Independent Audit Report - Page 1

Independent Audit Report - Page 2

Inspector-General of Taxation

Statement by the Chief Executive Officer and Chief Finance Officer

In our opinion, the attached financial statements for the period ended 30 June 2004 are based on properly maintained financial records and give a true and fair view of the matters required by the Finance Minister's Orders made under the Financial Management and Accountability Act 1997. SIGNED David Vos AM Inspector-General of Taxation 24 September 2004 SIGNED Steve Chapman Chief Finance Officer 24 September 2004


Statement of financial performance

for the period ended 30 June 2004 Statement of financial performance - for the period ended 30 June 2004 The above statement should be read in conjunction with the accompanying notes.

Statement of financial position

for the period ended 30 June 2004 Statement of financial position, for the period ended 30 June 2004 The above statement should be read in conjunction with the accompanying notes.

Statement of cash flows

for the period ended 30 June 2004 Statement of cash flows, for the period ended 30 June 2004 The above statement should be read in conjunction with the accompanying notes.

Schedule of commitments

as at 30 June 2004 Schedule of commitments, as at 30 June 2004

Note: Commitments are GST inclusive where relevant.

(a) Operating leases:

Nature of lease General description of leasing arrangement
Lease for office accommodation The agreement allows annual fixed rental increases. There are no options to renew.
A lease in relation to office equipment — photocopier The agreement is a fixed rate over the term.

The above statement should be read in conjunction with the accompanying notes.

Schedule of contingencies as at 30 June 2004

Schedule of contingencies, as at 30 June 2004 The above statement should be read in conjunction with the accompanying notes.

Notes to and forming part of the financial statements for the period ended 30 June 2004

Note 1: Summary of significant accounting policies

1.1 Objectives of the Inspector-General of Taxation

The Inspector-General of Taxation (IGT) has one outcome: ' Improved administration of tax laws for the benefit of all taxpayers'. The Inspector-General of Taxation Act 2003 (the Act) established an independent statutory agency on the 7 August 2003 to review:

  • systems established by the Australian Taxation Office to administer the tax laws; and
  • systems established by tax laws in relation to administrative matters;

for the purpose of reporting and making recommendations to Government on how those systems could be improved. The continued existence of the agency in its present form, and with its present programs, is dependent on Government policy and on continuing appropriations by Parliament for the agency's administration and programs.

1.2 Basis of accounting

The financial statements are required by section 49 of the Financial Management and Accountability Act 1997 and are a general purpose financial report. The statements have been prepared in accordance with:

  • Finance Minister's Orders (or FMOs, being the Financial Management and Accountability (Financial Statements for reporting periods ending on or after 30 June 2004) Orders);
  • Australian Accounting Standards and Accounting Interpretations issued by the Australian Accounting Standards Board (AASB); and
  • Consensus Views of the Urgent Issues Group (UIG).

The statements of financial performance and financial position have been prepared on an accrual basis and are in accordance with the historical cost convention. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. Assets and liabilities are recognised in the Statement of Financial Position when and only when it is probable that future economic benefits will flow and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the Schedule of Commitments and the Schedule of Contingencies (other than unquantifiable or remote contingencies). Revenues and expenses are recognised in the Statement of Financial Performance when and only when the flow or consumption or loss of economic benefits has occurred and can be reliably measured.

1.3 Revenues

Revenues from government

Amounts appropriated for agency outputs appropriations for the year (less any current year savings and reductions offered in Portfolio Additional Estimates Statements) are recognised as revenue, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. In the 2003-04 year the agency did not receive funds by way of the Appropriations Acts, but by s32 transfers of funds from the Treasury. Appropriations receivable are recognised at their nominal amounts.

Resources received free of charge

Services received free of charge are recognised as revenue when and only when a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Contributions of assets at no cost of acquisition or for nominal consideration are recognised at their fair value when the asset qualifies for recognition, unless received from another government agency as a consequence of a restructuring of administrative arrangements.

Other revenue

Revenue from rendering of services is recognised by reference to the stage of completion of contracts or other agreements to provide services. The stage of completion is determined according to the proportion that costs incurred to date bear to the estimated total costs of the transaction. Receivables for services are recognised at the nominal amounts due, less any provision for bad and doubtful debts. Collectability of debts is reviewed at balance date. Provisions are made when collection of the debt is judged to be less rather than more likely. Revenue from disposal of non-current assets is recognised when control of the asset has passed to the buyer.

1.4 Transactions by the Government as owner

Equity injections

Amounts appropriated designated as 'equity injections' (less any savings offered up in Portfolio Additional Estimates Statements) are recognised directly in contributed equity as at 1 July or later date of effect of the appropriation.

Restructuring of administrative arrangements

Net assets received from or relinquished to another Commonwealth agency or authority under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.

Other distributions to owners

The FMOs require that distributions to owners be debited to contributed equity unless in the nature of a dividend.

