AR 2016-17 Financial Report

Summary of Financial Results

 
2015
2016
2017
 
$'000
$'000
$'000
Services provided to other Government Entities
147,209
152,979
166,344
Total income from transactions
149,905
155,164
167,807
Total expenses from transactions
(138,677)
(146,799)
(161,255)
Net result from transactions before depreciation and amortisation
29,680
25,780
19,434
Net result from transactions
11,228
8,365
6,552
Net result for the period
9,647
7,472
7,039
Net cash flow from operating and investing activities
24,727
16,667
(12,550)
Total assets
98,593
110,739
111,480
Total liabilities
37,443
36,047
29,757

The 2016/17 financial year has been productive for CenITex with its balance sheet and liquidity well managed. Although it reports a 25% decrease in EBITDA, it has done this for the
benefit of its customers.

CenITex took care during the year to refund as rebate baseline charges and provided other in-kind support to its customers, such as funding Office 365 customer readiness
assessments, to ensure that it did not make an unnecessary surplus.

Within this frame, it delivered Office 365 to government, implemented and migrated its financial systems to MS Dynamic NAV, improved its security environment,
refreshed its asset base, restructured under Customer 2020 to position itself for the future, improved the underlying capabilities of its employees by upskilling
in Cloud technology and embracing Agile in project management, completed negotiations with AWS to enable scaled rollout to government, completed Project
Unity with DHHS to on-board its workplace services to the Government Shared Platform (GSP), and continued to ensure financial sustainability.

During the year, it sought accreditation with the Victorian Funds Management Corporation to enable CenITex to invest the equivalent of its employee entitlements into
long term investments, thereby further strengthening its balance sheet and enabling long term financial sustainability. This action explains the negative
cashflow from operating and investing activities.

In relation to pricing commitments to customers, CenITex provided price reductions of 7.5% to our customers on the GSP. This is 2.5% more than our commitment to our customers in our Corporate Plan.

CenITex invested $22m in internal projects, delivering:

  • Security capability uplift $1.5m
  • Office 365 capability to government $6.1m
  • Refresh of underlying asset base $7.3m
  • Contribution to onboarding of DHHS under Project Unity $3.6m
  • Remediation of Internet program $1m
  • Strategic initiatives (e.g.; Office 365 customer readiness, Dynamic NAV $1.9m)

The surplus achieved for this financial year of $7.04m consists mainly of customer contributions for the purchase of property plant and equipment related to their projects and revaluation of employee entitlements as determined by government guidelines. Surplus from delivery of service relating to productivity has been rebated back to customers during the year.


Financial Report

for the financial year ended 30 June 2017

Contents

This financial report covers CenITex as an individual entity.

Its principal address is:
CenITex
Level 32, 80 Collins Street
Melbourne VIC 3000

Comprehensive Operating Statement

for the financial year ended 30 June 2017

 
Note
2017
2016
   
$’000
$’000
     
)
Income from transactions      
Services provided to other government entities
2(a)
166,344
152,979
Interest
2(b)
1,282
1,757
Fair Value of assets and services received free of charge or for nominal consideration
2(c)
181
428
       
Total income from transactions  
167,807
155,164
       
Expenses from transactions      
Employee benefits
3(a)
78,613
64,383
ICT expenditure
3(b)
53,839
49,089
Depreciation
3(c)
12,882
17,415
Occupancy expenses
3(d)
13,003
13,013
Other operating expenses
3(e)
2,918
2,899
       
Total expenses from transactions  
161,255
146,799
       
Net result from transactions  
6,552
8,365
       
Other economic flows included in net result      
Provision for doubtful debts
4(a)
(335)
456
Net gain/(loss) on disposal of non-financial assets  
189
(433)
Net gain/(loss) from revaluation of long service leave liability  
633
(916)
       
Total other economic flows included in net result  
487
(893)
       
Net Result  
7,039
7,472
Total other economic flows - other comprehensive income      
Comprehensive result  
7,039
7,472

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

Balance Sheet

as at 30 June 2017

 
Note
2017
2016
   
$'000
$’000
       
Assets      
Financial Assets      
Cash and deposits
18(a)
32,156
44,788
Receivables
8,036
9,110
Investments and other financial assets
15,000
 
Total financial assets  
55,192
53,898
Non-Financial Assets      
Property, plant and equipment
38,539
39,576
Intangible assets
2,154
4,155
Prepayments
15,603
13,110
Total non-financial assets  
56,296
56,841
Total assets  
111,838
110,739
Liabilities      
Payables
10,295
16,984
Borrowings
204
123
Provisions
16,842
14,907
Unearned revenue
2,416
4,033
Total liabilities  
29,757
36,047
Net assets  
81,731
74,692
Equity      
Accumulated loss  
(47,259)
(54,298)
Contribution by Owners  
128,990
128,990
Total equity  
81,731
74,692
Commitments for expenditure    
Contingent assets and contingent liabilities    

