FINANCIAL MANAGEMENT STRATEGY

Transcription

1 FINANCIAL MANAGEMENT STRATEGY Endorsed for Public advertising by Council (date): Adopted by Council (21 May 2015): Related Documents: PURPOSE This strategy will detail the actions and strategies the Circular Head Council has set in order to achieve its financial targets. POLICY STATEMENT That the Circular Head Council as a Local Government entity is committed to a sustainable future as a single entity, through responsible financial management. RATIONALE/BACKGROUND Responsible financial management is embraced by Council and promoted throughout this document. It is demonstrated that Council accepts that the basic responsibilities of financial management include the ability to plan, acquire, control and utilise funds in ways that maximise the efficiency of the Council s operations, and the returns provided to ratepayers in the delivery of services. In any financial management strategy there is a certain amount of risk due to future funding uncertainty. Council has endeavoured to allow for some flexibility during the preparation of this Strategy to accommodate financial risks, including the effects of inflation, interest rates, taxation changes etc. As a working document of Council this Strategy will be constantly monitored and reviewed when the need arises. 1 EXECUTIVE SUMMARY This Strategy will embrace not only obtaining funds by the imposition of rates, fees and charges, contributions and grants, but will determine a basis for the use of these funds in a wise manner which will objectively provide for the needs of the Council and its stakeholders. Cash flow is an important aspect of the Council s financial management. It is imperative that cash is managed in such a way that it is readily available and capable of being used to the best advantage of the Council.

2 The major purpose of this strategy is to set the following strategies to ensure transparent and appropriate financial management: Operating revenues of the Council in a particular year should be equal to or greater than its operating expenses including an appropriate amount for depreciation, calculated by reference to a particular class of asset. This aim will preserve Council s asset base and contribute significantly to its sustainable viability. Council has determined that funds will not be borrowed to complete any recurrent work currently in place, or any future recurrent expenditure on core activities. Council will commit to retaining a minimum cash balance equivalent to the preceding years general rate revenue in order to ensure financial viability. To have a long term funding plan for renewal of Council assets to cater for the desired levels of service to Council s stakeholders. Financial ratio targets in relation to balanced budget, liquidity and sustainability targets are outlined in section CHALLENGES Over the next 5-20 years, Circular Head Council will face many challenges that will require strong financial leadership and creative solutions to meet its aspirations. The key challenges faced over this period include: Addressing council s medium to long term deficits in funding the delivery our services. Delivering organisational change to improve efficiency of service delivery in a financially sustainable manner. Meeting expectations from all stakeholders including community, service users and government by ensuring standards across key services keep pace with demand and in balance with the capacity to fund these operations. 3 EFFICIENCY VALUE FOR MONEY Council will maintain an ongoing review of its services that seeks to better define service requirements, refine delivery methods and balance service aims against affordability for both the Council and our stakeholders. It is intended that all services be reviewed on a cyclical basis over a period of time. Council will strive to deliver efficiencies through improved strategic partnering and collaboration with other authorities and agencies.

3 5 FUNDING OF INFRASTRUCTURE The key objective of Council s Strategic Asset Management Plan is to preserve Councils existing assets at desired condition levels. If funding is not sufficiently allocated to asset renewal then Council s investment in those assets will reduce along with the capacity to deliver services to the community. The Council has adopted its Asset Management Policy. The policy is supported by an Asset Management Strategy, which details specific actions to be undertaken by Council to improve asset management capability and achieve specific strategic objectives. Asset Management Plans are subsequent components where long term plans (ten years and beyond) outline service and funding levels for each asset category. OUTCOMES To have a long term funding plan for renewal of Council assets to cater for the desired levels of service to Council s stakeholders. Council s assets will be fit for purpose to provide the desired level of service to the community. To increase funds available for the development and maintenance of facilities and infrastructure consistent with responsible asset management. To accommodate the organisations cash flow needs to enable it to carry out asset maintenance activities and renewal and replacement of assets, as set out in the asset management plans providing the asset management plans are based on financially sustainable service levels. STRATEGIES Continue to improve the rate base and review the need to renew assets. Continue to improve asset management practices with a high priority to have adequate asset assessments (condition and fit for purpose assessments) to enable reasonable long term capital renewal forecasts which can be directly linked to long term financial planning annual budgets and service level reviews Council, having established its critical renewal investment levels, continues to regularly update Asset Management Plans for all classes of council assets incorporating service level assessments. Council, as part of the review of its Asset Management Plans, determines how service levels will be reached including a combination of improved revenue raising, review of existing service levels, asset disposal and composition of the asset portfolio. Council allocates sufficient funds to the renewal of existing assets and plans the funds required for constructing new assets. Council regularly updates the 10 Year Asset Renewal Program to ensure that council adequately maintains its existing asset base.