1.5 Employee benefits

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled. Liabilities for wages and salaries (including non-monetary benefits), annual leave and sick leave are measured at their nominal amounts. Other employee benefits expected to be settled within 12 months of the reporting date are also measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability. All other employee benefit liabilities are measured at the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the agency is estimated to be less than the annual entitlement for sick leave. The leave liabilities are calculated on the basis of employees' remuneration, including the agency's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination. The liability for long service leave has been determined by reference to the work of an actuary as at 30 June 2004. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Separation and redundancy

Provision is made for separation and redundancy benefit payments. The agency, where considered necessary, will develop a detailed formal plan for the terminations and inform those employees affected that it will carry out the terminations.

Superannuation

Staff of the agency in general are members of the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. The liability for their superannuation benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. The agency makes employer contributions to the Australian Government at rates determined by an actuary to be sufficient to meet the cost to the Government of the superannuation entitlements of the agency's employees.

1.6 Leases

A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets and operating leases under which the lessor effectively retains substantially all such risks and benefits. Where a non-current asset is acquired by means of a finance lease, the asset is capitalised at the present value of minimum lease payments at the beginning of the lease term and a liability recognised at the same time and for the same amount. The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense. Operating lease payments are expensed on a basis, which is representative of the pattern of benefits derived from the leased assets. The net present value of future net outlays in respect of surplus space under non-cancellable lease agreements is expensed in the period in which the space becomes surplus. Currently, the agency's surplus space is let to a related entity.

1.7 Cash

Cash means notes and coins held and any deposits held at call with a bank or financial institution. Cash is recognised at its nominal amount.

1.8 Other financial instruments

Trade Creditors

Trade creditors and accruals are recognised at their nominal amounts, being the amounts at which the liabilities will be settled. Liabilities are recognised to the extent that the goods or services have been received.

Contingent liabilities and contingent assets

Contingent liabilities and assets are not recognised in the Statement of Financial Position but are discussed in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Remote contingencies are part of this disclosure. Where settlement becomes probable, a liability or asset is recognised.

1.9 Acquisition of assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and revenues at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor agency's accounts immediately prior to the restructuring.

1.10 Property, plant and equipment

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases of less than $2,000 and computer equipment of less than $1,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

Revaluations
Basis

Property, plant and equipment are for the first period of operations carried at cost. The basis for future revaluations will be at fair value, and will be conducted annually at the reporting date. All asset acquisitions for IGT have taken place in 2003-04 with the commencement of the agency. On that basis, historical cost less accumulated depreciation for the period is deemed to represent fair value at 30 June. Future valuations will be undertaken in any year as at 30 June.

Frequency

All property, plant and equipment will be revalued annually.

Conduct

All valuations are conducted by an independent qualified valuer.

Depreciation

Depreciable property, plant and equipment assets are written off to their estimated residual values over their estimated useful lives to the agency using, in all cases, the straight-line method of depreciation. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease. Depreciation rates (useful lives) and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate. Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

  2003-04
Infrastructure, plant and equipment 3-10 years
Leasehold improvements Lease term

The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 5C.

Impairment of non-current assets

Non-current assets carried at up-to-date fair value at the reporting date are not subject to impairment testing.

1.11 Taxation / competitive neutrality

The agency is exempt from all forms of taxation except for Fringe Benefits Tax and Goods and Services Tax (GST). Revenues expenses and assets are recognised net of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office, and except for receivables and payables.

1.12 Insurance

The agency has insured for risks through the Government's insurable risk managed fund, called Comcover. Workers compensation is insured through the Government's Comcare Australia.

Note 2: Adoption of Australian equivalents to International Financial Reporting Standards from 2005-2006

The Australian Accounting Standards Board has issued replacement Australian Accounting Standards to apply from 2005-06. The new standards are the Australian equivalents to International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board. The new standards cannot be adopted early. The standards being replaced are to be withdrawn with effect from 2005-06, but continue to apply in the meantime. The purpose of issuing Australian equivalents to IFRSs is to enable Australian entities reporting under the Corporations Act 2001 to be able to more readily access overseas capital markets by preparing their financial reports according to accounting standards more widely used overseas. It is expected that the Finance Minister will continue to require compliance with the Accounting Standards issued by the AASB, including the Australian equivalents to IFRSs, in his Orders for the Preparation of Agency Financial Statements for 2005-06 and beyond. The Australian equivalents contain certain additional provisions which will apply to not-for-profit entities, including the Inspector-General of Taxation. Some of these provisions are in conflict with the IFRSs and therefore the agency will only be able to assert compliance with the Australian equivalents to the IFRSs. Existing AASB standards that have no IFRS equivalent will continue to apply, including in particular AAS 29 Financial Reporting by Government Departments. Accounting Standard AASB 1047 Disclosing the impact of Adopting Australian Equivalents to IFRSs requires that the financial statements for 2003-04 disclose:

  • an explanation of how the transition to the Australian equivalents is being managed; and
  • a narrative explanation of the key differences in accounting policies arising from the transition.

