Contents Page

Audit report 144

Certification of financial statements 146

Statement of revenues and expenses 147

Statement of assets and liabilities 149

Statement of cash flows 151

Schedule of commitments 153

Schedule of contingencies 154

Notes to and forming part of the financial statements 155

Audit Report to be inserted

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Audit Report to be inserted

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In my opinion, the attached financial statements give a true and fair view of the matters required by Schedule 2 to the Finance Minister's Orders made under section 63 of the Financial Management and Accountability Act1997.

E. A. Evans

Secretary to the Treasury

14 August 2000

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

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

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

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

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

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

(a) Plant and equipment commitments are primarily contracts for purchases of furniture and fittings for building refurbishment.

(b) Operating Leases included are effectively non-cancellable and comprise:

- leases for office accommodation; and

- agreements for the provision of motor vehicles to senior executive officers.

Note: All 1999-00 commitments are GST inclusive where relevant. The comparatives have not been adjusted to reflect GST.

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

At 30 June 2000, the Department had a number of legal claims outstanding. It is not possible to estimate the amounts of any eventual payments which may be required in relation to these claims.

The objective of the Department of the Treasury is to improve the wellbeing of the Australian community through strong sustainable economic growth. It does so by providing sound and timely advice to the government, based on objective and thorough analysis of options, and by assisting Treasury portfolio Ministers in the administration of their responsibilities and in the implementation of government decisions.

The Department of the Treasury is structured to meet three outcomes:

Outcome 1: Sound macroeconomic environment;

Outcome 2: Effective government spending and taxation arrangements; and

Outcome 3: Well functioning markets.

The reporting entity comprises the Department of the Treasury, the Foreign Investment Review Board, the Loan Council, Australian Government Actuary and the Royal Australian Mint (the Mint), hereafter referred to as `the Department'. In these statements, `the Department' does not correspond with the Department of the Treasury.

The Australian Office of Financial Management (AOFM) was established as a `prescribed agency' on 1 July 1999, transferring all the functions formerly carried out by the Debt Management Office within Treasury from that date. The creation of AOFM has had significant impact on the Administered accounts within Treasury, most specifically on:

§ Revenues from government;

§ Interest revenue;

§ Other sources of non-taxation revenue;

§ Interest expense; and

§ Balance sheet amounts as detailed in Note 8B.

Note 2: Summary of significant accounting policies

2.1 Basis of accounting

The financial statements are required by section49 of the Financial Management and Accountability Act1997 and are a general purpose financial report.

The statements have been prepared in accordance with:

§ Requirements for the Preparation of Financial Statements of Commonwealth Agencies and Authorities made by the Minister for Finance and Administration in August 1999 (Schedule 2 to the Financial Management and Accountability (FMA) Orders);

§ Australian Accounting Standards;

§ other authoritative pronouncements of the Australian Accounting Standards Boards; and

§ the Consensus Views of the Urgent Issues Group.

The Statements have been prepared having regard to:

§ Statements of Accounting Concepts; and

§ the Explanatory Notes to Schedule 2 issued by the Department of Finance and Administration.

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

The continued existence of the department in its present form, and with its present outcomes, is dependent on government policy and on continuing appropriations by parliament for the department's administration and outcomes.

Changes in accounting policy have been identified in this note under their appropriate headings.

Agency assets, liabilities, revenues and expenses are those items that are controlled by the department including:

§ computers, plant and equipment used in providing goods and services;

§ liabilities for employee entitlements;

§ revenues from running cost appropriations;

§ revenues from user charging, etc, where the proceeds are deemed appropriated under Section 31 of the Financial Management and Accountability Act 1997; and

§ employee expenses and other administrative expenses incurred in providing goods and services.

Administered items are those items which are controlled by the government and managed or overseen by the department on behalf of the government. These items include grant payments to other governments, dividend revenue from Reserve Bank of Australia, grant payments and subsidies by the Goods and Services Tax Assistance Office.

The purpose of the separation of administered and agency items is to enable assessment of the administrative efficiency of the department in providing goods and services. The basis of accounting described in Note2.1 applies to both agency and administered items.

Administered items are distinguished from agency items in the financial statements by shading.

The financial statements of the Mint are consolidated into the department's financial statements. All balances and transactions between the Mint and the department have been eliminated on consolidation.

Revenues from government are revenues relating to the core operating activities of the department.

The policies for accounting for revenue from government follow (amounts and other details are given in Note 5).

From 1 July 1999, the Commonwealth Budget has been prepared under an accruals framework.