4 6 LOAN BORROWINGS Council has determined that funds will not be borrowed to complete capital or recurrent work currently in place, or any future recurrent expenditure on core activities (core activities are identified as Roads, Waste and Drainage). However, an allowance will be made to borrow funds for new capital works when it can be demonstrated that the maximum repayment time does not exceed the useful life of the project or asset. Council is to ensure that all future loan borrowings are made, taking into account the ability of the Council to service its debts. Should Council incur substantial cost in the case of emergency infrastructure replacement which has been unforeseeable (i.e. disaster) borrowings may be necessary. Reduction of overall loan debt is a priority, with new borrowings only being considered when it can be demonstrated that the project to be undertaken will result in a Working Capital Ratio above 100%. All works that cannot demonstrate that the debt will be paid from surplus funds (including savings on repayments as loans are retired) may be funded at the discretion of Council by loans identified for community improvements. The ability of the Council to reduce significantly its loan debt without dramatically affecting its service provision to the community is limited. With the population relatively static in Circular Head it is appropriate that a No New Debt policy be implemented (excepting where it can be demonstrated that a loan will be self-supporting or is approved for specific community improvements) which will have the effect of a levelling out of costs at the current level, and, as loans are retired the equivalent of the repayments can then be utilised to fund capital work programs. 7 CASH AND INVESTMENT OF SURPLUS FUNDS Cash levels are to be maintained in accordance with Section 10 Financial Sustainability. Council will commit to retaining a cash balance equivalent to the preceding years general rate revenue in order to ensure financial viability. Surplus funds including the abovementioned can be invested in accordance with Council s investment policy.

5 8 INVESTMENT STRATEGY The Council will invest funds to maximise return on investments, whilst maintaining an acceptable level of risk. 9 REVENUE Council receives revenue from many different sources. The two main sources are rates and financial assistance grants. The amount of financial assistance grants Council receives is unable to be influenced, therefore is not included in this document. Council seeks to raise enough revenue each financial year to prepare a balanced budget in terms of a cash position. General rates the basis for rating that Council uses in the calculation of rates is the AAV method. The Council has a rates and charges policy which outlines Council s rating strategy. Council applies the principles of taxation; namely capacity to pay, benefit and simplicity to implement. Those with a higher capacity to pay tax should pay more than those with a lesser capacity to pay. Council balances this with the benefit principle as some groups benefit more from specific rates and charges, such as garbage, which are rated for as a separate charge. Covers the fortnightly collection of urban recycling full cost recovery Urban bin collection rate full cost recovery Rural bin collection rate full cost recovery Port Latta landfill full cost recovery, including allowances for renewal of assets Stormwater services implementation phase from 2015/ /19 resulting in full cost recovery Fees and charges (Cemeteries, pool, animal control, planning, building, food registrations, engineering fees, administration fees) increase by a minimum of 4% each financial year if service review has not been completed. 10 FINANCIAL SUSTAINABILITY A 10 year financial plan has been prepared to demonstrate the financial sustainability of the Circular Head Council in ensuing years. The existence of an operating surplus will assist Council in funding the creation of new capital works that have not otherwise been provided for in depreciation attributed. It will also be used as a risk management tool. An investment in the order of a year s general rate revenue will enable Council to continue to supply basic services in times of a major disaster or significant economic downturns within the community.

