Notes to the financial statements

The Department of Premier and Cabinet (‘the department’) is a government department of the State of Victoria established pursuant to an order made by the Premier under the Administrative Arrangements Act 1983. It is an administrative agency acting on behalf of the Crown.

The principal address of the department is:

Department of Premier and Cabinet
1 Treasury Place
Melbourne VIC 3002

A description of the department’s operations and its principal activities is included in the Report of operations, which does not form part of these financial statements.

Basis of preparation

These financial statements are in Australian dollars and the historical cost convention is used unless a different measurement basis is specifically disclosed in the note associated with the item measured on a different basis.

The accrual basis of accounting has been applied in preparing these financial statements whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid.

Judgements, estimates and assumptions are required to be made about financial information being presented. The significant judgements made in preparing these financial statements are disclosed in the notes where amounts affected by those judgements are disclosed. The significant judgement applied to value property, plant and equipment is disclosed in Note 5.4.1 of the financial statements. Estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which those estimates are revised and also in future periods that are affected by the revision. Judgements and assumptions made by management in applying Australian Accounting Standards (AASs) that have significant effects on the financial statements and estimates are disclosed in the notes to which they relate.

These financial statements cover the department as an individual reporting entity and comprise all the controlled activities of the department, including the grants provided to the department’s portfolio entities. The results of the portfolio entities are not consolidated in the department’s financial statements because they prepare their own financial reports. The department’s portfolio results (including the portfolio entities) are included in Appendix 1, Budget portfolio outcomes of this annual report, which does not form part of the financial statements and is not subject to audit by the Victorian Auditor-General’s Office.

The following entities have been consolidated into the department’s financial statements pursuant to a determination made by the Assistant Treasurer under section 53(1)(b) of the Financial Management Act 1994. These entities are reported in aggregate and not controlled by the department.

The Victorian Independent Remuneration Tribunal was established on 20 March 2019 under the Victorian Independent Remuneration Tribunal and Improving Parliamentary Standards Act 2019.

Wage Inspectorate Victoria was established on 1 July 2021 under the Wage Theft Act 2020.

The administered activities of the department and for the above entities are separately disclosed in Note 8.8 Administered items. The department remains accountable for administered items but does not recognise these in its controlled financial statements.

All amounts in the financial statements have been rounded to the nearest $1,000 unless otherwise stated.

Compliance information

These general-purpose financial statements have been prepared on a going concern basis in accordance with the Financial Management Act and applicable AASs including interpretations issued by the Australian Accounting Standards Board (AASB). They are presented in a manner consistent with the requirements of AASB 1049 Whole of Government and General Government Sector Financial Reporting.

Accounting policies selected and applied in these financial statements ensure the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring the substance of the underlying transactions or other events is reported.

Other accounting policies

Significant accounting policies that summarise recognition and measurement bases used and relevant to an understanding of these financial statements, are provided throughout the notes to the financial statements.

Introduction

The role of the department is to work for the people of Victoria by leading the public service and supporting the government of the day to achieve its strategic objectives.

To deliver on these strategic objectives, the department receives income predominantly in the form of parliamentary appropriations.

Structure of this section

2.1 Income that funds the delivery of services

2.2 Summary of compliance with annual parliamentary and special appropriations

Key accounting recognition and measurement criteria

The revenue items that have specific recognition criteria are further described in Note 2.1. Where applicable, amounts disclosed as income are net of returns, allowances, duties and taxes. Amounts of income where the department does not have control are separately disclosed as administered income (see Note 8.8 Administered items).

2.1 Income that funds the delivery of services

Appropriations

Once annual parliamentary appropriations are approved by the Treasurer, they become controlled by the department and are recognised as income when applied for the purposes defined under the relevant legislation governing the use of the appropriation.

The department receives the following forms of appropriation:

• Output appropriations: Income for the outputs (i.e. services) the department provides to the government is recognised when those outputs have been delivered and the relevant minister has certified delivery of those outputs in accordance with specified performance criteria.
• Special appropriations: Income related to special appropriations are recognised when the expenditure relating to the amounts appropriated are paid by the department.

Grants

The department has determined that the grant income included in the table above is earned as per AASB 1058 Income of Not-for-Profit Entities under arrangements that are either not enforceable or without any sufficiently specific performance obligations. This is recognised when the department has an unconditional right to receive cash, which usually coincides with receipt of cash.

Income from grants received from other government entities for developing and constructing the Service Victoria digital services are recognised progressively as and when those assets are constructed. This aligns with the department’s obligation to construct the asset. The progressive percentage costs incurred is used to recognise income because this closely reflects the income earned by the department in constructing the asset.

Income received from the Commonwealth Government as specific purpose grants for on-passing to other entities is recognised simultaneously as income and expenditure because the funds are immediately on-passed to the relevant recipient entities on receipt.

Other income

Other income arises from the following transactions and other miscellaneous income and recovery of administration costs.

• Trust fund income: Trust fund income mostly includes fees collected from the Aboriginal Cultural Heritage Register and income from other external parties.
• Sponsorship income: Sponsorship income includes receipts from external parties for the Australia Day Fund and Cultural Diversity Week.
• Resources received free of charge: Resources received free of charge or for nominal consideration are recognised at fair value when control is obtained over them, irrespective of whether these contributions are subject to restrictions or conditions over their use.

The department’s resources received free of charge are usually public records transferred to the Public Record Office Victoria (PROV). The department received $11.4 million of public records as resources received free of charge during 2021–22. There were no public records received by PROV in the previous two financial years due to delays in the release of their new record management system which was impacted by COVID-19.

2.2 Summary of compliance with annual parliamentary and special appropriations

2.2.1 Summary of annual appropriations

The following table discloses the details of the various annual parliamentary appropriations the department received for the financial year.

