Annual Report 2018–19

Tabled: 29 August 2019

7 Managing our finances

7.1 Current year financial review

Our primary fiscal objective is to minimise our costs to parliament and our public sector fee-paying clients, while maintaining the effectiveness and quality of our services and their delivery.

Our financial performance and position are, as a rule, predictable year on year, as the nature of our business and its scale does not change substantially. This year's results reflect the ongoing embedding of our change initiatives.

 

Figure 7A
Financial summary 2018–19 and previous four years

Item

2018–19 ($'000)

2017–18 ($'000)

2016–17 ($'000)

2015–16 ($'000)

2014–15 ($'000)

Movement from 2017–18 to 2018–19 ($'000)

Change from 2017–18 to 2018–19 (percentage)

Total revenue

44 831

45 276

43 763

41 384

39 698

(445)

-1%

Total expenses

43 216

43 263

46 907

41 301

39 161

47

0%

Surplus/deficit

1 615

2 013

(3 144)

83

537

(398)

-20%

Financial assets

20 608

19 955

25 619

16 962

15 019

653

3%

Non-financial assets

5 639

5 968

6 463

1 386

1 803

(329)

-6%

Total assets

26 247

25 923

32 082

18 348

16 822

324

1%

Total liabilities

12 399

18 360

26 532

9 654

8 211

(5 961)

-32%

Net assets

13 848

7 563

5 550

8 694

8 611

6 285

83%

Surplus/deficit

We aim to break even over the medium term, understanding that in some years we need to invest in new technology and update our audit methodologies. This will lead to deficits in those years, which we fund from our working capital reserves. In other years, we will make small surpluses, which will replenish our reserves.

This year we made a surplus indicating that we are operating in a fiscally responsible and sustainable manner.

Figure 7B
Surplus/deficit as percentage of total revenue

2018–19

2017–18

2016–17

2015–16

2014–15

Five-year average

3.6%

4.4%

-7.2%

0.2%

1.4%

0.5%

This year's surplus was due largely to a continued realisation of cost savings across all expense categories, with a focus on IT consultants.

Net assets

We remain in a strong financial position, with the improvement in our financial position driven by the operating surplus and the repayment of the public account advance funded by contributed capital. Working capital is sufficient to fund our operations over the forward estimates period.

Figure 7C
Net assets as a percentage of total assets

2018–19

2017–18

2016–17

2015–16

2014–15

Five-year average

52.8%

29.2%

17.3%

47.4%

51.2%

37.1%

The future

We budget for breakeven in 2019–20, as we continue to implement our organisational transformation activities.

7.2 Financial performance

Operating statement

Our net financial result for the year was a surplus of $1 615 000, compared with a surplus of $2 013 000 in 2017–18.

Figure 7D
Revenues and expenses

Item

2018–19 ($'000)

2017–18 ($'000)

2016–17 ($'000)

2015–16 ($'000)

2014–15 ($'000)

Movement from 2017–18 to 2018–19 ($'000)

Change from 2017–18 to 2018–19 (percentage)

General appropriation

17 004

16 589

16 184

15 789

15 404

415

3%

Special appropriation

577

569

590

576

541

8

1%

Section 29

27 061

27 942

26 586

24 732

23 536

(881)

-3%

Other

189

176

403

287

217

13

8%

Total revenue

44 831

45 276

43 763

41 384

39 698

(445)

-1%

Total expenses

43 216

43 263

46 907

41 301

39 161

(47)

0%

Surplus/(deficit)

1 615

2 013

(3 144)

83

537

(398)

-20%

Revenue

We are funded through parliamentary appropriations and Financial Management Act 1994 section 29 revenue.

Our total revenue has been rising steadily over the past several years. It decreased 1 per cent in 2018–19 through a combination of slightly lower section 29 revenue from audit engagement fees, offset by the indexation of our general appropriation in line with inflation.

Other revenue increased due to an increase in the reimbursement for performing the ACAG Financial Reporting and Accounting Council secretariat role.

Expenses

We spend most of our budget on employees, contract audit services including audit service providers, and miscellaneous expenses, such as accommodation, supplies and services.

Figure 7E
Expenses from ordinary activities

Item

2018–19 ($'000)

2017–18 ($'000)

2016–17 ($'000)

2015–16 ($'000)

2014–15 ($'000)

Movement from 2017–18 to 2018–19 ($'000)

Change from 2017–18 to 2018–19 (percentage)

Depreciation

804

839

583

657

765

(35)

-4%

Employee expenses

23 838

23 801

27 809

23 715

23 238

38

0%

Contract audit services

12 825

12 547

12 154

11 893

10 446

278

2%

Rental expenses – accommodation

1 946

1 864

1 530

1 520

1 514

82

4%

Other expenses

3 803

4 212

4 831

3 516

3 198

(409)

-10%

Total expenses

43 216

43 263

46 907

41 301

39 161

(47)

0%

Our employee expenses were consistent with the prior year, due to a lower overall headcount countering pay increases.

Our depreciation expense has slightly declined in the current year due to a small number of assets being fully depreciated.

Our audit service provider contractor expenditure of $11.53 million is broadly in line with last year's ($11.80 million). We continue to use contracted subject‑matter experts in our performance audit area ($1 290 000 compared to $743 000 in 2017–18) to make sure we have the skills and knowledge needed to evaluate complex programs and services.

Our rental expenditure comprises base rental costs, common tenancy maintenance costs and other outgoings.

The 10 per cent decrease in remaining expenses reflects the organisation's ongoing transformation activities and focus on change initiatives.

7.3 Financial position

Balance sheet

Our financial position at 30 June 2019 remained strong, with total assets of $26.2 million, total liabilities of $12.4 million and net assets of $13.8 million.

Figure 7F
Assets and liabilities movement

Item

2018–19 ($'000)

2017–18 ($'000)

2016–17 ($'000)

2015–16 ($'000)

2014–15 ($'000)

Movement from 2017–18 to 2018–19 ($'000)

Change from 2017–18 to 2018–19 (percentage)

Financial assets

20 608

19 955

25 619

16 962

15 019

653

3%

Non-financial assets

5 639

5 968

6 463

1 386

1 803

(329)

-6%

Total assets

26 247

25 923

32 082

18 348

16 822

324

1%

Total liabilities

12 399

18 360

26 532

9 654

8 211

(5 961)

-32%

Net assets

13 848

7 563

5 550

8 694

8 611

6 285

83%

Assets

Our total financial assets increased by $0.6 million related to the State Administration Unit receivable. The increase was due to the operating surplus, offset by a decrease in payables.

Non-financial assets have decreased by $0.3 million due to depreciation of assets being only partially offset by new asset acquisitions.

Liabilities

Our liabilities decreased by $5.9 million (32 per cent), primarily due to the partial repayment of the public account advance of $4.7 million, and significantly lower payables and accruals due to the timing of payment runs aligning with year end.

7.4 Cash flows

Cash flow statement

We keep a base cash balance of $900 in petty cash. All other bank balances are transferred overnight to the state government as part of our government banking arrangement.

Figure 7G
Cash flow statement

Item

2018–19 ($'000)

2017–18 ($'000)

Change ($'000)

Change (percentage)

Net cash flows from / (used in) operating activities

(4 230)

488

(4 718)

-967%

Net cash flows from / (used in) investing activities

(461)

(346)

(115)

33%

Net cash flows from / (used in) financing activities

4 691

(142)

4 833

-3 413%

Net increase / (decrease) in cash held

-

-

-

-

Cash at the beginning of the financial year

1

1

-

0%

Cash at the end of the financial year

1

1

-

0%

Our net surplus for the year under an accrual basis is $1.61 million. The net cash outflow from operating activities of $4.23 million was due to the repayment of $4.7 million of the public account advance and the decrease in payables.

7.5 Other financial matters

Financial report

Under Standing Direction 4.2 of the Financial Management Act 1994, the financial statements of government departments must be presented fairly and in accordance with the requirements in the model financial report. This annual report complies with this requirement.

Consultancies

In 2018–19, we engaged six consultancies that had total fees payable greater than $10 000, as outlined in Figure 7H. We also engaged two consultancies where the total fees payable were less than $10,000, with a total expenditure of $13 000 (excluding GST).