6 It is vital that the long-term financial model be updated regularly in conjunction with reviews of the Strategic Asset Management Plan, Strategic Plan and other associated plans, and also through feedback from Councillors, staff, the community and other stakeholders. The Annual Plan will identify the major projects and tasks for the year ahead. These figures link directly to the cost model. They will also link to individual staff member s performance indicators for the year. This will ensure accountability and staff involvement in the achievement of projects as well as the ongoing planning process. They will be an integral part of the performance review process completed by the employee and supervisor. Council will maintain community wealth to endure that the wealth enjoyed by today s generation may also be enjoyed by tomorrow s generation. Council will seek to achieve equity across generations by recognising that each generation must pay its way with respect to recurrent expenses being met from recurrent revenue (the full cost of the service it consumes). Council will invest sustainably in community assets to maintain (and potentially enhance) service levels.

7 11 FINANCIAL TARGETS Objectives Positive net result on the Comprehensive Income Statement including depreciation, but excluding capital grant income and recognition of assets Debt servicing and redemption costs within the financial capacity of Council Avoid deficit budgets where the liquidity ratios fall below target Target Positive Underlying surplus ratio Self-financing Ratio greater than 20% Indebtedness Ratio less than 40% Objectives Council has sufficient cash to meet its debts as and when they fall due Trust Funds and Statutory Reserves are fully cash-backed at 30 June every year Target Working Capital Ratio greater than 120% Positive net financial liabilities ratio Objectives To ensure that Council s physical assets are maintained to standards that provide functionality and serviceability To ensure the value of projected capital renewal funding is being reflected in both the financial plan and asset management plans To demonstrate that Council has the financial capacity to replace, renew, decommission or realise assets as and when needed Target Asset sustainability ratio greater than 100% Asset renewal funding ratio greater % Asset consumption ratio 40-80%

8 APPENDIX 1: ACCOUNTING POLICIES INTRODUCTION (a) The Circular Head Council (Council) was established on 27 August 1907 and is a body corporate with perpetual succession and a common seal. The Council s Administration Centre is located at 33 Goldie St, Smithton. The purpose of the Council is to: provide for the peace, order and good government in the municipality; to promote the social, economic and environmental viability and sustainability of the municipal area; to ensure that resources are used efficiently and effectively and services are provided in accordance with the Best Value Principles to best meet the needs of the local community; to improve the overall quality of life of people in the local community; to ensure that services and facilities provided by the Council are accessible and equitable; to ensure the equitable imposition of rates and charges; and to ensure transparency and accountability in Council decision making. This financial report is a general purpose financial report that consists of the Statements of Comprehensive Income, Financial Position, Changes in Equity, Cash Flows, and notes accompanying these financial statements. The general purpose financial report complies with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), and the Local Government Act 1993 (LGA1993) (as amended). Council has determined that it does not have profit generation as a prime objective. Consequently, where appropriate, Council has elected to apply options and exemptions within accounting standards that are applicable to not-for-profit entities. As a result this financial report does not comply with International Financial Reporting Standards. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF ACCOUNTING This financial report has been prepared on the accrual and going concern bases. This financial report has been prepared under the historical cost convention, except where specifically stated.

9 Unless otherwise stated, all accounting policies are consistent with those applied in the prior year. Where appropriate, comparative figures have been amended to accord with current presentation, and disclosure has been made of any material changes to comparatives. All entities controlled by Council that have material assets or liabilities, such as Special Committees of Management, and material subsidiaries or joint ventures, have been included in this financial report. All transactions between these entities and Council have been eliminated in full. Details of entities not included in this financial report based on their materiality are detailed in note 35. Judgements and Assumptions In the application of Australian Accounting Standards, Council is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. All entities controlled by Council that have material assets or liabilities, such as Special Committees of Council, have been included in this financial report. All transactions between these entities and Council have been eliminated in full. Council has made no assumptions concerning the future that may cause a material adjustment to the carrying amounts of assets and liabilities within the next reporting period. Judgements made by Council that have significant effects on the financial report are disclosed in the relevant notes as follows: Employee entitlements Assumptions are utilised in the determination of Council s employee entitlement provisions. These assumptions are discussed in note 1(e).