In accordance with accrual output-based management procedures, ‘provision of outputs’ and ‘additions to net assets’ are disclosed as ‘controlled’ activities of the department. Administered transactions are those undertaken on behalf of the State over which the department has no control or discretion. These transactions are separately disclosed in Note 8.8 Administered items.

Summary of annual appropriations

Word 68.73 KB

(opens in a new window)

2.2.2 Summary of special appropriations

The following table discloses the details of compliance with special appropriations.

Introduction

This section provides details of the expenses the department incurred in delivering its services.

The funds that enable the provision of services are disclosed in Note 2. In this section the costs associated with provision of services are recorded.

Structure of this section

3.1 Expenses incurred in the delivery of services

Key accounting recognition and measurement criteria

Expenses are ordinarily recognised in the comprehensive operating statement in the reporting period in which they are incurred, and the expense is paid or is payable.

Certain items such as employee expenses, grant expenses and the capital asset charge that have specific recognition criteria are further described in Note 3.1.

3.1 Expenses incurred in the delivery of services

Notes:

(i) Payments to Victorian Government entities and other non-Victorian Government entities.

(ii) Payments to Victorian public non-financial corporations and other private businesses and individuals.

(iii) Capital asset charge was discontinued in 2021–22, with a corresponding reduction in appropriation revenue provided to the department to cover the expense.

Grant expenses

Grant expenses are contributions of the department’s resources to other parties for specific or general purposes where there is no expectation that the amount will be repaid in equal value (either by goods or services). Grant expenses also include grants paid to entities within the department’s portfolio. These grants are reported in specific purpose grants for on-passing.

Grants can either be operating or capital in nature. Grants can be paid as general purpose grants, which refer to grants that are not subject to conditions for their use. Alternatively, they may be paid as specific purpose grants, which are paid for a particular purpose and have conditions attached to their use.

Grant expenses are recognised in the reporting period in which they are paid or payable. Grants can take the form of money, assets, goods or services.

Details of the department’s grants payments in 2021–22 can be viewed at www.dpc.vic.gov.au. This grants payments information on the department’s internet page is not subject to audit by the Victorian Auditor-General’s Office.

Employee expenses

Employee expenses comprise all costs related to employment including wages and salaries, superannuation, fringe benefits tax, leave entitlements, redundancy payments, WorkCover premiums and other on-costs.

The amount recognised in the comprehensive operating statement in relation to superannuation includes employer contributions for members of both defined benefit and defined contribution superannuation plans that are paid or payable during the reporting period.

Capital asset charge

A capital asset charge (CAC) was a charge levied on the budgeted written-down value of controlled non-current physical assets in the department’s balance sheet. In previous years, CAC had been used to demonstrate the opportunity cost of using government assets.

It should be noted that the capital asset charge policy was discontinued in 2021–22 and also reflected in the 2021–22 State Budget. While the inclusion of CAC was previously reflected in output cost, it did not reflect a net distribution of funds from the department because the department was funded from the budget for its CAC expense, and then immediately paid the same amount back into the Consolidated Fund.

Other operating expenses

Other operating expenses generally represent the day-to-day running costs incurred in normal operations and are recognised as expenses in the reporting period in which they are incurred.

The following lease payments are recognised on a straight-line basis:

• short-term leases — leases with a term less than 12 months
• low-value leases — leases where the underlying asset’s fair value (when new, regardless of the age of the asset being leased) is no more than $10,000.

Introduction

The department is predominantly funded by parliamentary appropriations for providing outputs. This section provides a description of the departmental outputs delivered during the financial year and the costs incurred in delivering those outputs.

Structure of this section

4.1 Departmental outputs

4.2 Changes in departmental outputs

4.3 Departmental outputs — controlled income and controlled expenses

4.1 Departmental outputs

A description of the departmental outputs during the financial year ended 30 June 2022 and their objectives are summarised below.

Strong policy outcomes

The objective of ‘Strong policy outcomes’ is to pursue policy and service delivery excellence and reform. It leads the public sector response to significant state issues, policy challenges and projects. It supports the effective administration of government and includes: Government-wide leadership, reform and implementation; Strategic advice and government support; Digital government and communications; Office of the Victorian Government Architect; and Industrial relations.

First Peoples in Victoria are strong and self-determining

The objective of ‘First Peoples in Victoria are strong and self-determining’ is to improve outcomes and services for First Peoples through prioritising actions to enable self-determination, including advancing treaty, protecting and promoting cultural rights and conducting a truth-telling process. It addresses trauma, supports healing and addresses racism established through colonisation. It provides culturally safe systems and services and transfers power and resources to communities. It includes Aboriginal policy, strengthening Aboriginal cultural heritage and communities.

Professional public administration

The objective of ‘Professional public administration’ is to foster and promote a high performing public service. It ensures effective whole of government performance and outcomes. It protects the values of good public governance, integrity and accountability in support of public trust. It includes: Advice and support to the Governor; Chief Parliamentary Counsel services; Management of Victoria’s public records; Public administration advice and support; and State electoral roll and electoral events.

4.2 Changes in departmental outputs

There was a change in the name of ‘Engaged citizens’ to ‘First Peoples in Victoria are strong and self-determining’ during the year. This output group was renamed due to machinery of government changes effective 1 February 2021 that transferred to the Department of Families, Fairness and Housing: Equality policy and programs; Multicultural affairs policy and programs; Support for veterans in Victoria; Women’s policy; and Youth.

4.3 Departmental outputs — controlled income and controlled expenses

Departmental outputs — controlled income and controlled expenses

Word 70.05 KB

(opens in a new window)

Introduction

The department uses land, buildings, property, plant and equipment in fulfilling its objectives and conducting its output activities. These assets represent the key resources that the department uses for delivering output activities discussed in section 4 of this report.

