Independent Auditors Report - Page 1

Independent Auditors 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 year ended 30 June 2011 have been prepared 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, as amended.

[SIGNED]

Ali Noroozi
Inspector-General of Taxation
29 August 2011

[SIGNED]

Andrew McLoughlin
Chief Finance Officer
29 August 2011


Statement of comprehensive income

for the period ended 30 June 2011

Statement of comprehensive income for the period ended 30 June 2011

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

Balance sheet

as at 30 June 2011

Balance sheet as at 30 June 2011

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

Cash flow statement

for the period ended 30 June 2011

Cash flow statement for the period ended 30 June 2011

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

Statement of changes in equity

for the period ended 30 June 2011

Statement of changes in equity for the period ended 30 June 2011

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

Schedule of commitments

as at 30 June 2011

Schedule of commitments as at 30 June 2011

Commitments are GST inclusive where relevant.

Note Nature of lease General description of leasing arrangements
1 Leases for office accommodation The agreement allows annual fixed rental increases. There are no options to renew.
1 A lease in relation to office equipment — photocopier The agreement is a fixed rate over the term.
Note Description General description of the agreement
2 Service Agreement for the provision of office services The agreement is a fixed rate over the term.
3 Agreement for sub-lease of office accommodation The agreement terminated in 2010-11.

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

Schedule of contingencies

as at 30 June 2011

Schedule of contingencies as at 30 June 2011

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

Schedule of asset additions

for the period ending 30 June 2011

Schedule of asset additions for the period ending 30 June 2011

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

Notes to and forming part of the financial statements
for the year ended 30 June 2011

Note 1: Summary of significant accounting policies

1.1 Objectives of the Inspector-General of Taxation

The Inspector-General of Taxation (IGT) is an Australian Government controlled entity. The objective of the Inspector-General of Taxation is to improve the administration of the tax laws for the benefit of all taxpayers. The IGT is structured to meet one outcome:

‘Improved tax administration through community consultation, review, and independent advice to Government’.

Agency activities contributing toward this outcome are classified as departmental. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by the agency in its own right.

The Inspector-General of Taxation Act 2003 (the Act) established an independent statutory agency on 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 IGT’s departmental activities are identified under Outcome 1 by one program, Program 1.1 Inspector-General of Taxation.

The continued existence of the agency in its present form, and with its present program, is dependent on Government policy and on continuing appropriations by Parliament for the agency’s administration and programs.

1.2 Basis of preparation of financial statements

The financial statements are general purpose financial statements and are required by section 49 of the Financial Management and Accountability Act 1997.

The financial statements have been prepared in accordance with:

  • Finance Minister’s Orders (FMO) for reporting periods ending on or after 1 July 2010; and
  • Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The financial statements are presented in Australian dollars and values are expressed in whole dollars.

Unless an alternative treatment is specifically required by an Accounting Standard or the FMO, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow to the Entity or a future sacrifice of economic benefits will be required and the amounts of assets or liabilities can be reliably measured. However, assets and liabilities arising under Agreements Equally Proportionally 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, which are reported at Note 10).

Unless alternative treatment is specifically required by an Accounting Standard, income and expenses are recognised in the Statement of Comprehensive Income when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

1.3 Significant accounting judgements and estimates

In the process of applying the accounting policies listed in this note, there are no judgements that have a significant impact on the amounts recorded in the financial statements.

No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next reporting period.

1.4 New Australian Accounting Standards

Adoption of new Australian Accounting Standard requirements

No accounting standard has been adopted earlier than the application date as stated in the standard. No new accounting standards, amendments to standards and interpretations issued by the Australian Accounting Standards Board prior to the sign-off date that are applicable to the current period have had a material financial impact on the agency.

Future Australian Accounting Standard requirements

No new standards, amendments to standards or interpretations that have been issued by the Australian Accounting Standards Board prior to the sign-off date and are effective for future reporting periods are expected to have a material financial impact on the agency.

