Puddle Regional Water Corporation

PUDDLE REGIONAL WATER CORPORATION

Model General Purpose Financial Report

For the Year Ended 30 June 2018

Disclaimer

This publication has been prepared by the Victorian Water Industry Association (VicWater). Whilst every effort has been made to ensure accuracy, neither the Association nor any employee shall be liable on any ground whatsoever to any party in respect of decisions or actions they may take as a result of using this publication nor in respect of any errors in, or omissions from, it. The information contained in this publication is a general guide only and should not be used, relied upon or treated as a substitute for specific professional advice. PricewaterhouseCoopers (PwC) has provided input to the content of the Victorian Water Industry Association's (Vic Water) report. Any comments, observations or recommendations expressed by PwC have been provided solely for Vic Water's own use and benefit. These comments, observations or recommendations are a general guide only and should not be used, relied upon or treated as specific professional advice from PwC. PwC accepts no responsibility to any third parties arising in any way in relation to this report. Specific questions can be addressed to Frances White 03 8603 1098.

FOREWORD

This publication presents an illustrative model general purpose financial report (the Model) for a regional water corporation in Victoria. The financial report has been prepared on the basis of the requirements of the Financial Management Act1994, Accounting Standards and other mandatory professional accounting requirements in Australia for June2018 reporting.

The Model presents the minimum financial reporting requirements for water authorities. While a Model general purpose financial report cannot address all the specific circumstances that may be encountered by individual water authorities, the Model illustrates the disclosures that are representative of the types of transactions and events that commonly occur in the water industry. The Model therefore serves as an authoritative and “better practice” guide for the preparation by a ‘not-for-profit’ regional water corporation of its general purpose financial report at 30 June 2018.

The Model is available through the web site of VicWater (

We trust that the Model will be of assistance in the preparation of general purpose financial reports in the water industry.

Tony Wright
Chief Executive Officer
Victorian Water Industry Association

XXX 2018

Materiality guidance

/ Remove immaterial or irrelevant financial statement disclosures that have built up over time.

A1 Determine materiality

The notes to the financial statements should include relevant and material information that is required to understand the financial position and performance of the agency.

As part of the streamlining process, the entity needs to determine what information should be included, what information should be reordered in a more logical sequence and what information can be removed from the financial report on the basis of materiality.

Information is considered material and relevant to the understanding of the financial statements if:

• the item is significant because of its size or dollar amount (quantitative factor);
• the item is significant because of its nature (qualitative factor);
• the entity’s results cannot be understood without the specific disclosure (qualitative factor);
• it is critical for users to understand the changes in operations during the period or the financial position at a particular date (qualitative factor);
• there may be a reporting requirement associated with the item (i.e. it needs to be disclosed to comply with a reporting obligation, regardless of value); and/or
• it is required to meet the needs of a key stakeholder (stakeholder requirements).

Determining materiality is very judgemental in nature and should not be done in isolation to the rest of the financial report. To facilitate this process, it recommended that:

• an appropriate benchmark (e.g. percentage of assets and revenue) is used to obtain a view of quantitatively material limits (the benchmark may differ from entity to entity and it is encouraged that the use of an appropriate benchmark be discussed with the external auditor at an early stage);
• information is obtained through the stakeholder engagement sessions as to what might be deemed ‘material’ from a qualitative perspective;
• knowledge of the business is used to identify additional matters that are qualitatively material; and
• all decisions, benchmarks, qualitative and quantitative information are documented for review and approval (including by auditors).

A suggested template for documenting materiality consideration is included in Section A4 of this guide.

A2. Remove immaterial disclosures

Using the prior year’s final financial statements as a starting point, the entity needs to consider the materiality and relevance of each disclosure in light of the materiality decisions made in Section A1.

Any disclosure or additional information which is no longer considered material should be highlighted for removal.

The information proposed to be removed should be presented for approval from key stakeholder through a log of changes made.

A3 Prepare a consultation draft for review and obtain approval

Once all changes have been processed into the electronic version of the document, this version can become the consultation draft for socialisation and detailed review by key stakeholders.

The consultation draft should be accompanied by all necessary information and documents supporting the streamlining decisions, including:

• the materiality assessment;
• grouping and ordering of notes; and
• a mapping document summarising key changes and the new location of information.

The consultation draft accompanied with the above information will need to be circulated to key stakeholders for final approval, including:

• CFO;
• audit and risk committee;
• auditors;and
• any other key stakeholders.

A4. Example materiality documentation template

[Name of entity]

Streamlining project

Materiality Considerations

1. Objective of this paper

The objective of this paper is to provide a framework for evaluating whether removal of disclosures in the [corporation] financial reports are material.

This paper records the decisions made by management in ensuring that no disclosures are omitted that could influence economic decision making of users or impact the discharge of responsibility by management or a governing body.

1. Defining materiality

Omission of disclosures are material if they could, individually or collectively, influence the economic decisions of users or affect the discharge of accountability by management or governing body of the reporting entity.