Figure 7H
Consultancies—payments in excess of $10,000

Consultancy

Purpose of consultancy

Start date

End date

Total approved project fee (excluding GST) ($'000)

Expenditure 2018–19 (excluding GST) ($'000)

Future expenditure (excluding GST) ($'000)

ArcBlue Asia Pacific

Audit Service Provider Panel project

18-Mar-19

15-Apr-19

13

13

-

Bastion S & GO Pty Ltd

Advice on stakeholder engagement

3-Sep-18

16-Oct-18

62

62

-

Cube Group

Business continuity plan – impact assessment

4-Apr-19

18-Apr-19

13

13

-

Protiviti Pty Ltd

Development of fraud and corruption control plan

29-Oct-18

17-Dec-18

37

37

-

Sense of Security

Development of physical & operational controls

13-Jun-18

29-Jun-18

14

14

-

Performance audit consultants

In 2018–19, we paid $1.29 million ($0.74 million in 2017–18) to 25 consultants for services related to performance audits.

Figure 7I
Payments to performance audit consultants

Performance audit consultants

2018–19 ($'000)

2017–18 ($'000)

ACER

-

27

Aski

105

235

Cathy Edmonds

11

-

Dr Penelope Mitchell

17

-

Eileen Hayes

16

-

Finity Consulting Pty Ltd

107

180

Frontier Economics Pty Ltd

43

-

GHD Pty Ltd

245

-

Guidera Consulting Group Pty Ltd

-

81

Hivint Pty Ltd

83

-

KordaMentha Forensic

-

137

Lion Partnership

-

40

Monash University

29

-

Notitia Pty Ltd

11

-

O'Connor Marsden & Associates Pty Ltd

102

-

Paul Tridgell Pty Ltd

42

-

Privasec Pty Ltd

58

-

Protiviti Pty Ltd

167

-

Rail Advisory Services Pty Ltd

29

-

Risk Insights Pty Ltd

40

-

Security Infrastructure Solutions

150

-

TDF Advisory Services Pty Ltd

12

-

Victorian Government Solicitor's Office(a)

-

20

Other – 7 service providers (5 in 2017–18)

23

23

Total

1 290

743

(a) The Victorian Government Solicitor's Office was engaged to provide legal advice on audits.

Financial audit service providers and consultants

In 2018–19, we paid $11.5 million ($11.8 million in 2017–18) to 29 audit firms or consultants that provided services related to our financial statement audits.

Figure 7J
Payments to financial audit service providers and consultants

Financial audit service provider and consultants

2018–19 ($'000)

2017–18 ($'000)

Accounting and Auditing Solutions

72

67

BDO East Coast Partnership

25

-

Crowe Horwath

866

834

Crowe Horwath Albury

391

485

Crowe Horwath Vic

560

636

Crowe Horwath West Vic

56

88

Davidsons Assurance Services Pty Ltd

39

44

Deloitte Access Economics Pty Ltd

48

-

Deloitte Actuaries & Consultants Ltd

15

-

DFK Kidsons

259

268

DMG Audit and Advisory

301

241

Ernst & Young

1 276

801

HLB Mann Judd (VIC Partnership)

2 491

2 601

Johnsons MME

426

383

KPMG

131

543

LD Assurance

108

135

McLaren Hunt

432

405

McLean Delmo Bentleys Pty Ltd

490

517

MGR Accountants Pty Ltd

-

20

Moore Stephens Audit (Vic)

29

39

PPT Professional Pty Ltd

25

62

RSD Audit

1 095

1 036

RSM Australia Pty Ltd

2 370

2 567

Shine Wing Australia

11

-

Other—6 service providers (3 in 2017–18)

19

32

Total

11 535

11 804

Information and communications technology expenditure

In 2018–19, we had ICT expenditure of $2 073 000.

Figure 7K
ICT expenditure

Expenditure type

Expenditure ($'000)

Business as usual (BAU) ICT expenditure

1 465

Non-BAU ICT expenditure

608

Operational expenditure

200

Capital expenditure

408

ICT expenditure refers to our costs in providing business-enabling ICT services. It comprises BAU ICT expenditure and non-BAU ICT expenditure. Non-BAU ICT expenditure relates to extending or enhancing our current ICT capabilities. BAU ICT expenditure is all remaining ICT expenditure which primarily relates to ongoing activities to operate and maintain the current ICT capability.

Whole-of-government financial statements

Figure 7L is a comprehensive operating statement for the parliament portfolio that provides a comparison between our actual financial statements and the forecast financial information published in the Statement of Finances 2018–19: Budget Paper No.5 (BP5). The financial data has been prepared on a consolidated basis and includes all general government sector entities within the portfolio. Financial transactions are classified into either controlled or administered categories, as agreed with the Treasurer in the context of the published statements in BP5. The following statement is not subject to audit and is not prepared on the same basis as VAGO's financial statements as it includes the consolidated financial information of the parliament entity.

Figure 7L
Comprehensive operating statement for parliament

 

2018–19

Budget

Actual

Variance(b)

parliament ($'000)

VAGO ($'000)

Controlled parliament(a) ($'000)

VAGO ($'000)

VAGO ($'000)

Income from transactions

Output appropriations

136 909

43 466

180 375

44 065

599

Special appropriations

48 846

572

49 418

577

5

Sale of goods and services

26 742

-

26 742

151

151

Grants

486

-

486

-

-

Fair value of services received free of charge or for nominal consideration

-

45

45

38

(7)

Total income from transactions

212 983

44 083

257 066

44 831

748

Expenses from transactions

Employee benefits

110 928

25 452

136 380

23 838

1 614

Depreciation and amortisation

15 118

931

16 049

804

127

Interest expense

88

2

90

17

(15)

Capital asset charge

6 732

376

7 108

376

-

Payments into consolidated fund

27 047

-

27 047

-

-

Other operating expenses

52 917

17 322

70 239

18 035

(713)

Total expenses from transactions

212 830

44 083

256 913

43 070

1 013

Net result from transactions (net operating balance)

153

-

153

1 761

1 761

(a) Budget figures are as published in Statement of Finances 2018–19: Budget Paper No.5, page 146 (shown in $millions).

(b) For income items, the variance is positive if actual exceeds budget. For expense items, the variance is positive if budget exceeds actual.

7.6 Financial statements

Declaration in the financial statements

Independent Auditor's Report

Comprehensive Operating Statement

Balance Sheet

Cash Flow Statement

Statement of Changes in Equity

Notes to financial statements

  1. About this report
  2. Funding delivery of our services
  3. The cost of delivering our services
  4. Controlled and administered items
  5. Key assets available to support output delivery
  6. Other assets and liabilities
  7. How we financed operations
  8. Risks and valuation judgements
  9. Other disclosures

Declaration in the Financial Statements

The attached financial statements for the Victorian Auditor-General's Office (VAGO) have been prepared in accordance with Direction 5.2 of the Standing Directions of the Assistant Treasurer under the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards including Interpretations, and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and accompanying notes, presents fairly the financial transactions during the year ended 30 June 2019 and financial position of VAGO at 30 June 2019.

At the time of signing, we are not aware of any circumstance which would render any particulars included in the financial statements to be misleading or inaccurate.

We authorise the attached financial statements for issue on 23 August 2019.

AndrewGreavesSig.PNG

Andrew Greaves
Auditor-General
Victorian Auditor-General's Office

Melbourne 23 August 2019

NarelleWhinfield.PNG

 

 

Narelle Whinfield
Finance Director
Victorian Auditor-General's Office

Melbourne 23 August 2019

Independent Auditor's Report

Independent Auditor's Report on our financial statement

 

Independent Auditor's Report on our financial statement

Comprehensive Operating Statement

for the financial year ended 30 June 2019

 

Note

2018–19

2017–18

   

$'000

$'000

Income from transactions

Output appropriations

2.1

44,065

44,531

Special appropriations

 

577

569

Sale of services and other income

2.2.1

189

176

Total income from transactions

 

44,831

45,276

       

Expenses from transactions

Employee expenses

3.1.1

23,838

23,801

Contracted audit services provided by professional firms

3.2

12,825

12,547

Operating lease payments - accommodation

3.3

1,946

1,864

Depreciation

5.1.2

804

839

Interest expense

 

17

14

Consultants and contractors

 

544

982

Other operating expenses

3.4

3,096

3,103

Total expenses from transactions

 

43,070

43,150

       

Net result from transactions (net operating balance)

 

1,761

2,126

       

Other economic flows included in net result

Net gain / (loss) on non-financial assets

7.2.1

3

(29)

Other gains / (losses) from other economic flows

 

(149)

(84)

Total other economic flows included in net result

 

(146)

(113)

       

Net result

 

1,615

2,013

       

Comprehensive result gain / (loss)

 

1,615

2,013

The accompanying notes form part of these financial statements.

