Appendix 1: Financial Statements

Budget Variances Commentary

Statement of Comprehensive Income

Judicial benefits
Judicial benefits are higher than the original budget due to a judicial remuneration increase effective 1 July 2017.

Employee benefits
Employee benefits are lower than budget due to staff vacancies during the year.

Depreciation and amortisation
Depreciation is higher than budgeted due to the receipt in 2016-17 of $9.6m of assets in the Sydney Queens Square building that was not known at the time of budgeting. Depreciation for these assets was not part of the original budget.

Sale of goods and rendering of services
The Family and Federal Circuit Courts received funding for additional registrars of $594k that was not expected at the time of the budget.

Other revenue
There was additional funding of $240k received from DFAT to run a program under the Partnership for Justice program. This was not expected at the time of the budget.

Other gains
There was an increase in the resources received free of charge for the Sydney Queens Square building of $1.7m due to an external revaluation of this benefit. Rent received free of charge in the Commonwealth Law Courts Buildings increased by 1.3% once the MOU with the Department of Finance was finalised. Liabilities assumed by other entities relates to judicial pension schemes. This is higher than budget due to a judicial remuneration increase.

Budget Variances Commentary

Statement of Financial Position

Trade and other receivables
The budgeted figure assumed that appropriation receivable would decrease in line with approved losses of $5.5m in 2016-17 and $2.5m in 2017-18. Actual results in those years led to an improvement of approximately $10.8m for this item. Capital receivable is also approximately $8m higher than budgeted due to slower than forecast capital expenditure. GST receivable is $1.2m higher than in June 2017, due to high rent payments occurring in June 2018.

Buildings, Plant and equipment, Computer software
Subsequent to the budget figures being completed, the Court received $9.6m of assets, free of charge, in relation to the Queens Square building. A revaluation of assets as at 30 June 2017 also resulted in an increase in asset value of $974k. These increases were offset with lower than budgeted expenditure on Buildings, Plant and equipment over the last two financial years. Computer software is higher than expected due to additional expenditure in relation to the Court's digital court program.

Suppliers payable
Other trade creditors of $2.5m were not expected at the time of the budget.

Other payables
Other payables includes $622k in accrued severance payments, due to restructuring within the Court, that was not expected at the time of the budget.

Employee provisions
The budget for the provisions was completed prior to the actuarial assessment of provisions as at 30 June 2017. The budget took a conservative approach to possible liabilities.

Accounting Policy

Equity Injections
Amounts appropriated which are designated as 'equity injections' for a year (less any formal reductions) and Departmental Capital Budgets (DCBs) are recognised directly in contributed equity in that year.

Restructuring of Administrative Arrangements
Net assets received from or relinquished to another Government entity under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.

Budget Variances Commentary

Statement of Changes in Equity

Accumulated deficit, Reserves and Contributed equity
Equity resulting from restructuring in 2016-17 was budgeted against each individual equity component. This was subsequently all included in Contributed equity. The improved financial results of the Court compared to budget in 2016-17 and 2017-18 have led to a better than expected total equity position.

Budget Variances Commentary

Statement of Cash Flow Statement

Cash received – rendering of services
The court received additional cash revenue in relation to funding for additional registrars and international programs. Approximately $1m of revenue in relation to international programs work was received in advance and is reflected in the balance sheet as unearned revenue.

Cash used – suppliers
New IT equipment was purchased outright instead of being leased as was expected at the time of the budget. The budget underestimated supplier costs and overestimated employee costs.

Cash used for investing activities
Budgeted amounts for cash spent on the purchase of property, plant and equipment and intangibles is not split in the budget. Asset purchases were lower than expected for property, plant and equipment.

Contributed equity
Asset purchases were lower than expected in relation to property, plant and equipment.

Repayment of borrowing
New equipment leases anticipated at the time of the budget were not entered into.

Budget Variances Commentary

Administered Schedule of Comprehensive Income

Fees and fines
The variance to budget is due to the receipt of $26.8 million in fines that was not budgeted for. In particular, a single fine of $25m was paid to the Court.

Suppliers
The variance to budget is due to a lower than expected amount of clients accessing conciliation and mediation services.

Write-down and impairment of assets
The variance to budget is due to the uncertainty in estimating fees that may become impaired during the period.

Other expenses
Other expenses relates to the refund of fees. The variance to budget is due to the uncertainty in estimating the amount of fees that may require refund during the period.

Budget Variances Commentary

Administered Schedule of Assets and Liabilities

Cash and cash equivalents
There is inherent uncertainty in estimating the cash balance on any particular day.

Trade and other receivables
The variance to budget is due to the uncertainty in estimating the number of unpaid fees.

Other payables
The variance is due to an increase in revenue received in advance for fees relating to future events than originally estimated.

Accounting Policy

Administered cash transfers to and from the Official Public Account
Revenue collected by the entity for use by the Government rather than the entity is administered revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by the entity on behalf of the Government and reported as such in the schedule of administered cashflows and in the administered reconciliation schedule.

Reporting of Administered activities
Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules and related notes.
Except where otherwise stated, administered items are accounted for on the same basis and using the same policies as for departmental items, including the application of Australian Accounting Standards.

There were no subsequen events that had the potential to significantly affect the ongoing structure and financial activities of the Federal Court of Australia.

Accounting Policy
Accounting policies for employee related expenses are contained in the People and Relationships section.

Accounting Policy

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 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 an 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 is 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.

Accounting Policy

Revenue from the sale of goods is recognised when:
a) the risks and rewards of ownership have been transferred to the buyer;
b) the entity retains no managerial involvement or effective control over the goods;
c) the revenue and transaction costs incurred can be reliably measured; and
d) it is probable that the economic benefits associated with the transaction will flow to the Federal Court of Australia.