10 Defined benefit superannuation fund obligations Actuarial assumptions are utilised in the determination of Council s defined benefit superannuation fund obligations. These assumptions are discussed in note 33. Fair value of property, plant & equipment Assumptions and judgements are utilised in determining the fair value of Council s property, plant and equipment including useful lives and depreciation rates. These assumptions are discussed in note 1(d). Investment in water corporation Assumptions utilised in the determination of Council s valuation of its investment in TasWater are discussed in note 1(g) and in note 42. (b) PENDING ACCOUNTING STANDARDS Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2014 reporting periods. Council's assessment of the impact of these new standards and interpretations is set out below: (i) AASB 9 Financial Instruments and the relevant amending standards (effective from 1 January 2017) AASB 9 is one of a series of amendments that are expected to replace AASB 139 Financial Instruments: Recognition and Measurement. The main impact of the standard is to change the requirements for the classification, measurement and disclosures associated with financial assets. Under the new requirements the four categories of financial assets in AASB 139 will be replaced with two measurement categories: fair value and amortised cost. Amortised cost is to be used for assets with contractual terms giving rise to principal and interest payments. Fair value is to be used for all other financial assets. Gains or losses on financial assets at fair value are to be recognised in profit and loss unless the asset is part of a

11 hedging relationship or an irrevocable election has been made to present in other comprehensive income changes in the fair value of an equity instrument not held for trading. There will be no impact on Council s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and Council does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. (ii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and the relevant amending standards (effective from 1 January 2014) This suite of five new and amended standards address the accounting for joint arrangements, consolidated financial statements and associated disclosures. AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 12 Consolidation Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/principal relationships. Council has undertaken an assessment and no material changes to the composition of Council's accounts are anticipated from the application of the new standard. AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint

12 arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. The standard will not affect Council as it does not have any joint arrangements. AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. Application of this standard by Council will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to Council's investments. Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a partial disposal concept. Council is still assessing the impact of these amendments. (iii) AASB 1031 Materiality (effective from 1 January 2014) The objective of this standard is to make cross-references to other standards and the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards) that contain guidance on materiality. (iv) AASB Amendments to AASB Recoverable Amount Disclosures for Non-Financial Assets (effective from 1 January 2014)

13 This standard amends the disclosure requirements of AASB 136. The amendments include the requirement to disclose additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. The adoption of this standard will not impact Council's accounting policies but may result in changes to information disclosed in the financial statements. (v) AASB Amendments to Australian Accounting Standards - Conceptual Framework, Materiality and Financial Instruments(Part A - Conceptual Framework effective from 20 December 2013; Part B - Materiality effective from 1 January 2014; Part C - Financial Instruments effective from 1 January 2015). Part A of this standard updates references to the Framework for the Preparation and Presentation of Financial Statements in other standards as a consequence of the issue of AASB CF in December Part B of this standard deletes references to AASB 1031 Materiality in various other standards. Once all references to AASB 1031 have been deleted from all Australian Accounting Standards, AASB 1031 will be withdrawn. Part C of this standard amends AASB 9 Financial Instruments to add Chapter 6 Hedge Accounting and makes consequential amendments to AASB 9 and numerous other standards. Part C also amends the effective date of AASB 9 to annual reporting periods beginning on or after 1 January 2017, instead of 1 January The adoption of this standard will not impact Council's accounting policies. Council does not expect to adopt the new standards before their operative date. They would therefore be first applied in the financial statements for the annual reporting period ending 30 June 2015.