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 2017

 
Accumulated Loss
Contributions by Owners
Total
 
$'000
$'000
$'000
Balance at 1 July 2015
(61,770)
122,920
61,150
Net result for the year
7,472
-
7,472
Contributed capital
-
6,070
6,070
Balance at 30 June 2016
(54,298)
128,990
74,692
Net result for the year
7,039
-
7,039
Balance at 30 June 2017
(47,259)
128,990
81,731

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

Cash Flow Statement

for the financial year ended 30 June 2017

 

 
Note
2017
2016
   
$'000
$'000
       
Cash flows from operating activities      
Receipts      
Receipts from other government entities  
173,142
156,783
Interest received  
1,282
1,757
Goods and services tax received (net)  
3,147
2,212
Total Receipts  
177,571
160,752
Payments      
Payments to suppliers  
(101,930)
(68,374)
Payments to employees  
(63,887)
(57,057)
Interest and other costs of finance paid  
7
(5)
Total Payments  
(165,810)
(125,436)
Net cash flows from operating activities
11,761
35,316
Cash flows from investing activities      
Payments for investments  
(15,000)
-
Payments for non-financial assets  
(9,340)
(18,684)
Proceeds from sale of non-financial assets  
29
35
Net cash flows from/(used in) investing activities  
(24,311)
(18,649)
Cash flows from financing activities      
Owner contributions by state government  
-
6,070
Repayment of loan from Government  
-
(16,000)
Repayment of finance leases  
(82)
(34)
Net cash flows from/(used in) financing activities  
(82)
(9,964)
Net increase/(decrease) in cash and cash equivalents  
(12,632)
6,704
Cash and cash equivalents at the beginning of the financial year  
44,788
38,084
Cash and cash equivalents at the end of the financial year
32,156
44,788

The above Cash Flow Statement should be read in conjunction with the accompanying notes.
Non-cash transactions are disclosed in Note 18.

Notes to the Financial Statements

Contents

Note 1. Summary of accounting policies

These annual financial statements represent the audited general purpose financial statements for CenITex for the period ended 30 June 2017. The purpose of the report is to provide users with information about CenITex’s stewardship of resources entrusted to it.

(a) Statement of compliance

The financial report is a general purpose financial report that has been prepared in accordance with the Financial Management Act 1994 and applicable Australian Accounting Standards (AAS), which includes the Australian accounting standards issued by the Australian Accounting Standards Board (AASB), interpretations and other mandatory professional requirements.

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

Accounting policies are selected and applied in a manner that 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 are reported.

The financial report also complies with relevant Financial Reporting Directions (FRDs) issued by the Minister for Finance, and relevant Standing Direction (SD) authorised by the Minister for Finance.

(b) Basis of preparation

These financial statements have been prepared on accrual basis 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.

Judgements, estimates and assumptions are required to be made about the carrying values of assets and liabilities that are not readily apparent from other sources. The 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.

The significant estimates and associated assumptions are made for recognition of annual and long service leave liabilities, and the discount rate for the measurement is provided by the Department of Treasury and Finance (DTF).

Judgements and estimates are made for determination of fair value and useful life for property, plant and equipment and intangible assets - refer note 1 (f) and note 1 (i) for details.

The accounting policies applied in preparing the financial statements for the year ended 30 June 2017 and the comparative information presented for the year ended 30 June 2016 are set out below.

The financial report has been prepared on a historical cost convention except for plant and equipment where fair value is applied, available-for-sale investments which are measured at fair value with movements reflected in ‘other economic flows – other comprehensive income and annual and long service leave which are measured at present value. Cost is based on the fair value of the consideration given in exchange for assets.

Consistent with AASB 13 Fair Value Measurement, where it is applicable, assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For the purpose of fair value disclosures, CenITex has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

In addition, CenITex determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The Valuer-General Victoria (VGV) is CenITex’s independent valuation agency.

The functional currency of CenITex is the Australian dollar, which has also been identified as the presentation currency of CenITex.

(c) Reporting entity

CenITex is a State Body established on 16 July 2008 by Order in Council (establishing order) under section 14 of the State Owned Enterprise Act 1992 (the Act) and declared a re-organising body on 24 April 2012 by Order in Council under section 7(1) of the Act. CenITex's status as a re-organising body was revoked on 14 July 2016 and reverted to a State Body under section 14 of the Act. These changes were effected by Order in Council No. G28 of 14 July 2016.