Structure of this section

5.1 Property, plant and equipment

5.2 Intangible assets

5.3 Depreciation and amortisation

5.4 Fair value determination

5.1 Property, plant and equipment

Key accounting recognition and measurement criteria

Items of property, plant and equipment are measured initially at cost. Where an asset is acquired for nominal cost, the cost is its fair value at the date of acquisition. Assets transferred from/to other departments as part of machinery of government changes are transferred at their carrying amount.

The cost of leasehold improvements are capitalised and depreciated over the shorter of the remaining lease term or estimated useful life.

The initial cost of leased motor vehicles is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments determined at the inception of the lease.

Leases recognised as right-of-use assets are initially measured at cost. This represents the present value of expected future payments resulting from the lease contracts.

In reporting periods subsequent to initial recognition, property, plant and equipment are measured at fair value less accumulated depreciation and impairment. Fair value is determined based on the asset’s highest and best use (considering legal or physical restrictions imposed on the asset, public announcements or commitments made in relation to the intended use of the asset) and is summarised by asset category in the table at 5.1.

Total property, plant and equipment

Notes:

(i) Land and buildings at both Government House and PROV were valued at 30 June 2022 by the Valuer-General of Victoria. The department does not hold any other land and buildings.

(ii) Public records held by PROV and other heritage assets were valued at 30 June 2022 by the Valuer-General of Victoria.

Land and buildings (including heritage buildings)

Land and buildings are classified as specialised land and specialised buildings due to restrictions on the use of these assets. They are valued at fair value. For land valuation purposes, the market approach is used, although this is adjusted for any community service obligations to reflect the specialised nature of the land being valued. Buildings are valued using the current replacement cost method.

For more details on valuation techniques, inputs and processes, refer to Note 5.4.

Leasehold improvements

Leasehold improvements are valued using the historical cost method. Historical cost is used as a close proxy to the current replacement cost due to the short useful lives of these assets.

Office equipment and computer equipment

Office equipment and computer equipment are valued using the historical cost method. Historical cost is used as a close proxy to the current replacement cost due to its short useful life.

Motor vehicles

Vehicles are valued using the current replacement cost method. The department acquires new vehicles and at times disposes of them before the end of their economic life. The process of acquisition use and disposal in the market is managed by experienced fleet managers in the department who set relevant depreciation rates during the life of the asset to reflect the use of the vehicles.

Public records

These assets are valued at fair value. The valuation of these assets is based on a market approach. This involves using market prices and other relevant information generated by market transactions from comparable or similar assets.

For more details on valuation techniques, inputs and processes, refer to Note 5.4.

Other heritage assets

These assets are reported at fair value using the market approach. The market approach compares the value of the subject assets with comparable assets that have sold in the marketplace.

For more details on valuation techniques, inputs, and processes, refer to Note 5.4.

Right-of-use assets acquired by lessees

The department recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for:

• any lease payments made at or before the commencement date less any lease incentive received
• any initial direct costs incurred
• an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located.

The department depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The right-of-use assets are also subject to revaluation.

In addition, the right-of-use assets are periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liabilities.

Refer to the table at 5.1.1(a) for reconciliation of movements in carrying amounts of the department’s right-of-use assets.

5.1.1 Reconciliation of movements in carrying amount of property, plant and equipment

Reconciliation of movements in carrying amount of property, plant and equipment

Word 69.6 KB

(opens in a new window)

Note:

(i) This includes right-of-use assets relating to accommodation leases of the department (refer to Note 5.1.1(a) for further details).

5.1.1(a) Reconciliation of movement in carrying amount of right-of-use assets: buildings and vehicles

The following table is a subset of buildings and leased motor vehicles included in Note 5.1.1 for right-of-use assets.

5.2 Intangible assets

Key accounting recognition and measurement criteria

Purchased intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Depreciation and amortisation begin when the assets are available for use — that is, when they are in the location and condition necessary for them to be capable of operating in the manner intended by management.

Internally generated intangible assets arising from development (or from the development phase of an internal project) are recognised if, and only if, all the following are demonstrated:

• there is an intention to complete the intangible asset for use or sale
• there is an ability to use or sell the intangible asset
• the intangible asset will generate probable future economic benefits
• there is availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset
• there is an ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally generated intangible assets with finite useful lives, are amortised on a straight-line basis over their useful lives.

Intangible assets with indefinite useful lives (and intangible assets not yet available for use) are tested for impairment annually or whenever there is an indication that the asset may be impaired.

5.3 Depreciation and amortisation

All buildings, office and computer equipment and other non-financial physical assets that have finite useful lives are depreciated and intangible assets are amortised over their useful lives.

Depreciation and amortisation are generally calculated on a straight-line basis, at rates that allocate the asset’s value less any estimated residual value, to its useful life. Depreciation and amortisation begin when the asset is first available for use in the location and condition necessary for it to be capable of operating in the manner intended by the department.

Useful life of assets

Typical current and prior year estimated useful lives for the different asset classes are included in the table below.

Note:

(i) Public records are assessed to have an indefinite useful life since the records are preserved in near perfect conditions to ensure they last for an indefinite period.

Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term. Where the department obtains ownership of the underlying leased asset or if the cost of the right-of-use asset reflects that the entity will exercise a purchase option, the entity depreciates the right-of-use asset over its useful life.

Impairment

Non-financial assets — including items of property, plant and equipment or intangible assets — are tested for impairment whenever there is an indication that the asset may be impaired.