14 (c) LOCAL GOVERNMENT REPORTING ENTITY All funds through which Council as a general purpose reporting entity controls resources to carry out its functions have been included in the financial statements of the Council. In the process of reporting for the Council as a single unit, all transactions and balances between Council and Special Committees (e.g. loans and transfers) have been eliminated. The recording of transactions and balances for internal borrowing has also been eliminated. The financial reports of the Council incorporate only those items over which the Council has control. Trust Funds The Council receives monies as an agent for the State Government. As Council performs only a custodial role in respect of these monies, and because the monies cannot be used for Council purposes, they are excluded from the financial statements. Amounts received as tender deposit and retention amounts controlled by Council are included in the amount disclosed as payables within Current Liabilities. (d) ASSETS i) Acquisition of Assets The cost method of accounting is used for the initial recording of all acquisitions of assets. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Cost is determined as the fair value of the asset given as consideration plus costs incidental to the acquisition (e.g. architects fees, engineering design fees, administration charges and all other costs incurred) in getting the asset ready for use. Non-monetary assets received in the form of grants, donations or at nominal consideration are recognised as assets and revenues at their fair value at the date of receipt. (Fair value meaning: the amount for which an asset could be exchanged, between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms-length transaction). Non-Current Assets Constructed by Council The cost of non-current assets constructed by the Council includes the cost of all materials used in the construction, direct labour on the project and an

15 appropriate proportion of variable and fixed overheads. The cost of materials includes consulting and engineering fees. Asset values are net of the Goods and Services Tax component. ii) Classification and Valuation of Non-Current Assets Land, land under roads, buildings, transport infrastructure and stormwater and drainage are measured at Fair Value. All other asset values are measured at cost. Where assets are recorded at valuation, the valuation has been performed by Council officers with the exception of land, land under roads and buildings which have been valued by the Tasmanian Valuer-General. Infrastructure assets at valuation are at written down replacement cost. Replacement cost is the current cost of a new asset that could provide the same service as an existing asset. Accumulated depreciation or amortisation recognises the amount of the replacement cost that is pro-rata to the proportion of the asset s useful life that has expired. iii) Revaluation Policy Where assets are revalued, the revaluation increments are credited directly to the asset revaluation reserve. Net revaluation decrements will be debited to any previous revaluation increments for that class of assets, with any deficiency being recognised as an expense. Assets are revalued with such frequency as to ensure the carrying value does not differ materially from fair value at reporting date. The Council has adopted the following valuation bases for its non-current assets: Land Land under roads Buildings Transport Infrastructure Stormwater and Drainage Solid Waste Management Fair Value Fair Value Fair Value Fair Value Fair Value Cost

16 Parks, Reserves and Recreation Facilities Plant and Equipment Furniture and Computers Cost Cost Cost iv) Depreciation of Non-Current Assets All non-current assets, which have a limited useful life, are systematically depreciated over the useful life in a manner that reflects the consumption of the service potential of those assets. Land and land under roads are generally not depreciable assets. Non-current assets are those which provide a benefit to Council extending beyond twelve (12) months. Depreciation is recognised as per the schedule below. Rates of depreciation reflect the consumption of the service potential of these assets and are reviewed annually. The current schedule of rates for depreciation is: Classification Buildings Plant and Equipment Transport Infrastructure Stormwater and Drainage Parks, Reserves and Recreational Facilities Furniture and Computers Solid Waste Management Useful Life years 3-17 years years years years 3-25 years years Road earthworks are not depreciated on the basis that they are assessed as not having a limited useful life. Fleet, being motor vehicles and light commercials, are included in the Plant and Equipment asset category.

17 v) Maintenance vs. Capitalisation Officers of the Council determine at the occurrence of an event whether to capitalise/expense expenditure. The following formula is provided as a guide...maintenance, repair costs and minor renewals are charged as expenses as incurred unless their total value exceeds 10% of the written down current value and increases the economic life by more than 10%, or the net realisable value by more than five (5) thousand dollars. In addition however, council s policy as it relates to transport infrastructure is as follows: Transport Infrastructure Reseals Road Shouldering Reconstruction/Construction Gravel Re-sheeting Tar Patching Road Drainage (Open) Road Drainage (Piped) Signage Line Marking Road Verge Works Traffic Management Site Survey Earthworks Clearing of trees Disposal of materials Moving of services (ie Water/Phone) Fencing Landscaping Capitalised Expensed Capitalised Capitalised Expensed Expensed Capitalised Expensed Expensed Expensed Capitalised Capitalised Capitalised Expensed Expensed Expensed Expensed Expensed