Objectives and funding

CenITex’s mission is to provide information and communication technology (ICT) workplace and hosting services for the Victorian Government in an industry competitive, integrated and reliable manner, delivering efficient and excellent customer service and value. CenITex is predominantly funded by customer departments and agencies for the provision of services. The fees charged for these services are based on a cost recovery model.

(d) Scope and presentation of financial statements

As a result of the state-wide policy to improve consistency in public sector reporting, CenITex has prepared its complete set of financial statements to align with the Accounting Standard AASB 1049 Whole of Government and General Government Sector Financial Reporting presentation format used in the Financial Report for the State and the general government sector.

Comprehensive operating statement

CenITex’s Comprehensive operating statement comprises three components, being ‘net result from transactions’, ‘other economic flows included in net result’, as well as ‘other economic flows - other comprehensive income’. This classification is consistent with the whole of government reporting format and is allowed under Accounting Standard AASB 101 Presentation of Financial Statements.

Income and expenses in the Comprehensive operating statement are classified according to whether they arise from ‘transactions’ or ‘other economic flows’.

‘Transactions’ are those economic flows that are considered to arise as a result of policy decisions, usually interactions between two entities by mutual agreement. Transactions also include flows within an entity, such as depreciation where the owner is simultaneously acting as the owner of the depreciating asset and as the consumer of the service provided by the asset. Transactions can be in kind (e.g. assets provided/received free of charge or for nominal consideration) or where the final consideration is cash.

‘Other economic flows included in net result’ are changes in the volume or value of an asset or liability that do not result from transactions.
The net result is equivalent to profit or loss derived in accordance with AAS.

Balance sheet

Assets and liabilities are presented in liquidity order, with assets aggregated into financial assets and non-financial assets.

Current and non-current assets and liabilities (non-current being those assets or liabilities expected to be recovered or settled more than 12 months after the reporting period, except for the provisions of employee benefits, which are classified as current liabilities if CenITex does not have the unconditional right to defer the settlement of the liabilities within 12 months after the end of the reporting period) are disclosed in the notes, where relevant.

Statement of changes in equity

The Statement of changes in equity presents reconciliations of each non-owner and owner equity opening balance at the beginning of the reporting period to the closing balance at the end of the reporting period. It also shows separately changes due to amounts recognised in the ‘comprehensive result’ and amounts recognised ‘in other comprehensive income – other movements in equity’ related to transactions with the owner in its capacity as owner.

Cash flow statement

Cash flows are classified according to whether they arise from operating activities, investing activities, or financing activities. This classification is consistent with requirements under AASB 107 Statement of Cash Flows.

For the purposes of the Cash flow statement, cash comprises cash on hand, cash at bank and deposits at call, and highly liquid investments with short periods to maturity that are readily convertible to cash on hand and are subject to an insignificant risk of changes in value.

Rounding of amounts

Amounts in the financial statements (including the notes) have been rounded to the nearest thousand dollars, unless otherwise stated.

(e) Income from transactions

Income is recognised to the extent that it is probable that the economic benefits will flow to the entity and the income can be reliably measured at fair value.

Services provided to other government entities

CenITex provides services to government departments and agencies. Revenue is brought to account when services have been provided or when a usage or service charge has been made.

Interest

Interest income includes interest received on bank term deposits and other investments. Interest income is recognised as revenue using the effective interest method which allocates the interest over the relevant period.

Fair value of assets received free of charge or for nominal consideration

Contributions of resources received free of charge or for nominal consideration are recognised at fair value when control is obtained over them, irrespective of whether these contributions are subject to restrictions or conditions over their use.

(f) Expenses from transactions

Expenses from transactions are recognised as they are incurred, and reported in the financial year to which they relate.

Employee benefits

See note 1(j) regarding employee benefit provisions.

Employee benefits expenses include all costs related to employment, including wages and salaries, leave entitlements, redundancy payments and superannuation contributions. They are recognised when incurred, except for contributions in respect of defined benefit plans. These expenses also include payments to contractors.

Superannuation

The amount charged to the Comprehensive operating statement in respect of defined benefit superannuation plans and defined contribution represents the contributions made by CenITex to the superannuation plan with regard to the current services of current CenITex staff. Superannuation contributions are made to the plans based on the relevant rules of each plan.


The Department of Treasury and Finance (DTF) in its Annual Financial Statements disclose on behalf of the State as the sponsoring employer, the net defined benefit cost related to the members of these plans as an administered liability. See DTF’s Annual Financial Statements for more detailed disclosures in relation to these plans.

ICT expenditure

ICT expenditure includes software licences and maintenance, hardware maintenance, telecommunication expenses and outsourced ICT expenses. They are recognised in the period in which they are incurred.

Depreciation

Where assets have separate identifiable components that have distinct useful lives, a separate depreciation rate is determined for each component.