The assets concerned are tested as to whether their carrying value exceeds their recoverable amount. Where an asset’s carrying value exceeds its recoverable amount, the difference is considered to be an impairment and is written off as an ‘other economic flow’ in the Comprehensive operating statement, except to the extent that it can be offset against an asset revaluation surplus applicable to that class of asset.

The recoverable amount for most assets is measured at the higher of current replacement cost and fair value less costs to sell.

Assets subject to restriction on use

Heritage assets held by the department generally cannot be modified or disposed of unless ministerial approval is obtained.

5.4 Fair value determination

The department determines the policies and procedures for fair value measurements such as property, plant and equipment in accordance with the requirements of AASB 13 Fair Value Measurement and the relevant Financial Reporting Directions issued by the Department of Treasury and Finance.

In determining fair values, a number of inputs are used. To increase consistency and comparability in the financial statements, these inputs are categorised into three levels, also known as the fair value hierarchy:

• level 1 — quoted (unadjusted) market prices in active markets for identical assets or liabilities
• level 2 — valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
• level 3 — valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Fair value measurement hierarchy

The department determines whether transfers have occurred between levels in the hierarchy by reassessing the categorisation at the end of each reporting period (based on the lowest level input that is significant to the fair value measurement as a whole). There were changes between levels for certain categories of public records from the prior year. During the current financial year, the public records were re-categorised into homogeneous groupings, with some categories measured at level 2 based on prices and other relevant information generated by market transactions involving identical or comparable (or similar) assets. This included sales evidence from auction records, dealer price guides and online databases. Refer to the ‘Public records’ section below, which contains a classification of the fair value hierarchy for each category.

The Valuer‑General Victoria (VGV) is the department’s independent valuation agency. The department engages VGV to carry out professional valuations on a five-year cycle. In the interim years the department, in conjunction with VGV, monitors changes in the fair value of each class of asset through relevant data sources to determine whether a revaluation is required. If a valuation is required, then the department will either carry out a managerial valuation or engage with VGV to value those asset classes.

VGV performed an independent valuation of land, buildings, public records and other heritage assets during the reporting period.

In 2020–21, where a full revaluation was not required, the department conducted a fair value assessment using the regular indices for land and buildings from VGV. Following the assessment and as per FRD103, a managerial valuation adjustment was done due to the movement in fair value being greater than 10%.

The reconciliation of all movements of fair value assets is shown in the table at 5.1.1.

5.4.1 Valuation techniques, inputs and processes

Land and buildings (including heritage buildings)

The market approach is used to value land, although this is adjusted for any community service obligations to reflect the use of the land being valued.

The community service obligations adjustment reflects the valuer’s assessment of the impact of restrictions associated with an asset to the extent that it is equally applicable to market participants. This approach is in light of the highest and best use consideration required for fair value measurement. Relevant valuation factors include what is physically possible, legally permissible and financially feasible. Such adjustments of community service obligations are considered significant unobservable inputs, and valuation of specialised land is classified at level 3 in the fair value measurement hierarchy.

For the department’s buildings, the current replacement cost method is used, adjusting for useful life and associated depreciation. Such adjustments are considered significant unobservable inputs and buildings are classified at level 3 in the fair value measurement hierarchy.

VGV performed an independent valuation of land and buildings. The effective date of the valuation is 30 June 2022. The value of the undeveloped portion of land was discounted due to the identification of contaminated soil. The discount applied reflects the diminished utility of the undeveloped portion of land (refer to the table at 5.4.2). The remaining portion of that parcel of land has been developed, and for valuation purposes, is assumed not to be contaminated, and therefore discounting has not been applied. A contingent liability is recognised for the contaminated land (refer to Note 8.7).

Significant judgement – valuation uncertainty

The fair value of land and buildings are reported on the basis of significant valuation uncertainty caused by the COVID-19 pandemic. This uncertainty may have a significant risk of resulting in a material adjustment to the carrying amount of land and buildings within the next financial year.

At this stage, there is no substantial evidence of significant declines in the market values of land and buildings. It is not expected that this will significantly change. Further, much of the department’s land has restricted zoning and valuation methodologies to reflect the restricted use.

Public records

Public records consist of physical records in a variety of formats. The records described below are largely homogeneous categories based on record type, format or other criteria. They have been classified at either level 2 or level 3 of the fair value measurement hierarchy.

• File — compilation of various records such as correspondences and completed forms (level 3)
• Document — contains one type of record such as a transcript or petition (level 3)
• Map, Plan and Drawing — various sizes and materials that may be flat in structure or rolled in tubes (level 2)
• Volume — records that are bound together such as books (level 3)
• Photograph or Image — this can be in various formats including prints, negatives or slides (level 2)
• Card — includes various types such as index cards, file movement cards or record cards (level 2)
• Moving Image — motion picture film of varying formats (level 2)
• Sound Recording — audio archives (level 2)
• Object — various forms of display items that can be used at exhibitions (level 2)
• Data — electronic records stored on physical media (level 2)
• Icons — collections with significant historical and cultural value (level 2).

VGV performed an independent valuation of public records during the reporting period. The public records were valued from physical inspection of items, either in full or through random sampling. The Object and Icons categories were valued individually, and the remaining categories were valued according to statistical sampling methods.

The valuation of public records adopted the market approach. This involved using market prices and other relevant information generated by market transactions of comparable or similar assets. Comparable sales are identified using subscription databases as well as auction catalogues and other specialised libraries. Since these are government records that are not frequently sold, sales evidence is based on values of similar items adjusted for the unique characteristics of the items being valued.

As public records consist of a range of categories, the valuation technique involved the direct comparison approach; some items also contained unobservable inputs to the fair value measurement. For some categories, adjustments were made to the market value references to account for the unique characteristics of the items being valued adjusting for historical significance or other factors that impact on the item being valued. As those adjustments could not be observed and are based on professional judgements and significant to the fair value measurement, those records have been categorised into level 3 of the fair value hierarchy. Other records that do not contain significant unobservable inputs have been categorised into level 2 of the fair value hierarchy.