18 vi) Threshold for Recognising a New Asset The following limits apply in recognising the acquisition of new assets. When group values have been determined the threshold applies to the group not individual assets within that group. Land Nil Roads As per 1(d)(v) Plant/Machinery $1,000 Bridges $5,000 Furniture & Fittings $1,000 Buildings $5,000 Office Equipment $1,000 Recreation Facilities $1,000 Community Amenities $1,000 Parks and Gardens $1,000 Stormwater/Drainage $3,000 Playground Equipment $2,000 vii) Land Under Roads Council has elected in the 2013/14 year to recognise all land under roads in accordance with AASB 1051 Land Under Roads. These assets are brought to account at cost and subsequently revalued to fair value on a cyclical basis. viii) Impairment of assets At each reporting date, Council reviews the carrying value of its assets to determine whether there is any indication that these assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the comprehensive income statement, unless the asset is carried at the revalued amount in which case, the impairment loss is recognised directly against the revaluation reserve in respect of the same class of asset to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that same class of asset. For non-cash generating assets of Council such as roads, drains, public buildings and the like, value in use is represented by the deprival value of the asset approximated by its written down replacement cost.

19 (e) EMPLOYEE BENEFITS i) Short term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave, rostered days off and banked hours that are expected to be wholly settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees' services up to the end of the reporting period, and are measured at the amounts expected to be paid when the liabilities are settled including appropriate oncosts (superannuation, payroll tax, workers compensation). Council employed a total of full time equivalent staff members at the end of the financial year ( ). ii) Other long term employee benefit obligations The liability for long service leave and annual leave which is not expected to be wholly settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given 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 end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the statement of financial position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. iii) Retirement benefit obligations All employees of the Council are entitled to benefits on retirement, disability or death. Council contributes to various defined benefit plans and defined contribution plans on behalf of its employees.

20 Defined benefit plans A liability or asset in respect of defined benefit superannuation plans would ordinarily be recognised in the statement of financial position, and measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial gains (less unrecognised actuarial losses) less the fair value of the superannuation fund s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the reporting date, calculated annually by independent actuaries using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. However, when this information is not reliably available, Council accounts for its obligations to defined benefit plans on the same basis as its obligations to defined contribution plans i.e as an expense when it becomes payable. Council makes superannuation contributions for a number of its employees to the Quadrant Defined Benefits Fund, which is a sub fund of the Quadrant Superannuation Scheme. The Quadrant Defined Benefits Fund has been classified as a multi-employer sponsored plan. As the Fund s assets and liabilities are pooled and are not allocated by employer, the Actuary is unable to allocate benefit liabilities, assets and costs between employers. As provided under paragraph 32(b) of AASB 119 Employee Benefits, Council does not use defined benefit accounting for these contributions. Defined contribution plans Contributions to defined contribution plans are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. iv) Sick Leave No accrual is made for sick leave as Council experience indicates that, on average, sick leave taken in each reporting period is less than the entitlement