Appropriations to the Department of the Treasury for its departmental outputs are recognised as revenue to the extent they have been received into the department's bank account or are entitled to be received by the department at year end.

Appropriations to the Department of the Treasury for departmental capital items are recognised directly in equity, to the extent that the appropriation has been received into the department's bank account or are entitled to be received by the department at year end.

The appropriations for departmental capital items for 1999-2000 include, as carryovers, the re-appropriation to the department of the certain unspent amounts from 1998-99. These amounts were recognised directly in equity in the financial statements for 1998-99.

This is a change in the policy adopted in prior years when departmental appropriations, other than running costs, were recognised as revenue to the extent that the appropriations were spent. Amounts appropriated for department running costs were recognised as revenue in the year of appropriation, except to the extent of:

§ unspent amounts not automatically carried over into the new financial year; and

§ running costs borrowing.

Administered appropriations

Appropriations for administered expenses are recognised as revenue to the extent that expenses have been incurred up to the limit, if any, of each appropriation. Appropriations for administered capital are recognised as the amount appropriated by parliament.

Resources received free of charge

Services received free of charge are recognised in the Operating Statement 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.

Revenue from the sale of goods is recognised upon the delivery of goods to customers. Dividend revenue is recognised when the right to receive a dividend has been established. Revenue from disposal of non-current assets is recognised when control of the asset is passed to the buyer.

All revenues described in this note are revenues relating to the core operating activities of the department, whether in its own right or on behalf of the Commonwealth, except for gains from the sale of agency assets. Details of revenue amounts are given in Note 5.

The Treasury Department administers a number of grant schemes on behalf of the Commonwealth. Grants liabilities are recognised to the extent that (i) the services required to be performed by the guarantee have been performed or (ii) the grant eligibility criteria have been satisfied. A commitment is recorded when the Commonwealth has a binding agreement to make the grants but services have not been performed or criteria satisfied. In 1997-98, the Commonwealth agreed to contribute $30,000,000 in twelve annual instalments of $2,500,000 to the International Monetary Fund's (IMF) Enhanced Structural Adjustment Facility. The department has made three payments and has a liability of $22,500,000.

The Commonwealth, up to 30 June 2000, collected a number of revenue replacement taxes as an agent for the States and Territories. These taxes replaced constitutionally invalid business franchise fees and were passed directly by the Commonwealth to the state and territory governments, with an adjustment for administration costs. Reflecting the Commonwealth's agency role in the collection of these taxes, they have not been recognised in these financial statements. Under the previous accounting policy, the revenue replacement payments were treated on a gross basis. The relevant amounts for 1998-99 and 1999-2000 are outlined in the table below.

On behalf of the States, the Commonwealth imposes mirror taxes which replace State taxes on Commonwealth places which may be constitutionally invalid. Mirror taxes are collected by the States and will be paid to the Commonwealth and immediately repaid to the States. The state governments bear the administration costs of collecting mirror taxes. There has to date been no mirror taxes paid to the Commonwealth because the States need to enter into formal arrangements with the Commonwealth for their State Revenue Offices to collect mirror taxes in order to bring the mirror tax regime into effect.

Leave

The liability for employee entitlements includes provisions for annual leave and long service leave. No provision is made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the department is estimated to be less than the annual entitlement for sick leave.

The liability for annual leave reflects the value of total annual leave entitlements of all employees at 30June2000 and is recognised at the nominal amount.

The non-current portion of the liability for long service leave is recognised and measured
at the present value of the estimated future cash flows to be made in respect of all employees at 30June2000. In determining the present value of the liability, the department has taken into account attrition rates and pay increases through promotion and inflation.

Separation and redundancy

Provision is also made for separation and redundancy payments in circumstances where the department has formally identified positions as excess to requirements and a reliable estimate of the amount of the payments can be determined.

Superannuation

Staff of the department contribute to the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. Employer contributions amounting to $3,585,767 have been expensed in these financial statements.

No liability is shown for superannuation in the statement of Agency Balance Sheet as the employer contributions fully extinguish the accruing liability, which is assumed by the Commonwealth.

Employer Superannuation Productivity Benefit contributions totalled $716,510.

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 inception of the lease and a liability recognised for the same amount. 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 charged to the Agency Operating Statement on a basis which is representative of the pattern of benefits derived from the leased assets.

Cash includes notes and coins held, deposits held at call with a bank or financial institution and balances of commercial trust accounts held in the Official Public Account.