The other category of records are the digital records. The digital records are either digitised from a previous physical copy or ’born digital’ where no physical copy exists. Digital records are currently not recognised and ascribed a value due to insufficient market data and cost not being able to be determined to appropriately support the valuation attributed.

Other heritage assets

Other heritage assets include artwork. For artwork, valuation of the assets is determined by a comparison with similar examples of the artist’s work in existence throughout Australia and research on recent prices paid for similar examples offered at auction or through art galleries.

These assets have been assessed with reference to similar assets and do not contain significant unobservable inputs. They are classified at level 2 in the fair value measurement hierarchy.

5.4.2 Description of significant unobservable inputs to level 3 valuations

Description of significant unobservable inputs to level 3 valuations

Word 67.53 KB

(opens in a new window)

Note:

(i) A value of $3,500 per square metre (m²) was used for the developed (uncontaminated) portion of the subject site (comprising 23,000m²) and $350 per square metre (m²) was used for the contaminated area (comprising 9,730m²).

Introduction

This section sets out the other assets and liabilities that arose from the department’s operations and help to contribute to the successful delivery of output operations.

Structure of this section

6.1 Receivables

6.2 Payables

6.3 Other non-financial assets

6.4 Employee benefits

6.5 Other provisions

Key accounting recognition and measurement criteria

Contractual receivables are classified as financial instruments and categorised as ‘financial assets at amortised cost’. They are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment.

The department currently holds financial instruments where the carrying amounts approximate to fair value due to their short-term nature or due to an expectation that they will be paid in full by the end of the 2022–23 reporting period.

Statutory receivables do not arise from contracts and are recognised and measured similarly to contractual receivables (except for impairment) but are not classified as financial instruments. Amounts recognised as receivable from the Victorian Government represent funding for all commitments incurred and are drawn from the Consolidated Fund when the commitments fall due.

Contractual payables are classified as financial instruments and measured at amortised cost. Accounts payable represent liabilities for goods and services provided to the department in the reporting period that are unpaid at the end of the reporting period.

Statutory payables are recognised and measured similarly to contractual payables but are not classified as financial instruments nor included in the category of financial liabilities at amortised cost because they do not arise from contracts.

Deferred capital grant revenues are recognised progressively as the underlying assets are constructed and the department satisfies its obligations under the asset construction contracts. The percentage of contract completion method is used to recognise project funding as income. Any project funding not recognised as revenue at the end of the reporting period is recognised as a liability. There were no such liabilities at the end of this reporting period.

6.1 Receivables

Note:

(i) Represents the balance of available appropriations relating to providing outputs as well as funds available for capital purchases, for which payments had not been disbursed at the balance date, and accordingly had not been drawn from the Consolidated Fund.

6.1.1 Ageing analysis of contractual receivables

The average credit period for sales of goods/services and for other receivables is 30 days. There are no material financial assets that are individually determined to be impaired. Currently the department does not hold any collateral as security nor credit enhancements relating to any of its financial assets.

6.2 Payables

6.3 Other non-financial assets

Prepayments represent payments in advance of receiving goods or services made in one accounting period covering a term extending beyond that period. Prepayments at the end of the financial year include accommodation, software and information technology payments paid in advance.

6.4 Employee benefits

Key accounting recognition and measurement criteria

Provision is made for benefits payable to employees in respect of annual leave and long service leave for services rendered up to the reporting date.

The annual leave liability is classified as a current liability and measured at the undiscounted amount expected to be paid because the department does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

No provision has been made for sick leave because all sick leave is non-vesting and it is not considered probable that the average sick leave taken in the future will be greater than the benefits accrued in the future periods. Because sick leave is non-vesting, an expense is recognised in the Comprehensive operating statement when sick leave is taken.

Unconditional long service leave is disclosed as a current liability, even where the department does not expect to settle the liability within 12 months because it will not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months.

The components of the current long service leave liability are measured at either:

• undiscounted value — if the department expects to wholly settle within 12 months
• present value — if the department does not expect to wholly settle within 12 months.

Conditional long service leave is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. This non-current long service leave is measured at present value.

Any gain or loss following revaluation of the present value of the non-current long service leave liability is recognised in the comprehensive operating statement as a gain or loss from continuing operations, except to the extent that a gain or loss arises due to changes in bond interest rates for which it is then recognised as an ‘other economic flow’ in the net result.

Employment on-costs such as payroll tax, workers compensation and superannuation are disclosed separately as a component of the provision for employee benefits.

The department does not recognise any superannuation fund defined benefit liabilities because it has no legal or constructive obligation to pay such future benefits to its employees. Instead, the Department of Treasury and Finance discloses in its annual financial statements the net defined benefit cost related to the members of these plans as an administered liability (on behalf of the State of Victoria as the sponsoring employer).

6.5 Other provisions

Other provisions are recognised when the department has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, considering the risks and uncertainties surrounding the obligation.

The make-good provision is recognised in accordance with the lease agreement over the accommodation facilities. The department must remove any leasehold improvements from the accommodation facilities and restore the premises to its original condition at the end of the lease term.

Other provisions relate to the best estimate of the consideration required to settle the obligation relating to the announcement of the early retirement scheme. The scheme was voluntary and there were a limited number of early retirement packages available for eligible employees.

Introduction

This section provides information on the sources of financing activities of the department during the financial year.

This section also includes disclosures of balances that are classified as financial instruments (including cash balances) and additional information on managing exposures to financial risks.