Depreciation is calculated using the straight-line method to allocate the asset’s value less any estimated residual value over its estimated useful life, starting from the time at which the asset is held ready for use. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Unless otherwise stated, the depreciation periods used for current and prior year are listed below:

Building Leasehold improvements : 5 to 10 years

Plant and equipment : 5 to 10 years

Motor vehicles under finance lease : 3 years

Intangible assets : 5 years

Occupancy expense

Occupancy expense represents operating lease rental costs which are recognised in the period in which they are incurred.

Other operating expenses

Other operating expenses generally represent the day-to-day running costs incurred by CenITex in its normal operations and include:

  • Professional services, travel, stationery
  • Interest expense

Professional services, travel and stationery costs are recognised as an expense in the reporting period in which they are incurred.

Interest expense represents costs incurred in connection with borrowings. It includes interest components of finance lease repayments and is recognised in the period in which it is incurred.

(g) Other economic flows included in net result

Other economic flows included in net result are changes in the volume or value an asset or liability that does not result from transaction. It includes:

  • gains and losses from disposals of non-financial assets;
  • gains and losses from revaluation of long service leave liability;
  • realised and unrealised gains and losses from revaluations of financial instruments at fair value; and
  • provision for doubtful debts.

(h) Financial assets

Cash and deposits

Cash and deposits comprise cash on hand and cash at bank, deposits at call and highly liquid investments with an original maturity of three months or less that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.

Receivables

Receivables consist predominantly of:

  • contractual receivables, such as debtors in relation to goods and services, accrued revenue; and
  • statutory receivables that is GST input tax credits recoverable.

Contractual receivables are classified as financial instruments and categorised as loans and receivables (refer note 1(l)). Statutory receivables are recognised and measured similarly to contractual receivables (except for impairment), but are not classified as financial instruments because they do not arise from a contract.

Receivables are subject to impairment testing as described below. A provision for doubtful receivables is made when there is objective evidence that the debts will not be collected. Bad debts are written-off when identified.

Investments and other financial assets

Investments are classified in the following categories:

  • financial assets at fair value through profit or loss;
  • loans and receivables;
  • held-to-maturity; and
  • available-for-sale financial assets.

The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition.

Any dividend or interest earned on the financial asset is recognised in the comprehensive operating statement as a transaction.

Impairment of financial assets

At the end of each reporting period, CenITex assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. All financial instrument assets, except those measured at fair value through profit or loss, are subject to annual review for impairment.

Receivables are assessed for bad and doubtful debts on a regular basis. Those bad debts considered as written off by mutual consent are classified as a transaction expense. Bad debts not written off by mutual consent and the allowance for doubtful receivables are classified as other economic flows included in net result.

The amount of the allowance is the difference between the financial asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.

(i) Non-financial assets

Property, plant and equipment

All non-financial physical assets are initially measured at cost and subsequently revalued at fair value less accumulated depreciation and impairment. A fair value assessment of non-financial assets is undertaken annually.

The fair value of property, plant and equipment is normally determined by reference to the asset’s depreciated replacement cost due to their short-term nature.

The initial cost for non-financial physical assets under a finance lease (refer Note 1 (k)) is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.

The costs of leasehold improvements are capitalised as assets and depreciated over the shorter of the remaining terms of the leases or the estimated useful lives of the improvements.

Revaluation of non-financial physical assets

Non-financial physical assets are measured at fair value on a cyclical basis, in accordance with the FRDs issued by the Minister for Finance. Revaluation increases or decreases arise from differences between an asset’s carrying value and fair value.

Net revaluation increases are recognised in ‘other economic flows – other comprehensive income’, and accumulated in equity under the asset revaluation surplus.

Net revaluation decrease is recognised in ‘other economic flows – other comprehensive income’ to the extent that a credit balance exists in the asset revaluation surplus in respect of the same class of property, plant and equipment.

Intangible assets

Intangible assets represent identifiable non-monetary assets without physical substance.

Purchased intangible assets are initially recognised at cost. Intangible assets with finite useful lives are carried at cost less accumulated depreciation and accumulated impairment losses.

When the recognition criteria in Accounting Standard AASB 138 Intangible Assets are met, internally generated intangible assets are recognised and measured at cost less accumulated depreciation and impairment losses.

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development is recognised only if all of the following are demonstrated:

  1. the technical feasibility of completing the intangible asset so that it will be available for use or sale;
  2. an intention to complete the intangible asset and use or sell it;
  3. the ability to use or sell the intangible asset;
  4. the intangible asset will generate probable future economic benefits;
  5. the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
  6. the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Impairment of non-financial assets

Intangible assets and all other assets including property, plant and equipment are tested annually for indications of impairment.