Balance Sheet

as at 30 June 2019

 

Note

2018–19

2017–18

   

$'000

$'000

Assets

Financial assets

Cash

7.2

1

1

Receivables

6.1

20,607

19,954

Total financial assets

 

20,608

19,955

         

Non-financial assets

Property, plant and equipment and intangible assets

5.1.2

5,064

5,403

Other non-financial assets

6.2

575

565

Total non-financial assets

 

5,639

5,968

         

Total assets

 

26,247

25,923

         

Liabilities

Payables

6.3

6,332

12,546

Finance lease liabilities

7.1

176

155

Employee related provisions

3.1.2

4,869

4,880

Other provisions

6.4

1,022

779

Total liabilities

 

12,399

18,360

       

Net assets

 

13,848

7,563

       

Equity

Accumulated surplus

 

8,883

7,268

Contributed capital

2.1

4,965

295

Net worth

 

13,848

7,563

The accompanying notes form part of these financial statements.

Cash Flow Statement

for the financial year ended 30 June 2019

 

Note

2018–19

2017–18

   

$'000

$'000

Cash flows from operating activities

Receipts

Appropriation receipts from Government

 

46,648

57,457

Receipts from other entities

 

151

143

Total receipts

 

46,799

57,600

       

Payments

Payments to suppliers and employees

 

(50,020)

(55,877)

Goods and Services Tax paid to the ATO(i)

 

(628)

(873)

Capital asset charge payments

 

(376)

(359)

Interest and other costs of finance paid

 

(5)

(3)

Total payments

 

(51,029)

(57,112)

Net cash flows from / (used in) operating activities

7.2.1

(4,230)

488

       

Cash flows from investing activities

Purchases of non-financial assets

 

(481)

(494)

Sales of non-financial assets

 

20

148

Net cash flows from / (used in) investing activities

 

(461)

(346)

       

Cash flows from financing activities

Owner contributions – appropriation for capital expenditure purposes

2.1

4,670

-

Proceeds from finance leases

 

72

73

Repayment of finance leases

 

(51)

(215)

Net cash flows from / (used in) financing activities

 

4,691

(142)

       

Net increase / (decrease) in cash held

 

-

-

Cash at the beginning of the financial year

 

1

1

Cash at the end of the financial year

7.2

1

1

The accompanying notes form part of these financial statements.

(i) Goods and Services Tax paid to the ATO is presented on a net basis.

Statement of Changes in Equity

for the financial year ended 30 June 2019

 

Accumulated

Contributed

TOTAL

 

surplus

capital

 
 

$'000

$'000

$'000

       

Balance at 1 July 2017

5,255

295

5,550

Net result for the year

2,013

-

2,013

Balance at 30 June 2018

7,268

295

7,563

Net result for the year

1,615

-

1,615

Capital appropriations

-

4,670

4,670

Balance at 30 June 2019

8,883

4,965

13,848

The accompanying notes form part of these financial statements.

Notes to financial statements

1. ABOUT THIS REPORT

The Victorian Auditor-General's Office (VAGO) and the Auditor-General's mandate are established pursuant to:

the Constitution Act 1975, which establishes the role of the Auditor-General and gives the Auditor-General complete discretion in the performance and exercise of his functions and powers

the Audit Act 1994, which establishes the Auditor-General's mandate, provides the legal basis for his powers, and identifies his responsibilities.

VAGO is an administrative agency acting on behalf of the Crown. Our address is: Level 31, 35 Collins Street, Melbourne, VIC, 3000.

A description of the nature of VAGO's operations and its principal activities and objectives is included in the report of operations, which does not form part of these financial statements.

Basis of preparation

These financial statements cover VAGO as an individual reporting entity and include all of its controlled activities.

These financial statements are prepared in Australian dollars and use the historical cost convention unless a different measurement basis is specifically disclosed in the note associated with the item. They apply an accrual basis of accounting 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.

Consistent with the requirements of AASB 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of VAGO. Additions to net assets which have been designated as contributions by owners are recognised as contributed capital. Other transfers that are in the nature of contributions to or distributions by owners have also been designated as contributions by owners.

Judgements, estimates and assumptions are made about financial information being presented. Significant judgements are in the notes where amounts affected by those judgements are disclosed. Estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors believed reasonable under the circumstances. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised.

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 in accordance with the Financial Management Act 1994 (FMA) and applicable Australian Accounting Standards (AAS) which include Interpretations, issued by the Australian Accounting Standards Board (AASB). In particular, they are presented in a manner consistent with the requirements of AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049).

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

2. FUNDING DELIVERY OF OUR SERVICES

2.1 Summary of compliance with annual parliamentary and special appropriations

The following table discloses the details of the various annual parliamentary appropriations received by VAGO for the year.

'Provision for outputs' are disclosed as 'controlled' activities of VAGO. Administered transactions are those that are undertaken on behalf of the State of Victoria over which VAGO has no control or discretion.

 

Appropriations Act(i)

Annual appropriation

Financial Management Act 1994

Section 29

Total parliamentary authority

Appropriations applied

Variance(ii)

2018–19

$'000

$'000

$'000

$'000

$'000

Controlled

Provision for outputs

17,004

26,462

43,466

44,065

(599)

Addition to net assets(i)

4,670

-

4,670

4,670

-

Total 2018–19

21,674

26,462

48,136

48,735

(599)

2017–18

Controlled

Provision for outputs

16,589

26,012

42,601

44,531

(1,930)

Total 2017–18

16,589

26,012

42,601

44,531

(1,930)

(i) In 2016–17, VAGO received a public account advance under section 37 FMA of $8.54 million. This did not require a warrant, but allowed VAGO to replenish the State Administration Unit receivable, as disclosed under 'Amounts owing from Victorian Government' in Note 6.1. The advance is disclosed under 'Amounts payable to government and agencies' in Note 6.3, and was provided mainly so that VAGO could fund its office relocation in 2016–17. In 2018–19, VAGO received an appropriation of $4.67 million, being funding designated for additions to net assets. Under an agreement with the Victorian Government, this was used to repay the remaining balance of the section 37 advance in 2018-19, and is disclosed as Contributed capital in the Balance Sheet.

(ii) The variance from estimate in 2017–18 and 2018–19 was due to the variability in financial audit fees charged and retained as per the section 29 agreement.

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

 

Appropriations applied

Authority

Purpose

2018–19

$'000

2017–18

$'000

The Constitution Act 1975, section 94A(6)

Costs associated with the Auditor-General

577

569

Appropriations

Once annual parliamentary appropriations are applied by the Treasurer, they become controlled by VAGO and are recognised as income when applied to the purposes defined under the Appropriation (Parliament 2018–19) Act 2018.

Output appropriations: Income from the outputs VAGO provides to parliament is recognised when the outputs have been delivered and the Assistant Treasurer and the Treasurer have certified delivery of the outputs in accordance with specified performance criteria as outlined in the 2018–19 budget papers.

Special appropriations: Under section 94A(6) of the Constitution Act 1975, revenue related to costs associated with the Auditor-General's delivery of assurance services, such as remuneration and on-costs, is recognised when the amount appropriated for that purpose is due and payable to VAGO.

Annotated income agreements

VAGO charges and collects financial audit fees from audit clients. VAGO is permitted to have financial audit fees annotated to annual appropriation per section 29 of the FMA. Receipts are transferred into the Consolidated Fund and shown as an administered item in Note 4.2. At the point of income recognition, section 29 provides for an equivalent amount to be added to the annual appropriation, which is then available to fund the costs of financial audit services.

The following is a listing of the FMA section 29 annotated income agreements approved by the Treasurer:

 

2018–19

2017–18

 

$'000

$'000

Fee for services

Audit fees

26,462

26,012

Total annotated income agreements

26,462

26,012

2.2 Other income from transactions

2.2.1 Sale of services and other income

 

2018–19

2017–18

 

$'000

$'000

Sale of services(i)

151

143

Fair value of services received free of charge or for nominal consideration(ii)

38

33

Total sale of services and other income

189

176

(i) Arises from the recovery of costs of secretariat services for the Australasian Council of Auditors-General (ACAG). The income is recognised when the amount of the income, stage of completion and transaction costs incurred can be reliably measured, and it is probable that the economic benefits associated with the transaction will flow to VAGO.

(ii) Represents funding of remuneration of the external auditor paid by the Public Accounts and Estimates Committee. See Note 9.4 for further details.

3. THE COST OF DELIVERING OUR SERVICES

This section provides an account of the expenses incurred by VAGO in delivering services and outputs.

3.1 Employee benefits

3.1.1 Employee benefits included in the Comprehensive Operating Statement

   

2018–19

2017–18

   

$'000

$'000

Salaries and wages, annual leave and long service leave

 

21,943

21,786

Defined contribution superannuation expense

3.1.3

1,696

1,884

Defined benefit superannuation expense

3.1.3

62

69

Termination benefits

 

137

62

Total employee expenses

 

23,838

23,801

Employee expenses include all costs related to employment including wages and salaries, fringe benefits tax, leave entitlements, termination payments, WorkCover premiums, defined benefits superannuation plans and defined contribution superannuation plans.