Structure of this section

7.1 Borrowings

7.2 Cash balances and cash flow information

7.3 Financial instruments and financial risk management

7.4 Commitments for expenditure

7.5 Trust account balances

7.1 Borrowings

Key accounting recognition and measurement criteria

Borrowings are classified as financial instruments.

All interest-bearing borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. The measurement basis subsequent to initial recognition is at amortised cost. The classification depends on the nature and purpose of the interest-bearing liabilities. The department determines the classification of its interest-bearing liabilities at initial recognition.

Leases recognised under the AASB 16 lease accounting standard are initially measured at the present value of the lease payments unpaid at the commencement date, discounted using an interest rate implicit in the lease if that rate is readily determinable or at the department’s incremental borrowing rate.

Interest expenses include costs incurred in connection with the borrowing of funds or the notional interest cost in leases recognised under the AASB 16 lease accounting standard. Interest expense is recognised in the period in which it is incurred.

The department leases various properties and motor vehicles. The lease contracts are typically made for fixed periods of between one and 10 years with an option to renew the lease.

7.1 (a) Right-of-use assets resulting from leases

Right-of-use assets are presented in Note 5.1.1(a).

7.1 (b) Amounts recognised in the Comprehensive operating statement relating to leases

The following amounts are recognised in the Comprehensive operating statement relating to leases.

7.1 (c) Amounts recognised in the cash flow statement relating to leases

The following amounts are recognised in the ‘cash flow statement’ relating to leases.

Leases

For any new contracts entered into, the department considers whether contracts contain leases. A lease is defined as a contract that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. To apply this definition the department assesses whether the contract meets all three of the following key evaluations:

• whether the contract contains an identified asset that is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the department and for which the supplier does not have substantive substitution rights
• whether the department has the right to benefit substantially from all the economic benefits from using the asset throughout the contract period, and has the right to direct the use of the asset throughout the contract period
• whether the department has the right to make decisions in respect of ‘how and for what purpose’ the asset is used throughout the contract period.

Separation of lease and non-lease components

At inception or on reassessment of a contract that contains a lease component, the lessee is required to account separately for non-lease components within the contract and exclude these amounts when determining the lease liability and right-of-use asset amount.

Lease payments included in the measurement of the lease liability comprise:

• fixed payments (including in-substance fixed payments) less any lease incentive receivable
• variable payments based on an index or rate, initially measured using the index or rate on the commencement date
• amounts expected to be payable under a residual value guarantee
• payments arising from purchase and termination options reasonably certain to be exercised.

Subsequent to initial measurement, the liability is reduced for payments made and increased for interest changes. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset or in the comprehensive operating statement if the right-of-use asset is already reduced to zero.

Short-term leases and leases of low-value assets

The department has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in the comprehensive operating statement when the expenditure is incurred.

Presentation of right-of-use assets and lease liabilities

The department discloses right-of-use assets as ‘Property plant and equipment’. Lease liabilities are presented as ‘Borrowings’ in the balance sheet.

7.2 Cash balances and cash flow information

7.2.1 Cash balances

Cash at bank includes deposits at call held at the bank and trust account balances held in the State of Victoria’s bank account (‘public account’). Cash received by the department is paid into the public account. Similarly, expenditure for payments to suppliers and creditors are made via the public account. The public account remits to the department the cash required based on payments to suppliers or creditors.

7.2.2 Reconciliation of the net result for the period to the cash flow from operating activities

7.3 Financial instruments and financial risk management

Key accounting recognition and measurement criteria

Introduction

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

The department applies AASB 9 Financial Instruments and classifies all financial assets based on the business model for managing the assets and the assets’ contractual terms.

Financial assets at amortised cost

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

Financial assets at amortised cost include the department’s cash and deposits and trade receivables, but not statutory receivables.

Financial liabilities at amortised cost

Financial liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. After initial measurement, these financial instruments are measured at amortised cost using the effective interest method.

Financial liabilities measured at amortised cost include all the department’s contractual payables and lease liabilities (borrowings).

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the asset have expired.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or, cancelled, or expires.

Offsetting financial instruments

Financial instrument assets and liabilities are offset and the net amount disclosed in the balance sheet when, and only when, there is a legal right to offset the amounts and the department intends to settle on a net basis or to realise the asset and settle the liability simultaneously.

Categories of financial assets and liabilities

The following table shows the department’s categorisation of financial assets and financial liabilities.

The department’s main financial risks include credit risk, liquidity risk and market risk.

Credit risk

Credit risk refers to the possibility that a debtor will default on its financial obligations as and when they fall due. Credit risk associated with the department’s contractual financial assets is minimal because the main debtors are other Victorian Government entities. Credit risk is measured at fair value and is monitored on a regular basis.

Considering the minimal credit risk, there is no expected credit loss for contractual receivables as per AASB 9 Financial Instruments Expected Credit Loss approach.

Liquidity risk

Liquidity risk arises when the department is unable to meet its financial obligations as they fall due. The department’s exposure to liquidity risk is deemed insignificant based on a current assessment of risk.

The department is exposed to liquidity risk mainly through the financial liabilities as disclosed in the balance sheet. The department manages its liquidity risk by:

• maintaining an adequate level of uncommitted funds that can be drawn at short notice to meet its short-term obligations
• careful maturity planning of its financial obligations based on forecasts of future cash flows.

Market risk

The department’s exposure to market risk is primarily through interest rate risk. The department has no material exposure to foreign currency and other price risks.

Interest rate risk

The department’s exposure to interest rate risk is insignificant and arises primarily through the department’s lease liabilities. The department manages the risk by undertaking interest-bearing liabilities, which are motor vehicles and accommodation leases under fixed-rate contracts.