If there is an indication of impairment, the assets concerned are tested as to whether their carrying value exceeds their possible recoverable amount. Where an asset’s carrying value exceeds its recoverable amount, the difference is written-off by a charge to the Comprehensive operating statement, except to the extent that the write-down can be debited to an asset revaluation surplus amount applicable to that class of asset.

Prepayments

Prepayments represent payments in advance of receipt of goods or services or that part of expenditure made in one accounting period covering a term extending beyond that period. These include software licences and maintenance, other ICT expenditure and occupancy expenses.

(j) Liabilities

Payables

Payables consist of:

  • contractual payables, such as accounts payable. Accounts payable represent liabilities for goods and services provided to CenITex before the end of the financial year that are unpaid, and arise when CenITex becomes obliged to make future payments in respect of purchase of those goods and services;
  • statutory payables, such as GST and fringe benefits tax payables.

Contractual payables are classified as financial instruments and categorised as financial liabilities at amortised cost (see note 17). Statutory payables are recognised and measured similarly to contractual payables, but are not classified as financial instruments and not included in the category of financial liabilities at amortised cost, because they do not arise from a contract.

Borrowings

Finance lease liabilities are recorded initially at fair value, less directly attributable transaction costs.

Subsequent to initial recognition, finance lease liabilities are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised using the effective interest rate method in the comprehensive result over the period of the interest bearing liability.

Provisions

Provisions are recognised when CenITex has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recognised from a third party, the receivable is recognised as an asset if recovery is virtually certain and the amount of the receivable can be measured reliably.
Employee benefits

(i) Wages and salaries and annual leave

Liabilities for wages and salaries and annual leave are recognised in the provision for employee benefits as ‘current liabilities’.

Depending on the expectation of the timing of settlement, liabilities for wages and salaries and annual leave are measured at:

  • undiscounted value – component that CenITex expects to wholly settle within 12 months; or
  • present value – component that CenITex does not expect to wholly settle within 12 months.

(ii) Long service leave

Liability for long service leave (LSL) is recognised in the provision for employee benefits.

Unconditional LSL is disclosed as a current liability even when CenITex does not expect to settle the liability within 12 months because it does not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months.

The components of this current LSL liability are measured at:

  • Undiscounted value – component that CenITex expects to wholly settle within 12 months
  • Present value – component that CenITex does not expect to wholly settle within 12 months

Conditional LSL is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. This non-current LSL liability is measured at present value.

Any gain or loss following revaluation of the present value of non-current LSL liability is recognised in the ‘net result from transactions’, except to the extent that a gain or loss arises due to changes in bond interest rates for which it is then recognised as an other economic flow.

(iii) On-costs related to employee expenses

On-costs such as payroll tax, workers compensation, superannuation are recognised separately from the provision for employee benefits.

(iv) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts a voluntary redundancy in exchange for these benefits. CenITex recognises termination benefits when it is demonstrably committed either to terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after Balance Sheet date are discounted to present value.

Unearned revenue

Unearned revenue is recognised as a liability when customer payments of accounts which are paid in advance but the services have not yet been provided to the customer. When the services are provided to the customer, the unearned revenue balance is reduced and the revenue is brought to account.

(k) Leases

A lease is a right to use an asset for an agreed period of time in exchange for payment. Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and rewards incidental to ownership. Leases of property, plant and equipment are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership from the lessor to the lessee. All other leases are classified as operating leases.

Finance leases

Finance leases are recognised as assets and liabilities at amounts equal to either the fair value of the leased plant and equipment or, if lower, the present value of the minimum lease payment, each determined at the inception of the lease. The leased asset is accounted for as a non-financial physical asset. The leased asset is depreciated over the shorter of the estimated useful life of the asset or the term of the lease. Minimum lease payments are allocated between the principal component of the lease liability and the interest expenses calculated using the interest rate implicit in the lease, and are charged directly to the Comprehensive operating statement. Contingent rentals associated with finance leases are recognised as an expense in the period in which they are incurred.

Operating leases

Operating lease payments, including any contingent rentals, are recognised as an expense in the Comprehensive operating statement on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern of the benefits derived from the use of the leased asset.The leased asset is not recognised in the balance sheet.

All incentives for the agreement of a new or renewed operating lease are recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive’s nature or form or the timing of payments. In the event that lease incentives are received to enter into operating leases,the aggregate cost of incentives is recognised as a reduction of rental expense over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.'

(l) Financial instruments

Financial instruments arise out of contractual agreements 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 CenITex’s activities, certain financial assets and financial liabilities arise under statutory obligation rather than a contract. Such financial assets and financial liabilities do not meet the definition of financial instruments in an AASB 132 Financial Instruments: Presentation. For example, statutory receivables arising from taxes do not meet the definition of financial instruments as they do not arise under contract.