Employment on-costs such as payroll tax, workers compensation and superannuation are not employee benefits. They are disclosed separately as a component of the provision for employee benefits when the employment to which they relate has occurred.

The amount recognised in relation to superannuation is employer contributions for members of both defined benefit and defined contribution superannuation plans that are paid or payable during the reporting period. VAGO does not recognise any defined benefit liabilities because it has no legal or constructive obligation to pay future benefits relating to its employees. The Department of Treasury and Finance discloses in its annual financial statements the net defined benefit cost related to the members of this plan as an administered liability (on behalf of the State as the sponsoring employer).

Termination benefits are payable when employment is terminated before normal retirement date, or when an employee accepts an offer of benefits in exchange for the termination of employment. Termination benefits are recognised when VAGO is either demonstrably committed to terminating the employees' employment according to a formal plan which has no possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

3.1.2 Employee benefits provisions in the Balance Sheet

A provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave (LSL) for services rendered to the reporting date and recorded as an expense during the period the services are delivered.

 

2018–19

2017–18

 

$'000

$'000

Current provisions

Annual leave

Unconditional and expected to settle within 12 months

1,094

1,156

Unconditional and expected to settle after 12 months

303

340

 

1,397

1,496

Long service leave

Unconditional and expected to settle within 12 months

441

305

Unconditional and expected to settle after 12 months

2,025

1,904

 

2,466

2,209

Provision for on-costs

Unconditional and expected to settle within 12 months

237

224

Unconditional and expected to settle after 12 months

365

347

 

602

571

Performance incentive entitlements

Unconditional and expected to settle within 12 months

-

82

Termination payments

Conditional and expected to settle within 12 months

-

86

Total current provisions for employee benefits

4,465

4,444

Non-current provisions

Employee benefits

349

377

On-costs

55

59

Total non-current provisions for employee benefits

404

436

Total provisions for employee benefits

4,869

4,880

Reconciliation of movement in on-cost provision

 

2018–19

 

$'000

Opening balance

630

Additional provisions recognised

27

Closing balance

657

Current

602

Non-current

55

Total provisions for on-costs

657

Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries (including non-monetary benefits, annual leave and on-costs) are recognised as part of the employee benefit provision as current liabilities, as VAGO does not have an unconditional right to defer settlement of these liabilities. They are recognised at remuneration rates which are current at the reporting date and measured at undiscounted amounts as it is expected the wages and salaries liabilities will be wholly settled within 12 months of reporting date.

No provision has been made for sick leave as it is non-vesting and not considered probable that the average sick leave taken in the future will be greater than the benefits accrued in the future. As sick leave is non-vesting, an expense is recognised in the Comprehensive Operating Statement as it is taken.

Long service leave

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

The components of the current LSL liability are measured at undiscounted value where VAGO expects to wholly settle within 12 months or present value where VAGO does not expect to wholly settle within 12 months.

Any gain or loss following revaluation of the present value of non-current LSL liability is recognised as a transaction, except to the extent that a gain or loss arises due to changes in bond interest rates which is then recognised as an 'other economic flow', in the net result.

Conditional LSL 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 LSL is measured at present value.

Performance incentive entitlements

The performance incentive entitlements liability represents an estimate of the performance incentive entitlements payable to non-executive staff for the performance review period ending on the balance sheet date and payable within the next financial year. These are subject to the remuneration committee's assessment of employee Performance Development Plans.

3.1.3 Superannuation contributions

Superannuation contributions paid or payable for the reporting period are included as part of employee benefits in the Comprehensive Operating Statement of VAGO.

 

Paid contribution for the year

Contribution outstanding at year end

 

2018–19

2017–18

2018–19

2017–18

 

$'000

$'000

$'000

$'000

Defined benefit plans(i)

State Superannuation Fund—revised and new

62

69

-

-

Defined contribution plans

VicSuper

 

1,092

1,216

22

-

Other employee nominated plans

629

648

13

-

Total(ii)

1,783

1,933

35

-

(i) The bases for determining the level of contributions are determined by the various actuaries of the defined benefit superannuation plans.

(ii) The total paid excludes accruals brought forward at 1 July 2018, and accruals carried forward at 30 June 2019, and therefore does not equal the totals in Note 3.1.1.

As noted in 3.1.1 VAGO does not recognise any defined benefit liabilities.

3.2 Contracted audit services provided by professional firms

VAGO contracts certain audit services to external professional firms. Amounts incurred under such contracts are recognised as an expense in the reporting period in which they are incurred. At the end of the reporting period, an estimate is made of the value of audit services provided to VAGO which have not yet been invoiced. The value of this uninvoiced work is recognised as an accrual in the Balance Sheet, and as an expense in the Comprehensive Operating Statement.

3.3 Operating lease payments

Operating lease payments are recognised on a straight-line basis over the lease term. They relate to the lease of VAGO's premises.

3.4 Other operating expenses

 

2018–19

2017–18

 

$'000

$'000

Training

628

572

Recruitment

269

245

Information technology

975

826

Outsourced internal audit fees

190

81

Motor vehicles

96

148

Travel

192

266

Other office expenses

746

965

Total other operating expenses

3,096

3,103

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

4. CONTROLLED AND ADMINISTERED ITEMS

Judgement is required in allocating income and expenditure to specific outputs. The following judgements were made in making the allocations:

  • Output appropriation revenue is allocated directly to the output funded by the appropriation.
  • Other revenue is allocated on the basis of management estimates of the relative benefits accruing to each output.
  • Expenses are allocated on the basis of management estimates of the planned direct hours worked by employees against each output.

There were no amounts unallocated.

The distinction between controlled and administered items is based on VAGO's ability to deploy the resources in question for its own benefit (controlled items) or on behalf of the state (administered). VAGO remains accountable for transactions involving administered items but does not recognise them in its financial statements, except by way of note disclosure.

4.1 Departmental outputs – Descriptions

4.1.1 Output descriptions

For a description of the VAGO's outputs, please refer to pages 47 to 53 in the Report of Operations.

Departmental Outputs – Controlled income and expenses for the year ended 30 June 2019

 

parliamentary reports

Financial statement audit and assurance reports

Total

 

2018–19

2017–18

2018–19

2017–18

2018–19

2017–18

 

$'000

$'000

$'000

$'000

$'000

$'000

Income from transactions

parliamentary output appropriations

17,004

16,589

27,061

27,942

44,065

44,531

parliamentary special appropriations

288

244

289

325

577

569

Sale of services

72

59

79

84

151

143

Fair value of services received free of charge or for nominal consideration

19

14

19

19

38

33

Total income from transactions

17,383

16,906

27,448

28,370

44,831

45,276

Expenses from transactions

Employee expenses

11,517

11,585

12,321

12,216

23,838

23,801

Contracted audit services provided by professional firms

1,290

743

11,535

11,804

12,825

12,547

Depreciation

408

396

396

443

804

839

Interest expense

10

7

7

7

17

14

Capital asset charge

191

169

185

190

376

359

Other operating expenses

2,609

2,654

2,601

2,936

5,210

5,590

Total expenses from transactions

16,025

15,554

27,045

27,596

43,070

43,150

Net result from transactions (net operating balance)

1,358

1,352

403

774

1,761

2,126

Other economic flows included in net result

Net gain / (loss) on non-financial assets

1

(14)

2

(15)

3

(29)

Other gains / (losses) from other economic flows

(78)

(41)

(71)

(43)

(149)

(84)

Total other economic flows included in net result

(77)

(55)

(69)

(58)

(146)

(113)

Net result

1,281

1,297

334

716

1,615

2,013

Comprehensive result gain / (loss)

1,281

1,297

334

716

1,615

2,013

Controlled assets and liabilities as at 30 June 2019

 

parliamentary reports

Financial statement audit and assurance reports

Total

 

2018–19

2017–18

2018–19

2017–18

2018–19

2017–18

 

$'000

$'000

$'000

$'000

$'000

$'000

Assets

Financial assets

7,678

7,199

12,930

12,756

20,608

19,955

Non-financial assets

2,101

2,153

3,538

3,815

5,639

5,968

Total assets

9,779

9,352

16,468

16,571

26,247

25,923

Liabilities

Total liabilities

4,620

6,624

7,779

11,736

12,399

18,360

Net assets

5,159

2,728

8,689

4,835

13,848

7,563

4.2 Administered Items

Administered income includes recovery of audit costs incurred from performing financial statement audits. VAGO does not control the income and assets arising from audit fees and collects these amounts on behalf of the state. Accordingly, the income and related assets are disclosed as Administered Items. As VAGO has an annotated income agreement for financial audit fees, the output appropriation, used to fund the costs of financial audit services (see Note 2.1), is increased by an equivalent amount.