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 revenue at their fair value at the date of acquisition, unless acquired as a consequence of restructuring arrangements. In the latter case, assets are initially recognised at the amounts at which they were recognised in the transferor agency's accounts immediately prior to the restructuring (Note 8).

Asset recognition threshold

Purchases of infrastructure, plant and equipment are recognised initially at cost in the statement of Agency Balance Sheet, except for purchases costing less than$2,000 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).

Revaluation

Schedule2 requires that buildings, infrastructure, plant and equipment be revalued progressively in accordance with the `deprival' method of valuation in successive three-year cycle.

Revaluations of infrastructure, plant and equipment are accounted for by separately restating the gross amount and the related accumulated depreciation of the revalued asset.

The carrying amounts of infrastructure, plant and equipment held by the department have been reviewed to determine whether they are in excess of their recoverable amounts. In assessing recoverable amounts the relevant cash flows have not been discounted to their present value.

The department is implementing its progressive revaluations as follows:

§ leasehold improvements are to be revalued every three years; and

§ plant and equipment were revalued over the financial year 1998-99, and will be revalued in successive three-year periods.

Assets in each class acquired after the commencement of the progressive revaluation cycle will be reported on the basis of the value initially recognised on acquisition for the duration of the progressive revaluation then in progress.

The financial effect of the move to progressive revaluation is that the carrying amounts of assets will reflect current values and depreciation charges will reflect the current cost of the service potential consumed in each period.

Intangible assets

Software has been revalued over the financial year 1999-2000 and brought to account at valuation. Software is amortised on a straight line basis over its anticipated useful life to the department.

Depreciation and amortisation

Depreciable infrastructure, plant and equipment are written off to their estimated residual values over their estimated useful lives to the department using the straight line method of depreciation. Leasehold improvements are amortised on a straight line basis over the lesser of the estimated useful
life of the improvements or the unexpired period of the lease.

Depreciation and amortisation rates applying to each class of depreciable assets are as follows:

Depreciation and amortisation rates and methods are reviewed at each balance date and necessary adjustments are recognised in the current and future reporting periods as appropriate.

The aggregate amount of depreciation allocated for each class of asset during the reporting period is disclosed in Note 10B.

Inventories are brought to account at the lower of cost and net realisable value. Work in progress and finished goods are brought to account at actual costs to include direct costs and a proportion of direct labour and overhead. All precious metals are purchased and brought to account at cost and expensed as used. Indirect materials are expensed at the time of purchase.

The Department of the Treasury is exempt from all forms of taxation except for Fringe Benefits Tax and Goods and Services Tax. The Mint is liable for all forms of taxation including Payroll Tax, Companies Income Tax, Fringe Benefits Tax and sales tax on non-coin products.

A capital use charge of 12per cent is imposed by the Commonwealth on the net departmental assets of the agency. The charge is adjusted to take account of asset gifts and revaluation increments during the financial year.

The Commonwealth's insurable risk managed fund, called `Comcover' commenced operations in 1998-99. The department has insured with the fund for risks other than workers compensation, which is dealt with via continuing arrangements with Comcare.

Bad debts are written off during the year in which they are identified to the extent to which they have not been provided for.

A provision is raised for any doubtful debts based on a review of all outstanding accounts as at year end.

Where necessary, comparative figures have been adjusted to conform to changes in presentation within these financial statements.

Administered items include:

Unclaimed moneys

Moneys from bank accounts inactive for sevenyears are transferred to the Commonwealth from banking institutions. These unclaimed moneys are deposited in the Consolidated Revenue Fund and are recognised as administered revenue. A provision representing
the expected recovery of these moneys less refunds paid, based on an analysis of historical transactions, is recognised.

Guarantees

Guarantees provided under legislation within the portfolio responsibility of the Treasurer are recognised as liabilities when it is probable that the guarantee will be called and it can be reliably measured. In all other instances such guarantees are disclosed in the Schedule of Administered Remote Contingencies (Note 15).

Royal Australian Mint - seigniorage and repurchase of circulating coins

Seigniorage is collected by the Mint on behalf of the Commonwealth. Seigniorage represents the difference between the face value of coinage sold to the Reserve Bank of Australia and its cost of production to the Mint.

The Mint repurchases circulating coins on behalf of the Commonwealth. The costs incurred by the Mint in repurchasing circulating coins are offset to an extent by the sale of scrap metal and the balance is supplemented by the Commonwealth via a reduction in the total amount paid to the Commonwealth by the Mint.