Materiality in the context of this project is considered under the categories below to provide a framework for evaluating whether a disclosure is ‘material’ and therefore should not be removed. These are:

–quantitative indicators of materiality (refer to 3 below);

–qualitative factors impacting materiality (refer to 4 below); and

–stakeholder requirements that impact the disclosure of information and therefore impacts materiality (refer section 5 below).

1. Quantitative materiality indicators

[Entity name] applies generally accepted quantitative materiality indicators. In identifying the quantitative benchmarks, the corporation has focused on measures of great interest to primary user of the entity’s financial statements. The quantitative benchmarks applied are:

–Below [X%] of the applicable benchmark number (refer below) is assumed to be immaterial, unless a disclosure is required by legislation, regulation or specific stakeholder recommendation.

–Between [X%] and [X%] of the applicable benchmark number needs to be considered in the context of qualitative materiality factors (refer to 4 below) and consideration of stakeholder requirements (refer to 5 below).

–Over X% of the applicable benchmark number is deemed material.

Two separate quantitative materiality figures are calculated: one for the [Comprehensive operating statement] based on ‘Net Result’ and the other for the [Balance sheet] based on ‘Net Assets’:

Comprehensive
operating statement / Balance
sheet
[Entity]
Lower limit [X]% / $ xx m / $ xx m
Upper limit [X]% / $ xx m / $ xx m

[Guidance

Identifying the measures against which a corporation makes a quantitative assessment is a matter of judgement. The judgement depends on which measures are of great interest to primary users of the entity’s financial statements. ]

1. Qualitative factors impacting materiality

Qualitative factors are characteristics of a corporation’s transactions, other events or conditions, or of their context that, if present, make information more likely to influence thedecisions of the primary users of the entity’s financial statements.Qualitative factors need to be evaluated on a case by case basis, however, the following are recorded as key qualitative factors:

• Example - Involvement of a related party of the corporation
• Example - Uncommon features of a transaction
• Example - Unexpected changes in trends
• [….]

–The impact on key financial measures as follows:

• […].

1. Stakeholder requirements that impact the disclosure of information in the financial report

Whether the removal of a disclosure is material or not will also be judged in the context of other stakeholder requirements. These include:

–Specific requirements from Department of Environment Land Water and Planning, Department of Treasury and Finance and VicWater

–PAEC recommendations;

–[…]

–[…].

1. Conclusion

[corporation] will apply materiality as follows:

1. Any disclosures ina relation to amounts lower than the lower limit is removed, unless a specific qualitative consideration applies (negative test).

Any disclosures in relation to amounts between the lower and upper limits are first evaluated against the qualitative factors and stakeholder requirements, and removed if deemed ‘immaterial’ following that evaluation.

A5. Example of note mapping template

Summary of key changes made to during materiality assessment

Note / Name / Description of key changes / New location / Key information removed from the accounts

The Puddle Model Accounts (Puddle Accounts) has pleasure in presenting its audited general purpose financial statements for the financial year ended 30 June 2018. It is presented in the following structure:

Financial statements:

Notes to the financial statements:

COMPREHENSIVE OPERATING STATEMENT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 / Notes / 2018
$’000 / 2017
$’000
Revenue
Service charges / 2.1
Water usage charges / 2.1
Government grants and contributions / 2.2
Interest income / 2.3
Developer contributions / 2.4
Net gain/(loss) on disposal of non-financial assets / 4.1.3
Other income / 2.5
Total Revenue
Expenses
Depreciation and impairment / 4.1.2
Amortisation / 4.3
Employee benefits / 3.1.1
Operational expenses
Repairs and maintenance expense / 3.2
Environmental Contributions / 8.2
Interest / 6.1.2
Other expenses / 3.4
Total expenses
Net result before tax
Income tax expense/(revenue) / 8.1.1
Net result for the period
Other comprehensive income
Items that will not be reclassified to net result
Change in asset revaluation surplus / 9.1.2
Income tax relating to these items / 8.1.1
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Comprehensive result

The above Comprehensive Operating Statement should be read in conjunction with the accompanying notes.

BALANCE SHEET AS AT 30 JUNE 2018

Notes / 2018
$’000 / 2017
$’000
ASSETS
Current assets
Cash and cash equivalents / 6.2
Receivables / 5.1
Inventories / 5.3
Prepayments / 5.5
Current tax assets / 8.1.1
Other financial assets / 5.2
Total current assets
Non-current assets
Receivables / 5.1
Inventories / 5.3
Infrastructure, property, plant and equipment
Intangible assets
Biological assets
Deferred tax assets / 8.1.2
Other financial assets / 5.4
Total non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Payables / 5.2
Interest bearing liabilities / 6.1
Employee benefits / 3.1.2
Other provisions / 5.7
Current tax payable / 8.1.1
Total current liabilities
Non-current liabilities
Payables / 5.2
Interest bearing liabilities / 6.1
Employee benefits / 3.1.2
Other provisions / 5.7
Deferred tax liabilities / 8.1.1
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed capital / 9.1.1
Reserves / 9.1.2
Accumulated surplus/(deficit) / 9.1.3
TOTAL EQUITY