Administered expenses include payments made on behalf of the state and payments into the Consolidated Fund. Administered assets include government income earned but yet to be collected. Administered liabilities include government expenses incurred but yet to be paid.

Except as otherwise disclosed, administered resources are accounted for on an accrual basis using the same accounting policies adopted for recognition of the controlled items in the financial statements. Both controlled and administered items of VAGO are consolidated into the financial statements of the state.

VAGO's administered (non-controlled) items for the financial year ended 30 June 2019

 

2018–19

2017–18

 

$'000

$'000

Administered income from transactions

Reimbursement of audit costs charged

27,071

27,942

Total administered income from transactions

27,071

27,942

Administered expenses from transactions

Payments into the Consolidated Fund

27,071

27,942

Total administered expenses from transactions

27,071

27,942

Total administered net result from transactions (net operating balance)

-

-

Total administered comprehensive result

-

-

Administered financial assets

Receivables(i)

5,425

4,635

Total administered financial assets

5,425

4,635

Administered non-financial assets

Work in progress

2,726

2,133

Total administered non-financial assets

2,726

2,133

Total administered assets

8,151

6,768

Administered liabilities

Amounts owing to the state

8,151

6,768

Total administered liabilities

8,151

6,768

Total administered net assets

-

-

(i) Receivables comprise debtors falling due as follows:

 

2018–19

2017–18

 

$'000

$'000

Current

5,009

4,141

Overdue between 30 to 60 days

280

181

Overdue beyond 61 to 90 days

120

231

Overdue beyond 90 days

16

82

 

5,425

4,635

Receivables comprise financial statement audit debtors and are deemed wholly collectable.

5. KEY ASSETS AVAILABLE TO SUPPORT OUTPUT DELIVERY

VAGO controls assets that are utilised to fulfil its objectives and conduct its activities. They represent the resources that have been entrusted to VAGO to deliver those outputs.

The initial cost for non-financial physical assets under a finance lease is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.

Purchased intangible assets are initially recognised at cost. Purchased internally generated intangible assets relating to development of electronic audit toolsets used in financial and performance audit areas are initially recognised at cost, in accordance with FRD 109A Intangible Assets, when they meet the recognition criteria in AASB 138 Intangible Assets.

Internally generated intangible assets are recognised on the basis of demonstrating:

(a) the technical feasibility of completing the intangible asset so that it will be available for use

(b) an intention to complete the intangible asset and use it

(c) the ability to use the intangible asset

(d) the intangible asset will generate probable future economic benefits

(e) the availability of adequate technical, financial and other resources to complete the development and to use the intangible asset

(f) the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Subsequent to initial recognition, intangible assets with finite useful lives are carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation begins when the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Items of property, plant and equipment (PPE) are measured initially at cost. Where an asset is acquired for no or nominal cost, the cost is its fair value at the date of acquisition.

Subsequently they are measured at fair value less accumulated depreciation and impairment. Fair value is normally determined by reference to the asset's current replacement cost, and is summarised below by asset category.

Fair value measurement

Where the assets included in this section are carried at fair value, additional information is disclosed in Note 5.2 in connection with how those fair values were determined.

Purpose groups

Under FRD 103H, PPE are classified primarily by the 'purpose' for which the assets' are used, according to one of six purpose groups based upon government purpose classifications. All assets in a purpose group are further sub-categorised according to the asset's 'nature', with each sub-category being classified as a separate class of asset for financial reporting purposes.

All VAGO PPE is classified as the purpose group 'public administration'.

5.1 Property, plant and equipment and intangible assets

Classification by nature

 

Gross carrying amount

Accumulated depreciation

Net carrying amount

 

2018–19

2017–18

2018–19

2017–18

2018–19

2017–18

 

$'000

$'000

$'000

$'000

$'000

$'000

Leasehold improvements

6,011

6,011

(1,894)

(1,373)

4,117

4,638

Furniture and fittings

113

113

(108)

(107)

5

6

Computer software

286

286

(279)

(273)

7

13

Computer hardware

2,175

2,155

(1,906)

(1,748)

269

407

Office equipment

345

345

(262)

(229)

83

116

Motor vehicles—leased

231

193

(56)

(38)

175

155

Intangible assets

2,213

1,824

(1,805)

(1,756)

408

68

Total property, plant and equipment and intangible assets

11,374

10,927

(6,310)

(5,524)

5,064

5,403

5.1.1 Depreciation and impairment

Useful lives

All plant and equipment and other non-financial physical assets that have finite useful lives, are depreciated. Intangible assets with finite useful lives are depreciated as an 'expense from transactions' on a straight-line basis over their useful lives.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, and adjustments made where appropriate.

Depreciation is calculated on a straight-line basis, at rates that allocate the asset's value, less any estimated residual value, over its estimated useful life. Leasehold improvements are depreciated over the shorter of the lease term and their useful lives. Estimated useful lives for the different asset classes for current and prior years are included in the table below.

Asset

Useful life (years)

Leasehold improvements

2-10

Furniture and fittings

10

Computer software

3

Computer hardware

4

Office equipment

2-5

Motor vehicles—leased

3

Intangible assets

3

The depreciation charge for the period is included in Note 5.1.2.

In the event of the loss or destruction of an asset, the future economic benefits arising from the use of the asset will be replaced (unless a specific decision to the contrary has been made).

Impairment

The recoverable amount of primarily non-cash-generating assets, which are typically specialised in nature and held for continuing use of their service capacity, is expected to be materially the same as fair value determined under AASB 13 Fair Value Measurement, with the consequence that AASB 136 does not apply to such assets that are regularly revalued.

Intangible assets with finite useful lives are tested for impairment whenever an indication of impairment is identified.

No assets were impaired in the current reporting period.

5.1.2 Reconciliation of movements in carrying amount of property, plant and equipment and intangible assets, carried at fair value

 

Leasehold improvements

Furniture and fittings

Computer software

Computer hardware

Office equipment

Motor vehicles – leased

Intangible assets

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Balance at 1 July 2017

5,097

7

-

270

137

295

120

5,926

Additions

61

-

19

303

21

73

16

493

Disposals

-

-

-

-

-

(177)

-

(177)

Depreciation(i)

(520)

(1)

(6)

(166)

(42)

(36)

(68)

(839)

 

Balance at 30 June 2018

4,638

6

13

407

116

155

68

5,403

Additions

-

-

-

20

-

72

389

481

Disposals

-

-

-

-

-

(16)

-

(16)

Depreciation(i)

(521)

(1)

(6)

(158)

(33)

(36)

(49)

(804)

Balance at 30 June 2019

4,117

5

7

269

83

175

408

5,064

(i) The depreciation charge in the comprehensive operating statement is equal to the movement shown in this note.

5.2 Fair value determination

Significant judgement: Fair value measurements of assets and liabilities

Fair value determination requires judgement and the use of assumptions. This section discloses the most significant assumptions used in determining fair values. Changes to assumptions could have a material impact on the results and financial position of VAGO.

This section sets out information on how fair value for financial reporting purposes is determined. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The following assets and liabilities are carried at fair value:

financial assets and liabilities at fair value,

plant and equipment, and

other assets and liabilities carried at amortised cost.

Fair value hierarchy

In determining fair values a number of inputs are used. VAGO uses only Level 3 unobservable inputs. Significant unobservable inputs have remained unchanged since June 2018.

For those assets and liabilities for which fair values are determined, the following disclosures are provided:

a reconciliation of the movements in fair values from the beginning of the year to the end; and

details of significant unobservable inputs used in the fair value determination.

5.2.1 Fair value determination of financial assets and liabilities

The carrying amounts of financial assets and financial liabilities recognised at the balance date, consisting of cash, receivables, payables and borrowings, represent fair value.

5.2.2 Fair value determination: Non-financial physical assets

All non-financial physical assets are classified as Level 3 significant unobservable inputs in the fair value hierarchy. There have been no transfers between levels during the period.

Reconciliation of Level 3 fair value movements

 

Property, plant and equipment

 

2018–19

2017–18

 

$'000

$'000

Balance at 1 July 2018

5,335

5,806

Additions

92

477

Disposals

(16)

(177)

Depreciation

(755)

(771)

Balance at 30 June 2019

4,656

5,335

Description of significant unobservable inputs to Level 3 valuations

2018–19 and 2017–18

Valuation technique

Significant unobservable inputs

Leasehold improvements

Current replacement cost

Current replacement cost per unit

Useful life of leasehold improvements

Other property, plant and equipment

Current replacement cost

Current replacement cost per unit

Useful life of other property, plant and equipment

6. OTHER ASSETS AND LIABILITIES

This section sets out assets and liabilities arising from operations.