21 accruing in that period, and this experience is expected to recur in future reporting periods. Council does not make payment for untaken sick leave. (f) Allocation between Current and Non-Current In the determination of whether an asset or liability is current or non-current, consideration is given to the time when each asset or liability is expected to be settled. The asset or liability is classified as current if it is expected to be settled within the next 12 months, being Council s operational cycle. In the case of liabilities where Council does not have the unconditional right to defer settlement beyond 12 months, such as long service leave, the liability is classified as current even if not expected to be settled within the next 12 months. g) ACCOUNTING FOR INVESTMENTS (i) Investments in water corporations Council's investment in TasWater is valued at its fair value at balance date. Fair value was determined by using Council's ownership interest against the water corporation's net asset value at balance date based on Final Treasurer's Allocation Order in Council has an ownership interest of 1.58% in the corporation. Any unrealised gains and losses on holdings at balance date are recognised through the Statement of Comprehensive Income to a Financial assets available for sale Reserve each year. (refer note 42) Council has classified this asset as an Available-for-Sale financial asset as defined in AASB 139 Financial Instruments: Recognition and Measurement and has followed AASB 132 Financial Instruments: Presentation and AASB 7 Financial Instruments: Disclosures to value and present the asset in the financial report. Council has derived returns from the corporation as disclosed at note 7. (ii) Investments Investments, other than investments in associates and property, are measured at cost.

22 (h) CASH AND CASH EQUIVALENTS For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand, deposits at call, and other highly liquid investments with original maturities of three months or less, net of outstanding bank overdrafts. (i) FINANCIAL ASSETS Managed funds are valued at fair value, being market value, at balance date. Any unrealised gains and losses on holdings at balance date are recognised as either a revenue or expense. (j) RATES, GRANTS, DONATIONS AND OTHER CONTRIBUTIONS Rates, grants, donations and other contributions are recognised as revenues when Council obtains control over the assets comprising the contributions. Control over assets acquired from rates is obtained at the commencement of the rating period or where earlier, upon receipt of the rates. Control over granted assets is normally obtained upon their receipt (or acquittal) or upon earlier notification that a grant has been secured, and are valued at their fair value at the date of transfer. Income is recognised when Council obtains control of the contribution or the right to receive the contribution, it is probable that the economic benefits comprising the contribution will flow to Council and the amount of the contribution can be measured reliably. Where grants or contributions recognised as revenues during the financial year were obtained on condition that they be expended in a particular manner or used over a particular period and those conditions were undischarged at balance date, the unused grant or contribution is disclosed in Note 4. This note also discloses the amount of unused grant or contribution from prior years that was expended on Council s operations during the current year. A liability is recognised in respect of revenue that is reciprocal in nature to the extent that the requisite service has not been provided at balance date and conditions include a requirement to refund unused contributions. Revenue is then recognised as the various performance obligations under an agreement are fulfilled. Council does not currently have any reciprocal grants. Non-monetary contributions (including developer contributions) with a value in excess of the recognition thresholds, are recognised as revenue and as non-current assets. Non-monetary contributions below the thresholds are recorded as revenue.

23 (k) INTEREST REVENUE Interest is recognised progressively as it is earned. (l) SALE OF PROPERTY, PLANT AND EQUIPMENT The profit or loss on the sale of an asset is determined when control of the asset has irrevocably passed to the buyer. (m) RECONCILIATION OF CASH For the purpose of the Statement of Cash Flows, Council considers cash to include cash on hand and in banks (including Special Committee accounts). Cash at the end of the reporting period as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position. (n) INVENTORIES Quantities of inventories on hand at balance date are valued at the lower of cost or net replacement value. (o) ACCRUALS / PREPAYMENTS Accruals and prepayments are recognised in accordance with relevant accounting standards with materiality a major factor in determining their applicability. (p) LEASES Operating leases as lessee Leases in which a significant portion of the risks and rewards of ownership are not transferred to Council as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. These are outlined in note 34. Council leases several parcels of Crown land under lease agreements with the State Government. These leases, in general, do not reflect commercial arrangements, are long-term and have minimal lease payments. Crown land is recognised as an asset in the Statement of Financial Position and carried at fair value when Council establishes that (i) it has control over the land and (ii) it will derive economic benefits from it.