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

STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018

Notes* / Contributed Capital
$’000 / Reserves
$’000 / Accumulated surplus/
(deficit)
$’000 / Total
$’000
Balance at 1 July 2015
Changes in accounting policy (net of tax):
[describe]
Correction of error (net of tax): [describe]
Restated total equity at the beginning of the financial year
Total comprehensive income for the year as reported in the 2017 financial report
Changes in accounting policy (net of tax): [describe]
Correct of error (net of tax): [describe]
Transfer to/fromaccumulated surplus/(deficit)
Restated total comprehensive income for the year
Transactions with the State in its capacity as owner:
Dividends
Contributions by owners
Other [describe]
Balance at 30 June 2017
Total comprehensive income for the year
Transfer to/from accumulated surplus/(deficit)
Transactions with the State in its capacity as owner:
Dividends
Contributions by owners
Other [describe]
Balance at 30 June 2018

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

* Entities are required to disclose a brief explanation for any major variances identified

CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018

Notes / 2018
$’000 / 2017
$’000

Cash Flows from Operating Activities

Receipts

Service charges
Water usage charges
Receipts from Government
- Recurrent
- Other
Interest received
Developer contribution fees
Goods and Services Tax received from the ATO
Other receipts

Payments

Payments to suppliers and employees
Interest and other costs of finance paid
Income taxes paid
Goods and Services Tax paid to the ATO
Environmental contribution levy paid
Other payments

Net cash (outflow)/inflow from Operating Activities

Cash Flows from Investing Activities

Payments for new infrastructure, property, plant and equipment
Payments for renewal/upgrade of infrastructure, property, plant and equipment
Proceeds from sale of infrastructure, property, plant & equipment

Proceeds from sale of investments

Payments for investments

Payments for intangible assets

Net cash (outflow)/inflow from Investing Activities

Cash Flows from Financing Activities

Proceeds from borrowings
Repayment of borrowings
Repayment of finance lease liabilities
Dividends paid
Proceeds from contributions by State in its capacity as owner

Net cash (outflow)/inflow from Financing Activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Note:

AASB 1031 requires the GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to the taxation authority shall be classified as operating cash flows. Additionally, GST collected as part of receipts from customers should be presented separately from GST paid as part of payments to suppliers.

1. ABOUT THIS REPORT

Basis of Accounting

The financial report includes separate financial statements for Puddle Regional Water Corporation (the Corporation) as an individual reporting entity. This financial report is a general purpose financial report, that consists of a Comprehensive Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement, directors declaration and notes accompanying these statements for the period ending 30 June 2018. The general purpose financial report has been prepared in accordance with Australian Accounting Standards (AASs), Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board, and the requirements of the Financial Management Act1994 and applicable Ministerial Directions. The Corporation is a not for-profit entity for the purpose of preparing the financial statements.

Where appropriate, those AASs paragraphs applicable to not-for-profit entities have been applied.

The accrual basis of accounting has been applied in the preparation of these financial statements whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid.

The annual financial statements were authorised for issue by the Board on [insert] day [month] 2018.

The principal address is:

Puddle Regional Water Corporation
1 Victoria Place
Melbourne VIC 3000

Accounting policies

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

Unless otherwise stated, all accounting policies applied are consistent with those of the prior year.

Where appropriate, comparative figures have been amended to align with current presentation and disclosure, and a third balance sheet and related notes have been added to present the impact on adoption of [insert name of new standard or interpretation] / restatement / reclassification.]

Functional and presentation currency

Items included in this financial report are measured using the currency of the primary economic environment in which the Corporation operates (‘the functional currency’). The financial statements are presented in Australian dollars, which is the Corporation’s functional and presentation currency.

Classification between current and non-current

In the determination of whether an asset or liability is current or non-current, consideration is given to the time when each asset or liability is expected to be realised or paid. The asset or liability is classified as current if it is expected to be turned over within the next twelve months, being the Corporation's operational cycle.

Rounding

Unless otherwise stated, amounts in the report have been rounded to the nearest thousand dollars. Figures in the financial statements may not equate due to rounding.

Historical cost convention

These financial statements have been prepared under the historical cost convention, except for the revaluation of financial assets, all classes of property, plant and equipment and investment property.

Accounting estimates

Judgements, estimates and assumptions are required to be made about financial information being presented. The significant judgements made in the preparation of these financial statements are disclosed in the notes where amounts affected by those judgements are disclosed. Estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Revisions to accounting estimates are made in the period in which the estimate is revised and also in future periods that are affected by the revision. Judgements and assumptions made by management in applying Australian Accounting Standards that have significant effects on the financial statements and estimates relate to:

• Accrued water usage charges
• the fair value of land, buildings, infrastructure, plant and equipment (Note 7.3);
• Estimation of useful life(Note 4)
• Impairment of assets (Note 4)
• Employee benefit provisions (Note 3)
• Actuarial assumptions for employee benefit provisions based on likely tenure of existing staff,patterns of leave claims, future salary movements and future discount rates (refer to (Note 3);

1. FUNDING DELIVERY OF OUR SERVICES

Introduction