6.1 Receivables

 

2018–19

2017–18

 

$'000

$'000

Contractual

Other receivables

-

1

Statutory

Amounts owing from Victorian Government(i)

20,607

19,953

Total receivables

20,607

19,954

Represented by

Current receivables

7,646

13,332

Non-current receivables

12,961

6,622

Total receivables

20,607

19,954

(i) The total amount recognised as owing from the Victorian Government was $20,607,000 (2017–18: $19,953,000) of which $7,646,000 (2017–18: $13,332,000) is likely to be drawn down in the next financial year and is reported accordingly as a current receivable. The amount recognised as owing from the Victorian Government comprises previously applied parliamentary appropriations not yet drawn down. The balance is represented by accumulated surpluses, payables, movements in provisions and accumulated depreciation and amortisation net of asset acquisition.

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

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 from the Victorian Government represent funding for all commitments incurred and are drawn from the Consolidated Fund as the commitments fall due.

Ageing analysis of contractual financial assets(i)

 

Carrying amount

Not past due and not impaired

Past due but not impaired

 

Less than 1 month

1–3 months

3 months–1 year

1–5 years

 

$'000

$'000

$'000

$'000

$'000

$'000

2018–19

Other receivables

-

-

-

-

-

-

Total

-

-

-

-

-

-

2017–18

Other receivables

1

1

-

-

-

-

Total

1

1

-

-

-

-

(i) The carrying amounts disclosed here exclude statutory amounts (e.g. Amounts owing from Victorian Government and GST input tax credit recoverable).

There are no material contractual financial assets that are individually determined to be impaired. Currently VAGO does not hold any collateral as security nor credit enhancements relating to any of its financial assets.

There are no contractual financial assets that have had their terms renegotiated so as to prevent them from being past due or impaired, and they are stated at the carrying amounts as indicated.

6.2 Other non-financial assets

 

2018–19

2017–18

 

$'000

$'000

Current other non-financial assets

Prepaid software and hardware maintenance contracts

184

284

Prepaid rental expense—accommodation

185

176

Other prepayments

111

71

Accrued income—recovery of expenses

37

10

Total current other non-financial assets

517

541

Non-current other non-financial assets

Prepaid software and hardware maintenance contracts

58

24

Total non-current other non-financial assets

58

24

Total other non-financial assets

575

565

Other non-financial assets include prepayments and accrued income. Prepayments represent payments in advance of receipt of goods or services or that part of expenditure made in one accounting period covering a term extending beyond that period. Accrued income represents amounts not received at the balance sheet date in exchange for the provision of services in the reporting period.

6.3 Payables

 

2018–19

2017–18

 

$'000

$'000

Contractual

Supplies and services(i)

1,939

2,962

Amounts payable to government and agencies(ii)

40

4,750

Lease incentive(iii)

3,700

4,167

Other payables(iv)

428

441

Statutory

PAYG payable

18

-

FBT payable

14

17

GST payable

122

123

Payroll tax payable

71

86

Total payables

6,332

12,546

Represented by

Current payables

3,099

8,846

Non-current payables

3,233

3,700

Total payables

6,332

12,546

(i) Supplies and services is principally comprised of payables due to audit service providers.

(ii) Amounts payable to government and agencies in 2017–18 is principally comprised of a public account advance under section 37 FMA of $4.67 million which has been repaid in the current year. See Note 2.1 for further information.

(iii) Lease incentive payable relates to funding provided by the lessor of the new VAGO premises. This is amortised over the term of the lease.

(iv) Other payables comprise general salary accruals.

Payables consist of:

contractual payables, classified as financial instruments, measured at amortised cost. Accounts payable represent liabilities for goods and services provided prior to the end of the financial year that are unpaid, and

statutory payables, are recognised and measured similarly to contractual payables, but not classified as financial instruments and not included in the category of financial liabilities at amortised cost, because they do not arise from contracts.

Payables for supplies and services have an average credit period of 30 days.

The terms and conditions of amounts payable to the government and agencies vary according to the particular agreements and as they are not legislative payables, they are not classified as financial instruments.

For the maturity analysis of contractual payables, see Note 8.1.2.

6.4 Non-employee related provisions

 

2018–19

2017–18

 

$'000

$'000

Non-current provisions

Lease contracts

547

316

Make-good provision

475

463

Total non-current provisions

1,022

779

Total non-employee related provisions

1,022

779

These provisions are recognised when VAGO 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 reporting date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows, using a discount rate that reflects the time value of money and risks specific to the provision.

The provision for lease contracts reflects a requirement to provide for known future increases in operating lease rentals for the lease of VAGO's premises.

The make-good provision reflects a requirement in the terms of the lease of VAGO's premises to restore the property at the end of the lease term.

Reconciliation of movements in non-employee related provisions

 

Lease contracts

Make-good

Total

 

$'000

$'000

$'000

Opening balance at 1 July 2018

316

463

779

Additional provisions recognised

231

12

243

Closing balance at 30 June 2019

547

475

1,022

7. HOW WE FINANCED OPERATIONS

This section provides information on the sources of finance utilised by VAGO during its operations and other information related to financing activities of VAGO.

This section includes disclosures of balances that are financial instruments (such as finance lease liabilities and cash balances). Note 8.1 provides additional, specific financial instrument disclosures.

7.1 Finance lease liabilities (VAGO as lessee)

 

Minimum future lease payments(iii)

Present value of minimum future lease payments

 

2018–19

2017–18

2018–19

2017–18

 

$'000

$'000

$'000

$'000

Finance lease liabilities payable(i)(ii)

Not longer than one year

87

45

87

45

Longer than 1 year and not longer than 5 years

96

118

89

110

Minimum future lease payments

183

163

176

155

Less future finance charges

(7)

(8)

-

-

Present value of minimum lease payments

176

155

176

155

Included in the financial statements as:

Current finance lease liabilities

   

82

41

Non-current finance lease liabilities

   

94

114

Total

   

176

155

(i) Secured by the motor vehicle assets leased. Finance leases are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

(ii) None of the borrowings related to PPPs.

(iii) Minimum future lease payments include the aggregate of all base payments and any guaranteed residual.

At the commencement of the lease term, finance leases are initially recognised as assets and liabilities at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payment, each determined at the inception of the lease. The leased asset is accounted for as a non-financial physical asset and depreciated over the shorter of the estimated useful life of the asset or the term of the lease. Minimum finance lease payments are apportioned between the reduction of the outstanding lease liability and the periodic finance expense which is calculated using the interest rate implicit in the lease and charged directly to the Comprehensive Operating Statement.

Leasing arrangements: Finance leases relate to motor vehicles with lease terms of up to 3 years. VAGO does not have the option to purchase the vehicles at the conclusion of the lease agreements.

For the maturity analysis of borrowings, see Note 8.1.2.

7.2 Cash flow information and balances

Cash comprises cash on hand.

 

2018–19

2017–18

 

$'000

$'000

Total cash disclosed in the balance sheet

1

1

Balance as per cash flow statement

1

1

Due to the State's investment policy and funding arrangements, VAGO does not hold a cash reserve in its bank accounts. Cash received from generation of income is paid into the State's bank account ('public account'). Similarly, VAGO's expenditure is made via the public account. The public account remits to VAGO the cash required upon presentation of cheques by VAGO's suppliers or creditors.

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

 

2018–19

2017–18

 

$'000

$'000

Net result for the period

1,615

2,013

Non-cash movements

(Gain) / loss on disposal of non-current assets

(3)

29

Depreciation of non-current assets

804

839

Movements in assets and liabilities

(Increase) / decrease in receivables

(653)

5,665

(Increase) / decrease in prepayments

(11)

(28)

Increase / (decrease) in payables

(6,214)

(7,014)

Increase / (decrease) in provisions

232

(1,016)

Net cash flows from / (used in) operating activities

(4,230)

488

7.3 Commitments for expenditure

Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are recorded below at their nominal value and inclusive of GST. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet.

