary items and transactions Transactions denominated in a foreign currency are translated at the rates in existence at the dates of the transactions. Foreign currency monetary items, which include cash, receivables and payables, are translated at exchange rates current at the reporting date. Exchange gains and losses are brought to account in the Net Result for the Year Foreign currency hedges The University s financial policy Foreign Currency: Policy and Procedures document provides further detail on the University s approach to foreign currency hedges. In particular, the University does not undertake speculative positions on movements in foreign currency exchange rates. The University hedges material foreign currency transactions by way of a permitted instrument with an appropriate counterparty. Material foreign currency transactions should also be at least highly probable in order to be hedged. Foreign currency transactions that are not material will generally be taken at the spot rate. In accordance with Australian Accounting Standard AASB 139 Financial Instruments: recognition and Measurement, changes in the fair value of permitted instruments used for external hedging should be recognised in the Net Result for the Year only when realised. Unrealised changes in the fair value of permitted instruments used for external hedging are recognised through Other Comprehensive Income. For the purpose of foreign currency hedging, the cash flows must be at least highly probable and an adequate level of documentation must be maintained by the University to justify its allocation of external hedges against forecast cash flows. G

21 Catergory: Finance Policies 12 Taxes 12.1 Income Tax Curtin University of Technology is exempt from income tax as per Subdivision 50 of the Income Tax Assessment Act Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of GST except: Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition or as part of the expense item as applicable; and Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows Fringe Benefits Tax The University is liable to pay Fringe Benefits Tax, and it is included in Other Expenses in the Statement of Comprehensive Income Payroll Tax The University is liable to pay Payroll Tax, and it is included in Other Expenses in the Statement of Comprehensive Income. G

22 Catergory: Finance Policies 13 Other expenses 13.1 Borrowing costs Bank loans and other interest bearing liabilities are recorded in the Statement of Financial Position at an amount equal to the net proceeds received. Borrowing costs (such as interest, facility fees etc) are normally recognised as an expense to the Net Result for the Year on an accrual basis. However, borrowing costs for qualifying assets (ie borrowing costs that would have been avoided if the expenditure had not been made) are capitalised as part of the cost of the qualifying asset net of any investment income earned on the unexpended portion of the borrowings (refer also Policy 4.1) Repairs and maintenance All repairs and maintenance expenditure is charged to the Net Result for the Year during the financial period in which it is incurred. G

23 Catergory: Finance Policies 14 Statement of Comprehensive Income format Accounting Standard AASB 101 Presentation of Financial Statements requires that an entity shall present an analysis of expenses using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is reliable and more relevant. Curtin applies the standard format prescribed by the Department of Education & Training, which classifies expenses by their nature as follows: Revenue from continuing operations Australian Government financial assistance Australian Government grants HECS-HELP Australian Government payments FEE-HELP State and local Government financial assistance HECS-HELP Student Payments Fees and charges Notes Refers to all Commonwealth Government grants. Refers to the deferred portion of Student Contributions for Commonwealth Supported students. Refers to deferred fees for other eligible students (eg postgraduate). Refers to amounts receivable from State or Local Governments. Refers to the portion of Student Contributions paid directly by Commonwealth Supported students. Refers to fees (including student fees not covered above) and charges. Investment income Royalties, trademarks and licences Consultancy and contracts Other revenue Refers to income from royalties, trademarks and licences. Includes royalties for use of intellectual property. Refers to income from consultancy and other contracts. Includes contract research for non-government entities. Includes any revenues that do not meet the criteria of the above categories. Total revenue from continuing operations G

24 Catergory: Finance Policies Expenses from continuing operations Employee related expenses Comprises employee remuneration costs, such as salary, superannuation, fringe benefits, leave costs. Some on-costs, specifically payroll tax and workers compensation costs, are included under Other expenses as they do not meet the AASB 119 definition of Employee Benefits. This category also excludes the costs of contractors and temporary staff which are included under Other expenses. Depreciation and amortisation Repairs and maintenance Borrowing costs Includes interest expense and associated charges on borrowings. See also 13.1 above. Impairment of assets (Gain)/Loss on disposal of non-current assets Deferred superannuation expense Other expenses Refers to the net expense related to unfunded superannuation schemes. Includes any expenses that do not meet the criteria of the above categories. Total expenses from continuing operations Net result from continuing operations Net result from discontinued operations Total net result for the year Other comprehensive income Total comprehensive income G

25 Appendix 1 - Accounting Treatment of Early Stage Investments In 2005 Curtin s Council approved the allocation of $1 million per annum from Curtin s normal investment portfolio towards a Pre-seed investment fund. These funds (and from time to time additional funds separately and specifically approved outside of the Pre-seed Fund) are invested in a range of early stage (eg pre-seed and/or venture capital-type) investments. The investment of these funds is monitored by Finance Committee. Curtin s accounting policy for the recognition and measurement of investments requires that unlisted shares are stated at historical cost unless there has been a permanent diminution in value, in which event a recoverable amount write-down is made. Investments in Shares Early stage investments in shares should be valued at historical cost at the reporting date. However, Curtin must be able to assess whether a permanent diminution in value has occurred. In the absence of an active market for a financial instrument, we consider each of the following valuation methodologies: Price of Recent Investment Discounted Cash Flows Earnings multiple Net assets Cost base/historical cost These are considered further below. Other early stage investments Curtin also makes investments through its Pre-Seed fund by way of contributions to project funding through injection of cash to cover development, implementation and other associated costs. The funding may be provided to areas within Curtin (prior to setting up a spin-out company) or to existing spin-out companies. In considering the accounting treatment appropriate to these contributions, Accounting Standard AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors is relevant: In the absence of an Australian Accounting Standard that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is: (a) (b) relevant to the economic decision-making needs of users; and reliable, in that the financial report: (i) (ii) (iii) (iv) (v) represents faithfully the financial position, financial performance and cash flows of the entity; reflects the economic substance of transactions, other events and conditions, and not merely the legal form; is neutral, that is, free from bias; is prudent; and is complete in all material respects. G