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:
a) the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
b) the probable economic benefits associated with the transaction will flow to the Federal Court of Australia.

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

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

Accounting Policy

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.

The major resources received free of charge are the use of property in the Commonwealth Law Courts Buildings in each capital city and the Law Courts Building in Sydney.
Liabilities assumed by other agencies refers to the notional cost of judicial pensions.
Assets received free of charge in 2017 was in relation to the Law Courts Building, Sydney.

Accounting Policy

Revenue from Government

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the entity gains control of the appropriation except for certain amounts that related 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.

Accounting Policy

All administered revenues are revenues relating to the course of ordinary activities performed by the Federal Court of Australia, the Federal Circuit Court and the Family Court of Australia on behalf of the Australian Government. As such administered revenues are not revenues of the Courts. Fees are charged for access to the Courts' services. Administered fee revenue is recognised when the service occurs. The services are performed at the same time as or within two days of the fees becoming due and payable. Revenue from fines is recognised when a fine is paid to the Court on behalf of the Government. Fees and Fines are recognised at their nominal amount due less any impairment allowance. Collectability of debts is reviewed at the end of the reporting period. Impairment allowances are made when collectability of the debt is judged to be less, rather than more, likely.

Accounting Policy

Receivables Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'Receivables'.

Accounting Policy
Financial assets are assessed for impairment at the end of each reporting period.

Accounting Policy

Property, plant and equipment
Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in and liabilities undertaken.
Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income 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's accounts immediately prior to the restructuring.

Asset Recognition Threshold
Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases of:
- assets other than information technology equipment costing less than $2,000; and
- information technology equipment costing less than $1,500.
which are expensed in the year of acquisition.
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 'make good' provisions in property leases taken up by the Federal Court of Australia where there exists an obligation to restore the property to its original condition. These costs are included in the value of the Federal Court of Australia's leasehold improvements with a corresponding provision for the 'make good' recognised.

Revaluations
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 from 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 previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly through the Income Statement 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 Federal Court of Australia using, in all cases, the straight-line method of depreciation.
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 and amortisation rates for each class of depreciable asset are based on the following useful lives:

Impairment
All assets were assessed for impairment at 30 June 2018. 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 Federal Court of Australia were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Intangibles
The Federal Court of Australia's intangibles comprise externally and internally developed software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.
Software is amortised on a straight-line basis over its anticipated useful life of 5 years (2017: 5 years).

Accounting Policy

Inventories held for sale are valued at the lower of cost and net realisable value.

Inventories held for distribution are valued at cost, adjusted for any loss of service potential.

Costs incurred in bringing each item of inventory to its present location and condition are assigned as follows:
a) raw materials and stores - purchase cost on a first-in-first-out basis; and
b) finished goods and work in progress - cost of direct materials and labour plus attributable costs that can be
allocated on a reasonable basis.

Inventories acquired at no cost or nominal consideration are initially measured at current replacement cost at the date of acquisition.

Accounting Policy

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 assets. An operating lease is a lease that is not a finance lease.

Where an 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 is 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.

Accounting Policy

Trade and other receivables

Collectability of debts is reviewed at the end of the reporting period. Allowances are made when collection of debts is judged to be less rather than more likely. Credit terms for goods and services were within 30 days (2017: 30 days).

Accounting Policy

Liabilities for 'short-term employee benefits' (as defined in AASB 119 Employee Benefits) and termination benefits expected within twelve months of the end of the reporting period are measured at their nominal amounts.
Other long-term judge and employee benefits are measured as 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.
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 Federal Court of Australia'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 annual leave and long service leave has been determined by reference to the work of an actuary as at 30 June 2017. 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 Federal Court of Australia 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
The Federal Court of Australia's staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap), or other superannuation funds held outside the Australian government.

The CSS and PSS are defined benefit schemes 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. This liability is reported in the Department of Finance's administered schedules and notes.
The entity makes employer contributions to the employees' superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. The entity accounts for the contributions as if they were contributions to defined contribution plans.

The liability for superannuation recognised as at 30 June represents outstanding contributions.

Judges' Pension
Under the Judges' Pension Act 1968, Federal Court and Family Court Judges are entitled to a non-contributory pension upon retirement 10 years service (Federal Court and Family Court Judges). As the liability for these pension payments is assumed by the Australian Government, the entity has not recognised a liability for unfunded superannuation liability. The Federal Court of Australia does, however, recognise a revenue and corresponding expense item, "Liabilities assumed by other agencies", in respect of the notional amount of the employer contributions to Judges' pensions for the reporting period amounting to $27.111 million (2017: $25.554 million). The contribution rate has been provided by the Department of Finance following an actuarial review.

Accounting Policy

Financial Assets
The Federal Court of Australia has financial assets only in the nature of cash 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.

Impairment of Financial Assets
Financial assets are assessed for impairment at the end of each reporting period.

Financial Liabilities
Financial liabilities are classified as either financial liabilities 'at fair value through profit or loss' or other financial liabilities. Financial liabilities are recognised and derecognised upon 'trade date'.

Other Financial Liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

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).

The fair value of financial instruments approximates its carrying value.

Accounting Policy

AASB 2015-7 provides relief for not-for –profit public sector entities from making certain specified disclosures about the fair value measurement of assets measured at fair value and categorised within Level 3 of the fair value hierarchy.

Valuations are performed regularly so as to ensure that the carrying amount does not materially differ from fair value at the reporting date. A valuation was made by an external valuer in 2017. The Federal Court of Australia reviews the method used by the valuer annually.