1.5 Revenue

Revenue from Government

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue when the Agency gains control of the appropriation, 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.

Appropriations receivable are recognised at their nominal amounts.

Other types of revenue

Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:

  • the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
  • the probable economic benefits with the transaction will flow to the entity.

The stage of completion of contracts at the reporting date is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the transaction.

Receivables for services, which have 30 day terms, are recognised at the nominal amounts due, less any impairment allowance amount. Collectability of debts is reviewed at the end of the reporting period. Provisions are made when collectability of the debt is no longer probable.

Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.

1.6 Gains

Resources received free of charge

Resources received free of charge are recognised as gains 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.

Resources received free of charge are recorded as either revenue or gains depending on their nature.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains 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.

Sale of assets

Gains from disposal of non-current assets are recognised when control of the asset has passed to the buyer.

1.7 Transactions with the Government as owner

Equity injections

Amounts appropriated designated as ‘equity injections’ for a year (less any formal reductions) are recognised directly in Contributed Equity in that year.

1.8 Employee benefits

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve months of the end of the reporting period are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Other long term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period, minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.

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 at the estimated salary rates that will be applied at the time the leave is taken, 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 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 recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

Superannuation

Staff of the agency in general are members of the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).

The PSS is a defined benefit scheme for the Australian Government. The PSSap is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. The liability is reported by the Department of Finance and Deregulation as an administered item.

The IGT makes employer contributions to the Employee Superannuation Scheme 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.

The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.

1.9 Leases

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, 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 either the fair value of the lease property or, if lower, the present value of minimum lease payments at the inception of the contract 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 straight line basis which is representative of the pattern of benefits derived from the leased assets.

1.10 Borrowing costs

All borrowing costs are expensed as incurred.

1.11 Cash

Cash and cash equivalents includes cash on hand, cash held with outsiders and demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.

1.12 Financial assets

The IGT classifies its financial assets in the following categories:

  • ‘loans and receivables’.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon ‘trade date’.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.

Impairment of financial assets

Financial assets are assessed for impairment at each balance date.

  • Financial assets held at amortised cost — If there is objective evidence that an impairment loss has been incurred for loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.

1.13 Financial liabilities

Financial liabilities are classified as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

1.14 Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are not recognised in the Balance Sheet but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain, and contingent liabilities are recognised when settlement is greater than remote.

1.15 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. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and incomes 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.

1.16 Property, plant and equipment (PP&E)

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, except for purchases costing less than $2000 and computer equipment of less than $1000, 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).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to restoration provisions in property leases taken up by the IGT where there exists an obligation to restore the property to its original condition. These costs are included in the value of the IGT’s leasehold improvements with a corresponding provision for the present value of the restoration recognised.

Revaluations

Fair values for each class of asset are determined as shown below:

Asset class: Fair value measured at:
Leasehold improvements Depreciated replacement cost
Property, plant and equipment Market selling price

 

Following initial recognition at cost, property plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially with the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus or deficit. Revaluation decrements for a class of assets are recognised directly through surplus or deficit except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

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 straightline method of depreciation. Leasehold improvements are depreciated on a straightline basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.

Depreciation rates (useful lives), residual values 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:

  2010–11 2009–10
Property, plant and equipment 3-10 years 3-10 years
Leasehold improvements Lease term Lease term
Impairment

All assets were assessed for impairment at 30 June 2011. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the IGT were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

No indicators of impairment were found for assets at fair value.

1.17 Taxation

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.

Note 2: Events after the reporting period

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

Note 3: Expenses

Note 3: Expenses

Note 4: Income

Note 4: Income

Note 5: Financial assets

Note 5: Financial assets

Note 6: Non-financial assets

Note 6: Non-financial assets

All property, plant and equipment are at valuation as at 30 June 2011 in accordance with the agency’s revaluation policy (note 1.16). Net revaluation increment of $46,549 (Property, plant and equipment: $186; Leasehold improvements: $46,363) was added to reflect Fair Value at 30 June 2011.