24 Leasehold improvement Leasehold improvements are recognised at cost and are amortised over the unexpired period of the lease or the estimated useful life of the improvement, whichever is the shorter. Operating leases as lessor Council owns a range of facilities that are available for lease by not-for-profit sport, recreational and community organisations. Leases to not-for-profit organisations, in general, do not reflect commercial arrangements and have minimal lease payments. Land and building which are leased under these arrangements are recognised within Property, plant and equipment in the Statement of Financial Position and associated rental income is recognised in accordance with Council s revenue recognition policy. Furthermore, council leases some of its land and buildings on commercial terms. Rental income is recognised in accordance with Council revenue recognition policy. Where leasing of a property is incidental to Council s use of it, the associated land and buildings are recognised within Property, plant and equipment in the Statement of Financial Position and valued in accordance with Council s valuation policy. (q) INTEREST BEARING LIABILITIES The borrowing capacity of Council is limited by the Local Government Act Financial Liabilities loans are carried in the Statement of Financial Position at their principal amount. Interest expense is accrued at the contracted rate and included in payables. (r) TAXATION Council is exempt from all forms of taxation except Fringe Benefits Tax, Payroll Tax and the Goods and Services Tax. Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i) where the amount of GST incurred is non recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii) for receivables and payables which are recognised inclusive of GST.

25 The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recovered from or paid to the ATO, are classified as operating cash flows. (s) SIGNIFICANT BUSINESS ACTIVITIES Under section 84(2)(da) of the Local Government Act 1993, Council is required to report operating, capital and competitive neutrality costs in respect of each significant business activity undertaken by it. Council has determined, based upon materiality, that Transport Infrastructure, and Drainage Disposal as outlined in Note 2(c) are considered Council's significant business activities. Further details are disclosed in note 40. (t) BUDGET INFORMATION The estimated revenue and expense amounts in the Statement of Comprehensive Income represent revised budget amounts and are not audited. (u) ROUNDING Unless otherwise stated, amounts in the financial report have been rounded to the nearest dollar. (v) EVENTS OCCURING AFTER BALANCE DATE No matters have occurred after balance date which warrant disclosure in this report. (w) CONTINGENT ASSETS & LIABILITIES Contingent assets and contingent liabilities are not recognised in the Statement of Financial Position, but are disclosed by way of a note and, if quantifiable, are measured at nominal value. Contingent assets and liabilities are presented inclusive of GST receivable or payable respectively. Commitments are not recognised in the Statement of Financial Position. Commitments are disclosed at their nominal value and inclusive of the GST payable. At balance date Council had no contingent assets or liabilities.

26 (x) BORROWING COSTS Finance costs are recognised as an expense in the period in which they are incurred, except where they are capitalised as part of a qualifying asset constructed by Council. Where specific borrowings are obtained for the purpose of specific asset acquisition, the weighted average interest rate applicable to borrowings at balance date, excluding borrowings associated with superannuation, is used to determine the borrowing costs to be capitalised. No borrowing costs were capitalised during the period, ($0). Borrowing costs include interest on bank overdrafts, interest on borrowings, unwinding of discounts, and finance lease charges. (y) UNSEALED ROAD PAVEMENT DEPRECIATION Under recommendations included in Report of the Auditor-General No. 5 of Infrastructure Financial Accounting in Local Government, Council adopted to depreciate Unsealed Road Pavement and Unsealed Road Surfaces per report recommendations. Unsealed Gravel Payment will be depreciated with a useful life of 150 years, Unsealed Road Surfaces will be capitalised at year end and depreciated with a useful life of 6 years. Useful life for asset classes has been calculated using current Unsealed Road Network practises. (z) WORKS PLUS Council introduced a Business Unit for its outdoor workforce effective from 1 July The Business Unit is known as Works Plus and has been awarded preferred contractor status in recognition of meeting performance targets. By introducing the Business Unit, Circular Head Council has proactively and voluntarily embraced the intent of the National Competition Policy. Council now has a workforce focussed on outcomes, ensuring that jobs are completed in accordance with agreed intervention levels at the best possible price. This structure is proving successful, with improved efficiency of the outdoor workforce after providing for tax equivalents, full cost attribution and any profits returned to Council as the owner of the Business Unit. Council intends to continue to review and monitor the progress of Works Plus.

27 AMENDMENT RECORD REVISION No. DATE DESCRIPTION REFERENCE Revised Revised Revised