7.3.1 Lease commitments

 

2018–19

2017–18

 

$'000

$'000

Operating lease commitments payable(i)

Less than 1 year

2,468

2,354

Longer than 1 year but not longer than 5 years

11,169

10,657

5 years or more

9,670

12,731

Total operating lease commitments payable

23,307

25,742

Contract audit service commitments payable(ii)

Less than 1 year

8,164

6,853

Longer than 1 year but not longer than 5 years

5,927

2,533

5 years or more

-

-

Total contract audit service commitments payable

14,091

9,386

Total commitments (inclusive of GST)

37,398

35,128

Less GST recoverable from the Australian Taxation Office

(3,400)

(3,193)

Total commitments (exclusive of GST)

33,998

31,935

(i) Operating lease commitments relate to office accommodation with a lease term of 10 years

(ii) Contract audit service commitments relate to fees payable to professional firms for the conduct of financial statement audits on behalf of VAGO. Contracts with these firms have terms of 3 years, with options to extend for a further 2 years.

7.4 Contingent assets and contingent liabilities

At the reporting date, VAGO was not aware of any contingent assets or contingent liabilities.

8. RISKS AND VALUATION JUDGEMENTS

VAGO is exposed to risk from its activities and outside factors. In addition, it is often necessary to make judgements and estimates associated with recognition and measurement of items in the financial statements. This section sets out financial instrument specific information, including exposures to financial risks.

8.1 Financial instruments specific disclosures

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

From 1 July 2018, VAGO applies AASB 9 and classifies all of its financial assets based on the business model for managing the assets and the asset's contractual terms.

Categories of financial assets under AASB 9

Financial assets at amortised cost

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

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

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

VAGO recognises the following assets in this category:

  • cash
  • receivables (excluding statutory receivables).

Categories of financial assets previously under AASB 139

Receivables and cash are financial instrument assets with fixed and determinable payments that are not quoted on an active market. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, receivables are measured at amortised cost using the effective interest method (and for assets, less any impairment). VAGO recognises the following assets in this category:

  • cash
  • receivables (excluding statutory receivables).

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

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

  • payables (excluding statutory payables)
  • finance lease liabilities.

Impairment of financial assets: At the end of each reporting period, VAGO assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. All financial instrument assets, except those measured at fair value through profit or loss, are subject to annual review for impairment.

Derecognition of financial liabilities: A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

8.1.1 Financial instruments: Categorisation

 

2018–19

2017–18

 

$'000

$'000

Contractual financial assets—receivables and cash

Cash

1

1

Receivables(i)

Lease incentive and other receivables

-

1

Total contractual financial assets

1

2

Contractual financial liabilities at amortised cost

Payables(i)

Supplies and services

1,939

2,962

Amounts payable to government and agencies

40

4,750

Lease incentive

3,700

4,167

Other payables

428

441

Borrowings

Finance lease liabilities

176

155

Total contractual financial liabilities

6,283

12,475

(i) The total amounts disclosed here exclude statutory amounts (e.g. amounts owing from Victorian Government and GST input tax credit recoverable and taxes payable). Statutory financial assets will be used to cover payment of contractual financial liabilities.

8.1.2 Financial risk management objectives and policies

This section sets out financial instrument specific information, (including exposures to financial risks) as well as those items that are contingent in nature or require a higher level of judgement to be applied, which for VAGO relate mainly to fair value determination.

VAGO's financial risk management program seeks to manage these risks and the associated volatility of its financial performance.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset, financial liability and equity instruments are disclosed in Note 5.2 to the financial statements.

The main purpose in holding financial instruments is to prudently manage VAGO's business.

VAGO's main financial risks include credit risk, liquidity risk and interest rate risk. These financial risks are managed in accordance with the financial risk management policy.

VAGO uses different methods to measure and manage the different risks to which it is exposed. Primary responsibility for the identification and management of financial risks rests with the Accountable Officer.

The following table discloses the contractual maturity analysis for VAGO's contractual financial liabilities:

Maturity analysis of contractual financial liabilities(i)

 

Carrying amount

Nominal amount

Maturity dates

 

Less than 1 month

1–3 months

3 months – 1 year

1–5 years

5+ years

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

2018–19

Payables(ii)

Supplies and services

1,939

1,939

1,770

141

28

-

-

Amounts payable to government and agencies

40

40

40

-

-

-

-

Lease incentive

3,700

3,700

39

78

351

1,869

1,363

Other payables

428

428

428

-

-

-

-

Borrowings

Finance lease liabilities

176

183

3

7

76

97

-

 

6,283

6,290

2,280

226

455

1,966

1,363

2017–18

Payables(ii)

Supplies and services

2,962

2,962

2,966

(6)

2

-

-

Amounts payable to government and agencies

4,750

4,750

80

-

4,670

-

-

Lease incentive

4,167

4,167

39

78

351

1,869

1,830

Other payables

441

441

441

-

-

-

-

Borrowings

Finance lease liabilities

155

163

3

6

36

118

-

 

12,475

12,483

3,529

78

5,059

1,987

1,830

(i) Maturity analysis is presented using the contractual undiscounted cash flows.

(ii) The carrying amounts disclosed exclude statutory amounts (e.g. GST payables).

Interest rate exposure of financial instruments

With the exception of finance lease liabilities, all of VAGO's financial instruments are non-interest bearing. The carrying value and weighted average fixed interest rate exposure of finance lease liabilities in 2018–19 was $176,000 at 3.25% (2017–18: $155,000 at 3.52%).

9. OTHER DISCLOSURES

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

9.1 Responsible persons

Given the independent relationship of the Auditor-General with the parliament, no Government Minister has any direct responsibility for the operations of VAGO. The following disclosures are made relating to the Accountable Officer in accordance with the Ministerial Directions issued by the Assistant Treasurer under the Financial Management Act 1994:

Andrew Greaves, Auditor-General held the Accountable Officer Position in relation to VAGO for the full year.

Remuneration

Remuneration received or receivable by the substantive and acting Accountable Officers in connection with the responsibilities of the position during the reporting period was in the following ranges:

 

2018–19

2017–18

 

No.

No.

$530,000-$539,999 (substantive)

1

-

$520,000–$529,999 (substantive)

-

1

$20,00–$29,999 (acting)

1

1

9.2 Remuneration of executives

The number of executive officers, other than the substantive and acting Accountable Officers, and their total remuneration during the reporting period are shown in the table below. Total annualised employee equivalent provides 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 entity, or on behalf of the entity, 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 includes long service leave.

Termination benefits include termination of employment payments, such as severance packages.

The remuneration amounts disclosed below are measured on the same basis as required by AASB 119 Employee Benefits.

Remuneration of executive officers (including Key Management Personnel disclosed in Note 9.3)

 

Total remuneration

 

2018–19

2017–18

 

$'000

$'000

Short-term employee benefits

4,269

4,116

Post-employment benefits

385

421

Other long-term benefits

103

97

Termination benefits

-

(43)

Total remuneration

4,757

4,591

Total number of executives(i)

28

32

Total annualised employee equivalents(ii)

23.2

22.4

(i) The total number of executive officers includes persons who meet the definition of Key Management Personnel (KMP) of the entity under AASB 124 Related Party Disclosures and are also reported within the related parties note disclosure (Note 9.3).

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

9.3 Related parties

VAGO is a wholly owned and controlled entity of the State of Victoria. Related parties of VAGO 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, and

all departments and public sector entities that are controlled and consolidated into the whole of state consolidated financial statements.

All related party transactions have been entered into on an arm's length basis.

Significant transactions with government-related entities

VAGO received funding and made payments to the Consolidated Fund of $44.6 million (2017–18: $45.1 million) and $27.1 million (2017–18: $27.9 million) respectively.

During the year, VAGO had the following government-related entity transactions:

Nature of transaction

Amount

 

$'000

Revenue from financial statement audits

Department of Treasury and Finance

1,280

Other government related parties(i)

25,781

Total significant transactions with government-related entities

27,061

(i) Transactions with other related parties are collectively, but not individually significant.

Key management personnel of VAGO include the Accountable Officer and members of the Senior Management Group (SMG), which includes:

  • David Barry, Deputy Auditor-General
  • Renee Cassidy, Assistant Auditor-General, Performance Audit
  • Susan Fraser, Assistant Auditor-General, Technical Audit Services (ceased 23 November 2018)
  • Bill Gilhooly, Assistant Auditor-General, Financial Audit

Compensation of KMPs

 

VAGO(i)

 

2018–19

2017–18

 

$'000

$'000

Short-term employee benefits

1,455

1,673

Post-employment benefits

90

155

Other long-term benefits

12

89

Termination benefits

-

43

Total(ii)

1,557

1,960

(i) No entities were consolidated pursuant to section 53(1)(b) of the FMA into VAGO's financial statements.

(ii) Note that KMPs are also reported in the disclosure of responsible persons (Note 9.1) and remuneration of executives (Note 9.2).

Transactions and balances with key management personnel and other related parties

There were no related party transactions that involved key management personnel, their close family members and their personal business interests in the current reporting period.