Note 6: Non-financial assets (continued): Analysis of perperty, plant and equipment

Note 6: Non-financial assets (continued)

Note 6: Non-financial assets (continued)

All other non-financial assets are current assets.
No indicators of impairment were found for other non-financial assets.

Note 7: Payables

Note 7: Payables

Note 8: Provisions

Note 8: Provisions

The agency renewed the lease agreement for the premises in 2009. The lease has a provision requiring restoration of the premises to its original condition at the conclusion of the term. The agency has made a provision to reflect the present value of this obligation.

Note 9: Cash flow reconciliation

Note 9: Cash flow reconciliation

Note 10: Contingent liabilities and assets

There are no unquantifiable or remote contingencies.

Note 11: Senior executive remuneration

Note 11: Senior executive remuneration

Note: Note 11A was prepared on an accruals basis. It excludes acting arrangements and part-year service where remuneration expensed was less than $150,000.

Note 11: Senior executive remuneration (continued)

This table reports on substantive senior executives who are employed by the entity as at the end of the reporting period. Fixed elements are based on the employment agreement of each individual — each row represents an average annualised figure (based on headcount) for the individuals in that remuneration package band (that is, the Total column).

Note 11: Senior executive remuneration (continued)

Variable Elements: With the exception of bonuses, variable elements were not included in the ‘Fixed Elements and Bonus Paid’ table above. The following variable elements were available as part of senior executives’ remuneration packages.

On average senior executives were entitled to the following leave entitlements:

  • Annual leave (AL): entitled to 20 days (2010: 20 days) each full year worked (pro-rata for part-time SES);
  • Personal Leave (PL): entitled to 18 days (2010: 20 days) or part-time equivalent; and
  • Long Service Leave (LSL): in accordance with Long Service Leave (Commonwealth Employees) Act 1976.

Senior executives were members of one of the following superannuation funds:

  • Australian Government Employee Superannuation Trust (AGEST): this fund is for senior executives who were employed for a defined period. Employer contributions were set at 9 per cent (2010: 9 per cent). More information on AGEST can be found at http://www.agest.com.au; (AGEST has since merged with AustralianSuper)
  • Public Sector Superannuation Scheme (PSS): this scheme is closed to new members, with current employer contributions were set at 15.4 per cent (2010: 15.4 per cent) (including productivity component). More information on PSS can be found at http://www.pss.gov.au;
  • Public Sector Superannuation Accumulation Plan (PSSap): employer contributions were set at 15.4 per cent (2010: 15.4 per cent) and the fund has been in operation since July 2005. More information on PSSap can be found at http://www.pssap.gov.au; and
  • Other superannuation funds as are appropriate to circumstances.

Various salary sacrifice arrangements were available to senior executives including superannuation, motor vehicle and expense payment fringe benefits.

Note 11C: Other highly paid staff

During the reporting period, there were 3 employees (2010: 3) whose salary expense was $150,000 or more. These employees did not have a role as senior executive and are therefore not disclosed as senior executive in Note 11A and Note 11B.

Note 12: Remuneration of auditors

Note 12: Remuneration of auditors

No other services were provided by the auditors of the financial statements.

Note 13: Financial instruments

Note 13: Financial instruments

Note 13: Financial instruments (continued)

The carrying amounts of the agency’s financial instruments is a reasonable approximation of fair value.

Note 13: Financial instruments (continued)

Note 13C: Credit risk

The agency is exposed to minimal credit risk as receivables are cash and trade receivables. The maximum exposure to credit risk is the risk that arises from the potential default of a debtor. This amount is equal to the total amount of the trade receivables (2011: $0, and 2010: $4752). The agency has assessed the risk of the default on payment and has made no allocations to doubtful debts in 2011 (2010: NIL).

The agency holds no collateral to mitigate against the credit risk.