7.4 Commitments for expenditure

Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are recorded at their nominal value and include GST. Where it is considered appropriate and provides relevant information to users, the net present values of significant individual projects are stated. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet.

The department also has grant payment commitments. These commitments are unquantifiable since final grant payments to recipients are based on achieving performance milestones that may or may not be met and will affect the payment of those grants.

7.5 Trust account balances

Trust account balances

Word 68.4 KB

(opens in a new window)

Introduction

This section includes additional disclosures required by accounting standards or otherwise for the understanding of this financial report.

It also provides information on administered items.

Structure of this section

8.1 Other economic flows

8.2 Responsible persons

8.3 Executive remuneration

8.4 Related parties

8.5 Remuneration of auditors

8.6 Restructuring of administrative arrangements

8.7 Contingent assets and contingent liabilities

8.8 Administered items

8.9 Other accounting policies and Australian Accounting Standards issued but not yet effective

8.10 Subsequent events

8.1 Other economic flows

Other economic flows are changes in the value of an asset or liability that do not result from transactions. Gains/(losses) from other economic flows include the gains or losses from:

• the disposal of leased motor vehicles
• impairments of non-current physical and intangible assets
• the revaluation of the present value of the long service and recreational leave liability due to changes in the bond interest rate.

8.2 Responsible persons

In accordance with the Ministerial Directions issued by the Assistant Treasurer under the Financial Management Act, the following disclosures are made regarding responsible persons for the reporting period.

Names

The persons who held the position of Minister and Accountable Officer in the department (from 1 July 2021 to 30 June 2022 unless otherwise stated) were:

The persons who acted in positions of Minister and Accountable Officer in the department (from 1 July 2021 to 30 June 2022) were:

Remuneration

Remuneration received or receivable by the Accountable Officer in connection with managing the department during the reporting period was in the range of $740,000–$749,999 (2020–21: $630,000–$639,999).(1)

Note: (i) Remuneration received or receivable by the Accountable Officer (s) in 2020–21 was lower than the current year due to the transition of Secretaries during that year. Remuneration received includes salary and superannuation paid in the year. Remuneration receivable includes the value of accrued leave entitlements.

8.3 Executive remuneration

The number of executive officers, other than ministers and accountable officers, and their total remuneration during the reporting period are shown in the table below. Total annualised employee equivalents provide a measure of full-time equivalent executive officers over the reporting period.

Remuneration comprises employee benefits in all forms of consideration paid, payable or provided by the department or on behalf of the department, in exchange for services rendered, and is disclosed in the following categories:

• Short-term employee benefits include amounts such as wages, salaries, annual leave or sick leave that are usually paid or payable on a regular basis, as well as non-monetary benefits such as allowances and free or subsidised goods or services.
• Post-employment benefits include pensions and other retirement benefits paid or payable on a discrete basis when employment has ceased.
• Other long-term benefits include long service leave, other long-service benefits or deferred compensation.
• Termination benefits include termination of employment payments.

Notes:

(i) The total number of executive officers includes people who meet the definition of key management personnel of the entity under AASB 124 Related Party Disclosures and are also reported within the related parties note disclosure (Note 8.4).

(ii) Annualised employee equivalent is based on the time fraction worked over the reporting period.

8.4 Related parties

The department is a wholly owned and controlled entity of the State of Victoria.

Related parties of the department, Victorian Independent Remuneration Tribunal and Wage Inspectorate Victoria include:

• all key management personnel and their close family members and personal business interests (controlled entities, joint ventures and entities they have significant influence over)
• all Cabinet ministers and their close family members
• all departments and public sector entities that are controlled and included in the whole of state consolidated financial statements.

Significant transactions with government-related entities

The department received funding from the Consolidated Fund totalling $650.5 million (2021: $607.4 million). Refer to Note 2.1 for details.

Key management personnel

The department’s key management personnel from 1 July 2021 to 30 June 2022 included:

The Premier

• The Hon Daniel Andrews MP

Portfolio ministers

• The Hon James Merlino MP
• The Hon Jacinta Allan MP
• Gabrielle Williams MP
• Tim Pallas MP
• The Hon Danny Pearson MP

Secretary

• Jeremi Moule

Deputy Secretaries

• Toby Hemming
• Tim Ada
• Chris Miller
• Vivien Allimonos
• Kate Houghton
• Travis Lovett
• Elly Patira
• Matt O’Connor
• Sandy Pitcher
• Michael McNamara

Executive Director, Corporate Services

• Genevieve Dolan
• Kylie Callander

Key management personnel of the administrative offices included in the department’s financial statements and other statutory appointees that are material in terms of the department’s financial results include:

Administrative offices

• Justine Heazlewood — The Keeper of Public Records of Public Record Office Victoria
• Joanne de Morton — Chief Executive Officer of Service Victoria

The compensation detailed below excludes the salaries and benefits of portfolio ministers. Ministers’ remuneration and allowances are set by the Parliamentary Salaries and Superannuation Act 1968 and is reported in the State’s Annual Financial Report.

Transactions with key management personnel and other related parties

Given the breadth and depth of state government activities, related parties transact with the Victorian public sector on terms and conditions equivalent to those that prevail in arm’s length transactions under the State’s procurement process. Further employment of processes within the Victorian public sector occurs on terms and conditions consistent with the Public Administration Act, codes of conduct, and standards issued by the Victorian Public Sector Commission. Procurement processes occur on terms and conditions consistent with Victorian Government Procurement Board requirements.

During the financial year the department’s Secretary, Jeremi Moule, was a member of the board of directors of the Australian New Zealand School of Government (ANZSOG). Since 2002 the department has transactions that occurred with ANZSOG that prevail at arm’s length under the State’s procurement processes.

