Introduction
The Commission is exposed to risk from its activities and outside factors. In addition, it is often necessary to make judgements and estimates associated with recognition and measurement of items in the financial statements.
This section sets out financial instrument specific information (including exposures to financial risks) as well as those items that are contingent in nature or require a higher level of judgement to be applied, which for the Commission relates mainly to fair value determination.
7.1. Financial instruments specific disclosures
Financial instruments arise out of contractual agreements between entities that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of the Commission’s activities, certain financial assets and financial liabilities arise under statute rather than a contract. Such financial assets and financial liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation. For example, statutory receivables do not meet the definition of financial instruments as they do not arise under contract. The Commission’s statutory receivables are disclosed in note 5.1.
Categories of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised costs. These assets are initially recognised at fair value plus any directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method less any impairment.
The Commission recognises the following assets in this category:
- trade receivables (excluding statutory receivables).
Categories of financial liabilities
Financial liabilities at amortised cost
Financial instrument liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs.
Financial instrument liabilities measured at amortised cost include all of the Commission’s contractual payables and borrowings.
Derecognition of financial assets and liabilities
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the asset have expired.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
7.2 Categorisation of financial instruments
| Carrying amount | ||||
| Note | Category | 2022 $ |
2021 $ |
|
| Financial assets | ||||
| Receivables(i) | 5.1 | Financial assets at amortised cost | 1,936,943 | 995,116 |
| 1,936,943 | 995,116 | |||
| Financial liabilities | ||||
| Payables | 5.2 | Financial liabilities at amortised cost | 2,146,642 | 1,131,801 |
| Borrowings | 6.1 | Financial liabilities at amortised cost | 19,003 | 52,276 |
| 2,165,645 | 1,184,077 | |||
Note:
(i) Receivables disclosed here exclude statutory receivables (i.e. amounts receivable from government departments and GST recoverable).
7.3 Financial risk management objectives and policies
As a whole, the Commission’s financial risk management program seeks to manage the risks arising from volatility in financial instruments.
The Commission’s main financial risks include credit risk, liquidity risk and market risk. The Commission manages these financial risks in accordance with its financial risk management policy.
Credit risk
Credit risk arises from the financial assets of the Commission, which comprise cash and receivables. The Commission’s exposure to credit risk arises from the potential default of counterparties on their contractual obligations resulting in financial loss to the Commission. Credit risk is measured at fair value and is monitored on a regular basis.
Credit risk associated with the Commission’s financial assets is minimal because the main debtor is the Victorian Government.
Liquidity risk
Liquidity risk arises when the Commission is unable to meet its financial obligations as they fall due. The Commission operates under the Victorian Government’s fair payments policy of settling financial obligations within 30 days and in the event of a dispute, making payments within 30 days from the date of resolution.
The Commission’s exposure to liquidity risk is deemed insignificant based on prior period data and a current assessment of this risk. Maximum exposure to liquidity risk is the carrying amount of financial liabilities. The Commission manages its liquidity risk by maintaining an adequate level of uncommitted funds that can be used at short notice to meet its short-term obligations.
Market risk
The Commission has no material exposure to interest rate, foreign currency or other price risks. Interest rates on the Commission’s lease liabilities are fixed.
7.4 Contingent assets and contingent liabilities
Contingent assets and contingent liabilities are not recognised in the balance sheet but are disclosed and, if quantifiable, are measured at nominal value.
Contingent assets and liabilities are presented inclusive of GST receivable or payable respectively.
Contingent assets
Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
These are classified as either quantifiable, where the potential economic benefit is known, or non-quantifiable.
There were no contingent assets relating to the Commission as at 30 June 2022 (30 June 2021: Nil).
Contingent liabilities
Contingent liabilities are:
- possible obligations that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or
- present obligations that arise from past events but are not recognised because:
- it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligations; or
- the amount of the obligations cannot be measured with sufficient reliability.
Contingent liabilities are also classified as either quantifiable or non-quantifiable.
There were no contingent liabilities relating to the Commission as at 30 June 2022 (30 June 2021: Nil).