Reserve Bank of Australia dividend

Dividends from the Reserve Bank of Australia (RBA) are recognised when determination is made by the Treasurer. The basis of payment of dividends is a memorandum of understanding with the Treasurer. Dividend revenue is brought to account once the right to control the income stream is established. On this basis the RBA's dividend for 1999-2000 will be recognised in Treasury's account in 2000-01.

Investments

Development banks

Investments in development banks are classified as non-monetary assets.

Where the information is available, these investments are recognised at historical cost. Where historical cost records are not readily obtainable, a notional cost has been established at 30June1993 by reference to the Development Banks' financial statements and exchange rates at that time.

The investment in the European Bank for Reconstruction and Development is recognised at historical cost, whereas the investments in the Asian Development Bank, the International Finance Corporation, the Multilateral Investment Guarantee Agency and the International Bank for Reconstruction and Development are recognised at notional cost.

Owing to their nature, these investments are not revalued.

International Monetary Fund

The quota is the current value in Australian dollars of Australia's subscription to the IMF.

The Special Drawing Rights (SDR) allocation liability reflects the current value in Australian dollars of the liability to repay to the IMF Australia's cumulative allocation of SDRs, and is classified as an `Other Provisions and Payables'.

Portfolio agencies

The Commonwealth's investment in other controlled authorities and companies in this portfolio is valued at the aggregate of the Commonwealth's share of the net assets and net liabilities of each entity as at 30June1997.

Promissory notes

Promissory notes which have been issued in foreign currencies are translated at the spot rate at balance date. Foreign currency gains and losses are recognised where applicable. Promissory notes have been issued to the International Monetary Fund, International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development, the Asian Development Bank and the Multilateral Investment Guarantee Agency.

Payments to the States

Grants are recognised as expenses at the time that conditions under the grant agreement have been satisfied or payment has been made.

Foreign currency transactions

Transactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. Foreign currency receivables and payables are translated at the exchange rates current as at balance date.

Mortgage insurance policies written by Housing Loans Insurance Corporation up to 12December1997

The Housing Loans Insurance Corporation (HLIC) was sold by the Commonwealth on 12December1997. Terms and conditions of the sale included that the Commonwealth shall remain responsible for the mortgage insurance policies written up to the time of the sale.

The sale of the HLIC was conducted by the Office of Asset Sales and Information Technology Outsourcing.

Accounting policies adopted are:

Premiums

Premiums comprise amounts charged to the policyholder or other insurer, excluding amounts collected on behalf of third parties, principally stamp duties. The earned portion of premiums received and receivable is recognised as revenue. Premiums are treated as earned from the date of attachment of risk.

Premiums received in respect of insured loans are apportioned over a number of years in accordance with an actuarial determination of the pattern of risk in relation to the loans. Premium amounts carried forward in this way are credited to `Provision for unearned premiums'.

Claims

Claims incurred expense and a liability for outstanding claims are recognised in respect of insurance policies. The liability is assessed on an actuarial basis and covers claims incurred but not yet paid, incurred but not yet reported and the anticipated direct and indirect costs of settling those claims.

Acquisition costs

A portion of acquisition costs relating to unearned premium revenue is deferred in recognition that it represents future benefits. Deferred acquisition costs are amortised on an actuarial basis over the reporting periods expected to benefit from the expenditure.

General

The Royal Australian Mint and the Perth Mint are joint venturers in the Sydney 2000 Olympic Coin Program (STOCP) marketing and distributing Sydney 2000 Olympic Coins. This joint venture will conclude in 2001 after the Sydney Olympics.

The Royal Australian Mint's interest in STOCP is carried at the recoverable amount.

The STOPC consists of 28base metal coins, 16silver coins, 8gold coins and a1kilo silver coin.

Profit distribution

The distribution of any profit is made on the following basis:

Foreign currency hedge

The STOCP entered into a foreign currency hedge(the hedge) on 25June1997 to the value of $US34million for the purpose of reducing the risk of foreign currency exposure on overseas sales. The currency hedge matures on 20December2000 and is expected to cover all overseas revenues. At present the STOCP has a commitment to the hedge of $US13million ($US26million as at 30June 1999).

The hedge has been accounted for in accordance with AAS20(Part A) Foreign Currency Transactions. Pursuant to this accounting standard the hedge has been classified as a specific hedge, being a specific hedge of all future overseas sales of the STOCP.