Outside of normal citizen-type transactions with the department, there were no other related party transactions that involved key management personnel or their close family members. No provision has been required, nor any expense recognised, for impairment of receivables from related parties.

8.5 Remuneration of auditors

8.6 Restructuring of administrative arrangements

Transfers out of the department

The following transfer of public sector reform from the department (the transferor) to the Victorian Public Sector Commission was based on the declaration pursuant to section 28(1) of the Public Administration Act taking effect on 1 July 2021:

Note:

(i) The net assets (liabilities) transferred were treated as a transfer of contributed capital provided by the State of Victoria.

8.7 Contingent assets and contingent liabilities

Key accounting recognition and measurement criteria

Contingent assets and contingent liabilities are not recognised in the balance sheet but are disclosed and, if quantifiable, measured at nominal value.

Contingent assets and liabilities are presented inclusive of GST.

Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the department.

These are classified as either quantifiable, where the potential economic benefit is known, or non-quantifiable.

Contingent liabilities are:

• possible obligations that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the department, or
• present obligations that arise from past events but are not recognised because:
  • it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligations, or
  • the amount of the obligations cannot be measured with sufficient reliability.

Contingent liabilities are also classified as either quantifiable or non-quantifiable.

Contingent liabilities

Quantifiable contingent liabilities

Non-quantifiable contingent liabilities

Digital Victoria contracts

The department has executed several procurement contracts on behalf of Digital Victoria, which includes an indemnity clause. This indemnity clause implies that the department may be liable to reimburse financial claims in the future. It is impractical to quantify those potential future claims at this point in time.

Contaminated land — PROV (North Melbourne)

The department has a potential contingent liability arising from remediation that may be required if the undeveloped area of land, which is contaminated, is further developed. This area of land has been maintained in a vegetated state to reduce the possibility of any erosion and windborne dust generation. Due to recent changes in environmental laws, there will be an application lodged with the Environmental Protection Authority Victoria (EPA), which will include an assessment from an independent consultant, to clarify the classification of the contamination. The liability for any remediation works is contingent upon the outcome of the application to the EPA, and any plans to further develop or sell the undeveloped portion of land. At this stage the undeveloped area of land is not expected to be developed, sold or further remediated which makes it impractical to quantify the financial effects of this contingent liability. As of 30 June 2022, there has been no legal or constructive obligation identified and as such there has been no provision recognised.

(2021: nil).

Contingent assets

There were no contingent assets as at the reporting date. (2021: nil).

8.8 Administered items

Key accounting recognition and measurement criteria

Administered transactions relating to income, assets and liabilities are determined on an accrual basis.

The below transactions and balances relate to administered items and are not included elsewhere in these financial statements because the department does not control these activities. However, the department remains accountable to the State for the transactions involving these administered resources even though it does not have the discretion to deploy these resources for its own benefit or to achieve its objectives. The most significant transactions in this category include appropriations received and on-passed to the Victorian Electoral Commission for electoral entitlements, disposal of vehicles under leases, the Public Service Commuter Club and other Treasury and departmental trusts.

Notes:

(i) The State’s investment in all its controlled entities is disclosed in the administered note of the Department of Treasury and Finance’s financial statements. This includes the investment in the department’s portfolio entities.

(ii) This includes funds in trust for the portfolio agencies held in the State’s public account.

Administered trust account balances

The table below provides additional information on individual administered trust account balances.

Administered trust account balances

Word 67.58 KB

(opens in a new window)

8.9 Other accounting policies and Australian Accounting Standards issued but not yet effective

Other accounting policies — contributions by owners

In relation to machinery of government changes and consistent with the requirements of AASB 1004 Contributions, contributions by owners, contributed capital and its repayments are treated as equity transactions and do not form part of the department’s income and expenses.

Additions to net assets that have been designated as contributions by owners are recognised as contributed capital. Other transfers that are contributions to, or distributions by, owners are designated as contributions by owners.

Transfers of net assets or liabilities arising from administrative restructurings are treated as distributions to, or contributions by, owners.

Australian Accounting Standards issued but not yet effective

Certain new and revised accounting standards have been issued but are not effective for the 2021–22 reporting period. These accounting standards have not been applied to the department’s financial statements. The State is reviewing its existing policies and assessing the potential implications of these accounting standards which includes the following.

Standard/interpretation

• AASB 2020-1 Amendments to Australian Accounting Standards — Classification of Liabilities as Current or Non-current

Summary

This Standard amends AASB 101 to clarify requirements for the presentation of liabilities in the statement of financial position as current or non-current. A liability is classified as non-current if an entity has the right at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period. The meaning of settlement of a liability is also clarified.

AASB 2020-6 Amendments to Australian Accounting Standards — Classification of Liabilities as Current or Non-current — Deferral of Effective Date was issued in August 2020 and defers the effective date to annual reporting periods beginning on or after 1 January 2023 instead of 1 January 2022, with earlier application permitted.

Applicable for annual reporting periods beginning on 1 January 2023

Impact on public sector entity financial statements

• The amended standard is not expected to have a significant impact on the public sector.

Several other amending standards and AASB interpretations have been issued that apply to future reporting periods but are considered to have limited impact on the department’s reporting:

• AASB 2020-3 Amendments to Australian Accounting Standards — Annual Improvements 2018–2020 and Other Amendments
• AASB 2021-2 Amendments to Australian Accounting Standards — Disclosure of Accounting Policies and Definitions of Accounting Estimates
• AASB 2021-6 Amendments to Australian Accounting Standards — Disclosure of Accounting Policies: Tier 2 and Other Australian Accounting Standards
• AASB 2021-7 Amendments to Australian Accounting Standards — Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections .

8.10 Subsequent events

No significant events have occurred since 30 June 2022 that will have a material impact on the information disclosed in the financial statements.