Where relevant, for note disclosure purposes, a distinction is made between those financial assets and financial liabilities that meet the definition of financial instruments in accordance with AASB 132 and those that do not.

The following refers to financial instruments unless otherwise stated.

Categories of financial instruments

Loans and receivables

Loans and receivables are financial instrument assets with fixed and determinable payments that are not quoted on an active market. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, loans and receivables are measured at amortised cost using the effective interest method, less any impairment. CenITex recognises the following assets in this category:

  • cash and deposits; and
  • receivables (excluding statutory receivables).

Available-for-sale financial assets

Available-for-sale financial instrument assets are those designated as available-for-sale or not classified in any other category of financial instrument asset.

Such assets are initially recognised at fair value. Subsequent to initial recognition, they are measured at fair value with gains and losses arising from changes in fair value, recognised in ‘Other economic flows – other comprehensive income’ until the investments are disposed.

Movements resulting from impairment are recognised in the net result as other economic flows. On disposal, the cumulative gain or loss previously recognised in ‘other economic flows – other comprehensive income’ is transferred to other economic flows in the net result.

Fair value is determined in the manner described in note 17 - Financial instruments.

CenITex recognises investments in equities and managed investment schemes in this category.

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. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the interest-bearing liability, using the effective interest rate method (refer to note 17).

CenITex recognises the following liabilities in this category:

  • payables (excluding statutory payables); and
  • borrowings (including finance lease liabilities).

(m) Other economic flows – other comprehensive income

Other economic flows – other comprehensive income comprises items (including reclassification adjustments) that are not recognised in net result as required or permitted by other Australian Accounting Standards.

The components of other economic flows-other comprehensive income include:

  • changes in physical asset revaluation surplus; and
  • gains and losses on remeasuring available-for-sale financial assets.

(n) Equity

Contributions by owners

Consistent with the requirements of AASB 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of CenITex.

Additions to net assets that have been designated as contributions by owners are recognised as contributed capital. Other transfers that are in the nature of contributions or distributions have also been designated as contributions by owners.

Transfers of net assets arising from administrative restructuring are treated as distributions to or contributions by owners.

(o) Commitments

Commitments include those operating, capital and other outsourcing commitments arising from non-cancellable contractual or statutory sources and are disclosed at their nominal value and inclusive of the GST (refer note 14 and note 15).

(p) Contingent assets and contingent liabilities

Contingent assets and contingent liabilities are not recognised in the Balance Sheet, but are disclosed by way of a note and, if quantifiable, are measured at nominal value and presented inclusive of the GST (refer note 16).

(q) Goods and Services Tax (GST)

Income, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In the latter case, GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Balance Sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities that were recovered from, or paid to, the taxation authority, are presented as an operating cash flow.

(r) Events after reporting date

Assets, liabilities, income or expenses arise from past transactions or other past events. Where the transactions result from an agreement between CenITex and other parties, the transactions are recognised only when the agreement is irrevocable at or before balance date. Adjustments are made to amounts recognised in the financial statements for events that occur after the reporting date and before the date on which the statements are authorised for issue where those events provide information about conditions that existed at the reporting date. Note disclosure is made about events between the balance date and the date on which the statements are authorised for issue where the events relate to conditions that arose after the reporting date and which may have a material impact on the results of subsequent years.

(s) Australian Accounting Standards (AAS) issued that are not yet effective

As at 30 June 2017, certain new AAS have been published that are not mandatory for the 30 June 2017 reporting period. CenITex assesses the impact of all these new standards for their applicability and early adoption.

AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement. The key changes include the simplified requirements for the classification and measurement of financial assets, a new hedging accounting model and a revised impairment loss model to recognise impairment losses earlier, as opposed to the current approach that recognises impairment only when incurred. Applicable for annual reporting periods beginning on or after 1 January 2018. While CenITex’s assessment has not identified any material impact arising from AASB 9, it will continue to be monitored and assessed.

AASB 15 Revenue from Contracts with Customers. This standard provides a single revenue recognition model based on the transfer of goods and services and the consideration expected to be received in return for that transfer, it replaces AASB 111 Construction Contracts, AASB 118 Revenue and ultimately AASB1004 Contributions. Applicable for annual reporting periods beginning on or after 1 January 2018. The core principle of AASB 15 requires an entity to recognise revenue when the entity satisfies a performance obligation by transferring a promised good or service to a customer. The changes in revenue recognition requirements in AASB 15 may result in changes to the timing and amount of revenue recorded in the financial statements. The Standard will also require additional disclosures on service revenue and contract modifications. Preliminary assessment has not identified any material impact arising from AASB 15, however, ongoing work is being carried out to monitor and assess the impact of this standard.