Amounts are rounded to the nearest $1,000 except in relation to the following items:

§ appropriations note, special accounts and special purpose moneys;

§ remuneration of executives; and

§ remuneration of auditors.

1. The RBA has calculated a dividend of $803million in respect of its results for the year ended 30 June 2000. The Treasurer will ratify the payment in accordanc
e with the recommendation of the RBA's Board of Directors.

Treasury will record this Dividend Income in its accounts for the year ended 30June 2001 in accordance with its accounting policy (Note 2.21).

2. On 31 July 2000 the Australian Securities and Investments Commission (ASIC) assumed responsibility for the administration of Unclaimed Monies, as agent for Treasury. This arrangement has been put in place pending the passing through parliament of the Financial Sector Legislation Amendment Bill (No. 1) 2000 which will allow the Treasurer to delegate the responsibility for all Unclaimed Moneys to a Commonwealth authority, being ASIC.

Note 6: Operating expenses

Note 7: Grants and subsidies

(a) The Australian Government Actuary (AGA) transferred from the Insurance and Superannuation Commission (ISC) to the Australian Prudential Regulation Authority (APRA) on 1 July 1998. The Australian Government Solicitors (AGS) indicated that AGA may not have had sufficient powers within the Australian Prudential Regulation Authority Act of 1988 to carry out its full range of functions. As a result APRA and Treasury entered into an agreement for the divestment of AGA from APRA and the transfer to Treasury from 1 April 2000. AGA operates within Treasury as a s20 special account under the Financial Management and Accountability Act.

(b) The Australian Office of Financial Management (AOFM) is an independent Treasury Agency within the Treasury portfolio having been established as a `prescribed agency' under the Financial Management and Accountability Act ( FMAA) as of 1 July 1999. The AOFM assumed all functions formerly carried out by the Debt Management Office within Treasury from that date. The AOFM is responsible for all aspects of the Commonwealth's funding, debt redemption and risk management functions.

(b) The Australian Office of Financial Management (AOFM) is an independent Treasury Agency within the Treasury portfolio having been established as a `prescribed agency' under the Financial Management and Accountability Act ( FMAA) as of 1 July 1999. The AOFM assumed all functions formerly carried out by the Debt Management Office within Treasury from that date. The AOFM is responsible for all aspects of the Commonwealth's funding, debt redemption and risk management functions.

Note 9: Financial assets (continued)

(a) In relation to the Commonwealth Bank of Australia, the Commonwealth Bank of Australia Officers' Superannuation Fund and the Commonwealth Development Bank, the Commonwealth guarantees all moneys that are, or may at any time become, payable to a person other than the Commonwealth. Such guarantee will be progressively phased out following the government sell-down on 19July1996.

(b) In relation to the Reserve Bank of Australia, the Commonwealth guarantees all moneys that are, or may at any time become, payable to a person other than the Commonwealth.

(c) The HLIC was sold by the Commonwealth on 12December1997 and all residual contingencies have been assumed by the Commonwealth. The principal amount covered by the guarantee and the balances outstanding are unable to be reliably measured. The guarantee relates essentially to the Housing Loans Insurance Corporation's (HLIC) contracts of mortgage insurance and any borrowings approved by the Treasurer up to the time of sale.

(d) At the finalisation of these statements this figure was not reliably measurable.

(a) The amount of the appropriation that lapsed is based on the amount to be determined by the Finance Minister under the annual appropriation Acts, to be the administered expenses by the Agency in the current year.

(a) The amount of the appropriation that lapsed is based on the amount to be determined by the Finance Minister under the annual appropriation Act
s, to be the administered expenses by the Agency in the current year.

(a) The amount of the appropriation that lapsed is based on the amount to be determined by the Finance Minister under the annual appropriation Acts, to be the administered expenses by the Agency in the current year.

(a) payment of goods and services and salaries and other expenses incurred for activities entered into by the Royal Australian Mint and approved by the Treasurer; and

(b) repayment of capital funds and payment of moneys in excess of requirements to the Consolidated Revenue Fund.

Note: Expenses may be incurred against funding sources not separately identified in this table but which be included in the total expenses column eg expenses incurred by special accounts under section 20 of the FMA Act.

Note: Budget estimates include section 31 deemed appropriation.

(a) Credit Risk: The maximum exposure to credit risk at the reporting date in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the balance sheet. The department does not have any significant exposures to any concentrations of credit risk. The maximum value of credit risk exposure does not take into account the value of any collateral or other security.

Note: The above amounts have been consolidated into the Department's balances shown in these financial statements.