26 Internal payments Appendix 1 - Accounting Treatment of Early Stage Investments Where the payment is for internal development, this can be considered equivalent to the development phase of research and development. Curtin currently has no accounting policy on the treatment of research and development. In considering the most appropriate accounting treatment (as outlined in AASB 108 and summarised above), the most relevant Accounting Standard would therefore appear to be AASB 138 Intangible Assets, which requires that: 57. An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following: (a) the technical feasibility of completing the intangible asset so that it will be available for use or sale; (b) its intention to complete the intangible asset and use or sell it; (c) its ability to use or sell the intangible asset; (d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; (e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and (f) its ability to measure reliably the expenditure attributable to the intangible asset during its development. In most cases, therefore, it is unlikely that internal investment in the development of a product or concept will give rise to the recognition of an asset, and therefore the investment should be expensed. External payments External payments are generally for the further development of an existing product or concept. While it could be argued that by investing in a spin-out company in this way increases the value of the spin-out company (and therefore also the value of Curtin s shareholding), the payments are generally made as grants, without providing Curtin any additional rights. While the grants are made for specific purposes, it could be argued that they could be treated as reciprocal transfers in accordance with Accounting Standard AASB 1004 Contributions. However, that Accounting Standard only deals with the income side of the transaction and only applies to not-for-profit entities. Consequently, it would seem appropriate to treat external payments consistently with internal payments and expense them as they are made. Summary Early stage investments will be accounted for as follows: Investments in shares are to be recognised as an asset in the Statement of Financial Position at cost less any reduction for permanent diminution in value Investments in technology development are to be expensed to the Net Result for the Year as incurred. Valuation methodologies G

27 Appendix 1 - Accounting Treatment of Early Stage Investments Price of Recent Investment Where the investment being valued was made recently, its cost will generally provide a good indication of fair value. Where there has been recent investment in the investee company, the price of the investment will provide a basis for valuation. Where the price at which a third party has invested is being considered as the basis of valuation, the following factors may impact on the value of the investment: further investment by the existing stakeholders with little investment from new stakeholders; different rights attaching to the new and existing investments; or the absolute amount of the new investment is relatively insignificant. This methodology is only appropriate for a limited period after the date of the relevant transaction. Because of the frequency with which funding rounds are often undertaken for seed and start-up situations, this methodology will often be appropriate for valuing investments in such circumstances. Discounted Cash Flows There is often not enough information for the investments in Curtin s portfolio to use the Net Present Valuation at cost of capital with risk adjustments method. This method applies the Discounted Cash Flow (DCF) concept and technique to the expected cash flows from the investment. Earnings Multiple This methodology involves the application of an earnings multiple to the earnings of the business being valued in order to derive a value for the business. It is likely to be appropriate for an investment in an established business with an identifiable stream of continuing earnings that can be considered to be maintainable. There is often not enough history for the investments in Curtin s portfolio to justify the use of Earnings Multiple method. Net Assets This methodology involves deriving the value of a business by reference to the value of its net assets. This method of valuation is appropriate for investments where there has not been any recent investment in the investee company, and the companies are making losses or marginal levels of profits. Valuation at Cost Where the investment being valued was made recently, its cost will generally provide a good indication of fair value. [Audit Committee resolution AC 08/07 8 February 2004] G

28 Appendix 2 - Accounting for Collaborative Ventures The University participates in a number of collaborative ventures, usually focused around research facilities, programs or Centres. These activities take different forms, and the common types are listed below. They are generally governed by a Centre agreement or constitution that sets out how the arrangements work. AASB 131 Interests in Joint Ventures requires an entity to account for its interests in the following types of joint ventures: Jointly Controlled Operations Jointly Controlled Assets Jointly Controlled Entities The following definitions are of particular relevance: Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it. Joint control is the contractually agreed sharing of control over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. JOINTLY CONTROLLED OPERATIONS Some joint venture arrangements do not require the establishment of a separate entity and the venturers use their own resources in undertaking joint venture activities. These arrangements are referred to as Jointly Controlled Operations. AASB 131 Section 15 states the following: In respect of its interests in jointly controlled operations, a venture shall recognise in its financial statements: 1. The assets that it controls and the liabilities that it incurs; and 2. The expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture. Application to Curtin A number of Curtin s research agreements are referred to as joint ventures but are not considered to be joint ventures under AASB 131. Instead they are typically a collaboration whereby parties agree to undertake a joint research project for which external funding is secured. There are exceptions such as Cooperative Research Centres ( CRC ) where a number of participants contribute to the activity of the CRC, whether in cash or in-kind contributions, to leverage investment from the Commonwealth government. In these cases, it is likely that a Jointly Controlled Operation exists, in which case accounting and disclosure requirements are considered in the context of their materiality. Curtin complies with the accounting requirements of section 15 as all financial transactions are recorded in the general ledger and therefore in the financial statements. G

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