AASB 16 Leases. This standard requires the recognition of most of operating leases, which are currently not recognised, on the balance sheet. Applicable for annual reporting period beginning on or after 1 January 2019. The assessment has indicated that as most operating leases will come on balance sheet, recognition of lease assets and lease liabilities will cause net debt to increase. Depreciation of lease assets and interest on lease liabilities will be recognised in the income statement with marginal impact on the operating surplus. The amounts of cash paid for the principal portion of the lease liability will be presented within financing activities and the amounts paid for the interest portion will be presented within operating activities in the cash flow statement. At this stage, ongoing work is being carried out to assess the impact of this standard.

AASB 1058 Income of Not-for-Profit Entities. The standard supersedes all the income recognition requirements relating to private sector Not-for-profit (NFP) entities, and the majority of income recognition requirements relating to public sector NFP entities, previously in AASB 1004 Contribution. Applicable for annual reporting period beginning on or after 1 January 2019. The timing of income recognition depends on whether such a transaction gives rise to a liability or other performance obligation (a promise to transfer a good or service), or a contribution by owners, related to an asset (such as cash or another asset) received by an entity. AASB 1058 applies when a NFP entity receives volunteer services or enters into other transactions where the consideration to acquire an asset is significantly less than the fair value of the asset principally to enable the entity to further its objectives. In the latter case, the entity recognises and measures the asset at fair value in accordance with the applicable Australian Accounting Standard (eg AASB 116 Property, Plant and Equipment). Income where there is an associated performance obligation should be recognised in line with the principles of AASB 15, whereas donations with no future obligation may be recognised immediately. In addition, assets or services received at below market value (such as peppercorn leases) must be recognised at fair value. Preliminary assessment has not identified any material impact arising from AASB 1058 however, ongoing work is being carried out to monitor and assess the impact of this standard.

Note 2. Income from transactions

 
2017
2016
 
$'000
$'000
(a) Services provided to other Government Entities:    
Work place support
114,784
109,987
Hosting
26,624
28,623
Projects
20,062
12,028
Projects - customer funded capital
4,514
2,031
Victorian Government Electronic Messaging System (VGEMS)
360
310
Total Revenue from services provided to other Government Entities
166,344
152,979
(b) Interest    
- Interest on bank deposits
1,282
1,757
Total interest revenue  
1,757
(c) Fair Value of assets received free of charge or for nominal consideration    
Plant and equipment
181
428
Total fair value of assets and services received free of charge or for nominal consideration
181
428

From 1 July 2016 to 30 June 2017 CenITex incurred $4,514,461 of capital funding during the delivery of customer funded projects. (2016: $2,031,000). The Accounting Standards requires funding received from Departments to fund capital acquisition to be treated as revenue.

Note 3. Expenses from transactions

   
2017
2016
   
$'000
$'000
       
(a) Employee benefits      
Post employment benefits      
- Defined contribution superannuation expense
4,660
4,412
- Defined benefit superannuation expense
191
211
Termination benefits  
1,437
193
Salaries, wages, leave entitlements and contractor payments  
72,325
59,567
Total employee benefits  
78,613
64,383
(b) ICT Expenditure      
Software licences and maintenance  
25,522
22,804
Hardware maintenance  
7,501
9,043
Telecommunications  
13,956
13,171
Outsourced ICT  
6,860
4,071
Total ICT Expenditure  
53,839
49,089
(c) Depreciation      
Depreciation of non-current assets
10,881
13,514
Depreciation of non-current intangible assets
2,001
3,901
Total depreciation  
12,882
17,415
(d) Occupancy expense      
Occupancy  
13,003
13,013
Total occupancy expense  
13,003
13,013
(e) Other operating expenses      
Professional services, travel, stationery ect..  
2,925
2,893
Interest expense - finance lease costs  
(7)
6
Total other operating expenses  
2,918
2,899

Note 4. Receivables

 
2017
2016
 
$'000
$'000
Current receivables    
Contractual    
Trade receivables
2,020
5,016
Provision for doubtful contractual receivables (See also Note 4(a) )
(350)
(15)
Other receivables
3,169
2,478
Total contractual receivables
4,839
7,479
Statutory    
GST input tax credit recoverable
3,197
1,631
Total statutory receivables
3,197
1,631
Total current receivables
8,036
9,110
Total receivables
8,036
9,110

(a) Movement in the provision for doubtful contractual receivables

 
2017
2016
 
$'000
$'000
Balance at beginning of the year
15
470
Increase/(Decrease) of the provision recognised in net results
335
(455)
Balance at end of the year
350
15

(b) Ageing analysis of contractual receivables

See Note 17 (d) for the ageing of contractual receivables.

(c) Nature and extent of risk arising from contractual receivables

See Note 17 (d) for the nature and extent of credit risk arising from contractual receivables.