Credit quality of financial instruments not past due or individually determined as impaired

Credit quality of financial instruments not past due or individually determined as impaired

Note 13: Financial instruments (continued)

Note 13D: Liquidity risk

The agency’s financial liabilities are payables. The exposure to liquidity risk is based on the notion that the agency will encounter difficulty in meeting its obligations associated with financial liabilities. This is highly unlikely due to the appropriation funding and mechanisms available to the agency and interim policies and procedures put in place to ensure that there are appropriate resources to meet its financial obligations.

The following tables illustrate the maturities for non-derivative financial liabilities.

Note 13D: Liquidity risk

The agency is appropriated funding from the Australian Government. The agency manages its budgeted funds to ensure that it has adequate funds to meet payments as they fall due. In addition, the agency has policies in place to ensure timely payments are made when due and has no past experience of default.

Note 13E: Market risk

IGT holds basic financial instruments that do not expose the agency to certain market risks. The agency is not exposed to currency risk, other price risk, or interest rate risk.

Note 14: Appropriations

Table A: Annual appropriations (recoverable GST exclusive)

Table A: Annual appropriations (recoverable GST exclusive)

Notes:

  • Appropriations reduced under Appropriation Acts (No. 1,3,5) 2010-11: sections 10, 11, 12 and 15 and under Appropriation Acts (No. 2,4,6) 2010-11: sections 12, 13, 14 and 17. Departmental appropriations do not lapse at financial year-end. However, the responsible Minister may decide that part or all of a departmental appropriation is not required and request the Finance Minister to reduce that appropriation. The reduction in the appropriation is effected by the Finance Minister’s determination and is disallowable by Parliament. In 2011, there was no reduction in departmental and non-operating departmental appropriations.
  • In 2010-11, there were no adjustments that met the recognition criteria of a formal addition or reduction in revenue (in accordance with FMO Div 101).

Note 14: Appropriations (continued)

Table A: Annual appropriations (recoverable GST exclusive) continued.

Table A: Annual appropriations (recoverable GST exclusive) continued.

Notes:

  1. Appropriations reduced under Appropriation Acts (No. 1,3) 2009-10: sections 10, 11 and 12 and under Appropriation Acts (No. 2,4) 2009-10: sections 12, 13 and 14. Departmental appropriations do not lapse at financial year-end. However, the responsible Minister may decide that part or all of a departmental appropriation is not required and request the Finance Minister to reduce that appropriation. The reduction in the appropriation is effected by the Finance Minister’s determination and is disallowable by Parliament. On 24 January 2010, the Finance Minister issued a determination to reduce departmental appropriations following a request by the Minister. The amount of the reduction under Appropriation Act (No. 1) was: $61,000.
  2. In 2009-10, there were no adjustments that met the recognition criteria of a formal addition or reduction in revenue (in accordance with FMO Div 101) but at law the appropriations had not been amended before the end of the reporting period.

Note 14: Appropriations (continued)

Table B: Unspent departmental annual appropriations (recoverable GST exclusive)

Note 14: Appropriations (continued) - Table B: Unspent departmental annual appropriations (recoverable GST exclusive)

Note 15: Reporting of outcomes

The Inspector-General of Taxation has one outcome:

Improved tax administration through community consultation, review, and independent advice to Government’.

Note 15A: Net cost of outcome delivery

Note 15: Reporting of outcomes - Note 15A: Net cost of outcome delivery

Note 15: Reporting of outcomes (continued)

Note 15B: Major classes of departmental revenues and expenses by outcome.

Note 15: Reporting of outcomes (continued) - Note 15B: Major classes of departmental revenues and expenses by outcome.

Outcome 1 is described in Note 1.1. Net costs shown include intra-government costs that are eliminated in calculating the actual Budget outcome.

Note 16: Comprehensive income attributable to the entity (DCB or CDAB funded only)

Note 16: Comprehensive income attributable to the entity (DCB or CDAB funded only)

Outcome 1 is described in Note 1.1. Net costs shown include intra-government costs that are eliminated in calculating the actual budget outcome.