9.4 Remuneration of auditors

 

2018–19

2017–18

 

$'000

$'000

Nexia Melbourne Audit Pty Ltd

Audit of the financial statements

35

33

Review of the performance statement

3

-

Total

38

33

The auditor of VAGO is appointed by parliament and paid by the Public Accounts and Estimates Committee in accordance with the Audit Act 1994. Mr Geoff Parker from Nexia Melbourne Audit Pty Ltd was appointed to this position in 2016.

As the remuneration of the auditor is paid by the Public Accounts and Estimates Committee, the amount disclosed above is included in 'fair value of services received free of charge or for nominal consideration' in Note 2.2.1.

9.5 Subsequent events

VAGO had no events that occurred between the end of the reporting period and the date when the financial statements are authorised for issue that would require adjustment to, or disclosure in our financial statements.

9.6 Other accounting policies

Contributions by owners

Consistent with the requirements of AASB 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of VAGO. Additions to net assets that have been designated as contributions by owners are recognised as contributed capital.

9.7 Australian Accounting Standards issued that are not yet effective

The following AASs become effective for reporting periods commencing after 1 July 2019:

  • AASB 16 Leases; and
  • AASB 15 Revenue from Contracts with Customers.

Leases

AASB 16 Leases replaces AASB 117 Leases, AASB Interpretation 4 Determining whether an Arrangement contains a Lease, AASB Interpretation 115 Operating Leases-Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases on the balance sheet by recording a Right-of-Use (RoU) asset and a lease liability, except for leases that are shorter than 12 months and leases where the underlying asset is of low value (deemed to be below $10,000).

AASB 16 also requires the lessees to separately recognise the interest expense on the lease liability and the depreciation expense on the RoU asset, and remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The amount of the remeasurement of the lease liability will generally be recognised as an adjustment to the RoU asset.

The effective date is for annual reporting periods beginning on or after 1 January 2019. VAGO intends to adopt AASB 16 in 2019-20 financial year when it becomes effective.

Various practical expedients are available on adoption to account for leases previously classified by a lessee as operating leases under AASB 117. VAGO will apply the standard using a modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to the opening balance of accumulated surplus at 1 July 2019, with no restatement of comparative information.

VAGO has performed a detailed impact assessment of AASB 16 and the potential impact in the initial year of application has been estimated as follows:

  • increase in RoU ($10,380,000),
  • increase in related depreciation ($1,311,000),
  • increase in lease liability ($10,380,000),
  • increase in related interest ($400,000) calculated using effective interest method,
  • decrease in rental expense ($1,415,000),
  • decrease in provisions ($1,022,000),
  • increase in equity ($1,022,000), and
  • increase in appropriation ($283,000).

Revenue and Income

AASB 15 supersedes AASB 118 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers.

AASB 15 establishes a five-step model to account for revenue arising from an enforceable contract that imposes a sufficiently specific performance obligation on an entity to transfer goods or services. AASB 15 requires entities to only recognise revenue upon the fulfilment of the performance obligation. Therefore, entities need to allocate the transaction price to each performance obligation in a contract and recognise the revenue only when the related obligation is satisfied.

AASB 15 and the related guidance will come into effect for annual reporting periods beginning on or after 1 January 2019. VAGO intends to adopt this standard in 2019-20 financial year when it becomes effective.

VAGO will apply the standard using a modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to the opening balance of accumulated surplus at 1 July 2019, with no restatement of comparative information.

VAGO has performed an impact assessment of AASB 15, and has estimated that the potential impact for each major class of revenue and income in the initial year of application is not material because both our audit cycle and client base are stable from one year to the next.

The table below outlines the accounting pronouncement that has been issued but not effective for 2018–19, which may result in potential impacts on VAGO reporting for future reporting periods.

Topic

Key requirements

Effective date

Likely impact on initial application

AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material

This Standard principally amends AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments refine and clarify the definition of material in AASB 101 and its application by improving the wording and aligning the definition across AASB Standards and other publications. The amendments also include some supporting requirements in AASB 101 in the definition to give it more prominence and clarify the explanation accompanying the definition of material.

1 Jan 2020

No material impact expected.

9.8 Glossary of technical terms

The following is a summary of the major technical terms used in this report.

Actuarial gains or losses on superannuation defined benefit plans are changes in the present value of the superannuation defined benefit liability resulting from:

(a) experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and

(b) the effects of changes in actuarial assumptions.

Administered item generally refers to VAGO lacking the capacity to benefit from that item in the pursuit of its objectives and to deny or regulate the access of others to that benefit.

Commitments include those operating, capital and other outsourcing commitments arising from non-cancellable contractual or statutory sources.

Comprehensive result is the amount included in the operating statement representing total change in net worth other than transactions with owners as owners.

Controlled item generally refers to the capacity of VAGO to benefit from that item in the pursuit of its objectives and to deny or regulate the access of others to that benefit.

Depreciation is an expense that arises from the consumption through wear or time of a produced physical or intangible asset. This expense is classified as a 'transaction' and so reduces the 'net result from transactions'.

Effective interest method is the method used to calculate the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or, where appropriate, a shorter period.

Employee benefits expenses include all costs related to employment including wages and salaries, fringe benefits tax, leave entitlements, termination payments, WorkCover premiums, defined benefits superannuation plans, and defined contribution superannuation plans.

Financial asset is any asset that is:

(a) cash;

(b) a contractual right:

  • to receive cash or another financial asset from another entity; or
  • to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity.

Financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability of another entity.

Financial liability is any liability that is:

A contractual obligation:

(i) To deliver cash or another financial asset to another entity; or

(ii) To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity.

Financial statements comprises:

(a) a Balance Sheet as at the end of the period;

(b) a Comprehensive Operating Statement for the period;

(c) a Statement of Changes in Equity for the period;

(d) a Cash Flow Statement for the period;

(e) notes comprising a summary of significant accounting policies and other explanatory information;

(f) comparative information in respect of the preceding period as specified in paragraph 38 of AASB 101 Presentation of Financial Statements; and

(g) a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements in accordance with paragraphs 41 of AASB 101.

General government sector comprises all government departments, offices and other bodies engaged in providing services free of charge or at prices significantly below their cost of production. General government services include those which are mainly non-market in nature, those that are largely for collective consumption by the community and those which involve the transfer or redistribution of income. These services are financed mainly through taxes, or other compulsory levies and user charges.

Interest expense represents costs incurred in connection with borrowings. It includes interest components of finance lease repayments, and amortisation of discounts or premiums in relation to borrowings.

Leases are rights to use an asset for an agreed period of time in exchange for payment. Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and rewards incidental to ownership. Leases of infrastructure, property, plant and equipment are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership from the lessor to the lessee. All other leases are classified as operating leases.

Net operating balance or net result from transactions is a key fiscal aggregate and is revenue from transactions minus expenses from transactions. It is a summary measure of the ongoing sustainability of operations. It excludes gains and losses resulting from changes in price levels and other changes in the volume of assets. It is the component of the change in net worth that is due to transactions and can be attributed directly to government policies.

Net result is a measure of financial performance of the operations for the period. It is the net result of items of income, gains and expenses (including losses) recognised for the period, excluding those that are classified as 'other non-owner movements in equity'.

Net worth is calculated as assets less liabilities, which is an economic measure of wealth.

Non-financial assets are all assets that are not financial assets. It includes plant and equipment, intangible assets, and prepayments and accrued income.

Other economic flows included in net result are changes in the volume or value of an asset or liability that do not result from transactions. In simple terms, other economic flows are changes arising from market remeasurements. They include gains and losses from disposals, and impairments of non-current physical and intangible assets; and gains and losses arising from the revaluation of the long service leave liability.

Payables includes short and long-term trade debt and accounts payable, taxes and interest payable.

Produced assets include plant and equipment and certain intangible assets. Intangible produced assets include computer software.

Receivables include amounts owing from government through appropriation receivable, short and long-term trade credit and accounts receivable, and taxes receivable.

Supplies and services generally represent cost of goods sold and the day-to-day running costs, including maintenance costs, incurred in the normal operations of VAGO.

Transactions are those economic flows that are considered to arise as a result of policy decisions, usually an interaction between two entities by mutual agreement. They also include flows in an entity such as depreciation, where the owner is simultaneously acting as the owner of the depreciating asset and as the consumer of the service provided by the asset. Taxation is regarded as mutually agreed interactions between the government and taxpayers. Transactions can be in kind (e.g. assets provided/given free of charge or for nominal consideration) or where the final consideration is cash. In simple terms, transactions arise from the policy decisions of the government.

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