The purpose of this Note is to make these disclosures.

Management of the transition to Australian equivalents to IFRSs

The agency has developed a plan for the implementation of Australian equivalents to International Financial Reporting Standards (AEIFRSs), in which the Chief Executive Officer is formally responsible for the project and the plan's progress. The agency has engaged services to advise on the subject matter and to assist in the implementation of AEIFRSs. The implementation plan will provide direction and assist in the smooth transition to AEIFRSs for the agency. The agency has been reviewing AASB Pending Standards as they are placed on the AASB website. The Standards that have been reviewed to date and the agency's assessment of their impact are contained in the Implementation Plan. Where issues relevant to the agency are identified, an assessment will be made on the need for specialist advice. Accounting policies in use by the agency have been fully reviewed, taking into account Australian equivalents on IFRSs and relevant Finance Briefs issued by the Department of Finance. Preparation of an opening balance sheet required by AASB 1 First Time Adoption of Australian Equivalents of International Accounting Financial Reporting Standards has commenced and is scheduled for completion by 30 September 2004. The financial management systems currently utilised by the agency provide adequate information, and there appears to be no requirement to amend these systems to enable monthly reports to be produced under both Australian Accounting Standards and Australian equivalents to IFRSs. Procedures currently in place will enable the capture of data necessary for reporting under Australian equivalents to IFRSs.

Expected key differences in accounting policies

Retrospective application

Changes in accounting policies under Australian equivalents are applied retrospectively, that is, as if the new policy had always applied. This rule means that a balance sheet prepared under the Australian equivalents must be made as at 1 July 2004, except as permitted in particular circumstances by AASB 1 First Time Adoption of Australian Equivalents of International Financial Reporting Standards. This will enable the 2005-06 financial statements to also report comparatives under the Australian equivalents. Changes to major accounting policies are discussed in the following paragraphs.

Property, plant and equipment

It is expected that the Finance Minister's Orders will require property, plant and equipment assets carried at valuation in 2003-04 to be measured at up-to-date fair value from 2005-06. As 2003-04 is the first period of the agency's operation, and most assets have been acquired only recently, then current depreciated cost is recognized as up-to-date fair value at 30 June 2004. It is important to note that the Finance Minister requires these assets to be measured at up-to-date fair values as at 30 June 2005. Further, the transitional provisions in AASB 1 will mean that the values at which assets are carried as at 30 June 2004 under existing standards will stand in the transitional balance sheet as at 1 July 2004. It is intended that revaluations will be conducted annually as at 30 June, thus providing up-to-date fair values and comparatives from June 2004.

Impairment of non-current assets

The agency's policy on impairment of non-current assets is at note 1.10. Under the new Australian equivalent Standard, these assets will be subject to assessment for impairment and, if there are indications of impairment, measurement of any impairment. (Impairment measurement must also be done, irrespective of any indications of impairment, for intangible assets not yet available for use.) The impairment test is that the carrying amount of an asset must not exceed the greater of (a) its fair value less costs to sell and (b) its value in use. Note 1.10 discloses a policy of annual revaluation of assets to fair value, thus excluding the impairment tests with the exception of intangibles.

Note 3: Events occurring after reporting date

The agency is not aware of any significant events that have occurred since balance date that warrant disclosure in these statements.

Note 4: Operating revenues

Note 4: Operating revenues

Note 5: Operating expenses

Note 5: Operating expenses

Note: No depreciation or amortisation was allocated to the carrying amounts of other assets.

(a) These comprise minimum lease payments only.

Note 6: Financial assets

Note 7: Non-financial assets

Note 7: Non-financial assets Note 7: Non-financial assets (continued)

Note 8: Employee provisions

Note 8: Employee provisions

Note 9: Supplier payables

Note 9: Supplier payables

Note 10: Analysis of equity

Note 10: Analysis of equity

Note 11: Cash flow reconciliation

Note 11: Cash flow reconciliation

Note 12: Contingent liabilities and assets

There are no unquantifiable or remote contingencies.

Note 13: Executive remuneration

The number of Executives who received or were due to receive total remuneration of $100,000 or more: The number of Executives who received or were due to receive total remuneration of $100,000 or more

Note 14: Remuneration of auditors

Note 14: Remuneration of auditors

Note 15: Average staffing levels

Note 15: Average staffing levels

Note 16: Financial instruments

Note 16A: Interest rate risk

Note 16A: Interest rate risk

Note 16B: Net fair values of financial assets and liabilities

Note 16B: Net fair values of financial assets and liabilities The net fair values of cash and non-interest bearing monetary financial assets approximate their carrying amounts. The net fair values for trade creditors are approximated by their carrying amounts.

Note 16C: Credit risk exposures

The agency's maximum exposures to credit risk at reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the statement of financial position. The agency has no significant exposures to any concentrations of credit risk. All figures for credit risk referred to do not take into account the value of any collateral or other security.

Note 17: Specific payments disclosure

Note 17: Specific payments disclosure