Note 5. Investments and other financial assets

 
2017
2016
 
$'000
$'000
     
Non-current investments and other financial assets    
Managed investment schemes(i)
15,000
-
     
Total investments and other financial assets
15,000
-

(i) CenITex designates all its managed investment schemes as available for sale financial assets. Unless such assets are part of a disposal group held for sale, all managed investment schemes are classified as non-current. All managed investments are invested through the Victorian Funds Management Corporation.

(b) Ageing analysis of investments and other financial assets

See Note 17(d) for the ageing of investments and other financial assets.

(c) Nature and extent of risk arising from investments and other financial assets

See Note 17(d) for the nature and extent of credit risk and Note 17(f) for the nature and extent of market risk arising from investments and other financial assets.

Note 6. Property, plant and equipment

Non-Current assets Gross carrying
amount
  Accumulated
depreciation
  Net carrying
amount
 
 
2017
2016
2017
2016
2017
2016
 
$'000
$'000
$'000
$'000
$'000
$'000
Buildings - leasehold improvements at cost
1,914
1,896
(1,659)
(1,361)
255
535
             
Plant and equipment :            
Computer equipment at fair value
-
11
-
(11)
-
-
Facilities at fair value
2,966
2,938
(2,237)
(2,456)
729
482
Network at fair value
58,141
47,552
(44,296)
(39,662)
13,845
7,890
Servers at fair value
37,807
34,604
(27,115)
(25,282)
10,692
9,322
Storage at fair value
39,979
31,972
(29,160)
(24,159)
10,819
7,813
Office machines and equipment at fair value
6
5
(1)
-
5
5
             
Motor vehicles under finance lease at cost
254
226
(51)
(104)
203
122
             
Construction in progress
1,991
13,407
-
-
1,991
13,407
Total
143,058
132,611
(104,519)
(93,035)
38,539
39,576

Reconciliation of movements in carrying amounts of property, plan & equipment

 
Buildings leasehold improvements - at cost
     
Plant and equipment - at fair value
(1), (2)
    Construction
in progress - at cost
Motor vehicles under finance lease - at cost
Total
   
Level 3
     
   
Computer equipment
Facilities
Network
Servers
Storage
Office machines & equipment
     
 
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
2017                    
Opening balance
535
-
482
7,890
9,322
7,813
5
13,407
122
39,576
Additions
18
-
19
2,319
1,085
73
-
8,221
223
11,958
Disposals
-
-
-
(116)
(233)
-
-
-
(96)
(445)
Adjustments
-
-
359
381
(450)
(664)
1
(1,296)
-
(1,669)
Transfers
-
-
33
7,496
4,201
6,611
-
(18,341)
-
-
Depreciation expense
(298)
-
(164)
(4,125)
(3,233)
(3,014)
(1)
-
(46)
(10,881)
Closing balance
255
-
729
13,845
10,692
10,819
5
1,991
203
38,539
 
Buildings leasehold improvements - at cost
     
Plant and equipment - at fair value
(1), (2)
    Construction
in progress - at cost
Motor vehicles under finance lease - at cost
Total
   
Level 3
 
   
Computer equipment
Facilities
Network
Servers
Storage
Office machines & equipment
     
 
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
2016                    
Opening balance
244
55
861
7,307
7,453
10,104
-
7,843
142
34,009
Additions
138
(41)
30
6,683
2,557
4,062
5
12,120
40
25,594
Disposals
-
-
(52)
(385)
(295)
(36)
-
-
(17)
(785)
Adjustments
420
(3)
2
(74)
(30)
(29)
-
(872)
-
(586)
Transfers
-
(11)
(41)
(767)
3,061
(1,700)
-
(5,684)
-
(5,142)
Depreciation expense
(267)
-
(318)
(4,874)
(3,424)
(4,588)
-
-
(43)
(13,514)
Closing balance
535
-
482
7,890
9,322
7,813
5
13,407
122
39,576

(1) Classified in accordance with the fair value measurement hierarchy as at reporting date. See note 1(b).

(2) Description of significant unobservable assets to level 3 valuation:
Plant and equipment is valued at depreciated replacement cost where the weighted average cost per asset is $27,702 (2016 : $22,331) and the cost per unit is between $5,000 to $1,166,544 (2016: $5,000 to $1,031,059). The useful life of plant and equipment is disclosed in note 1(f).

  • Plant and equipment is held at fair value. When plant and equipment is specialised in use, such that it is rarely sold other than as part of a going concern, fair value is determined using the depreciated replacement cost method. There were no changes in valuation techniques throughout the period to 30 June 2017.

For all assets measured at fair value, the current use is considered the highest and best use.

An independent valuation of CenITex’s plant and equipment (excluding office machines & equipment) was performed by the Valuer-General Victoria. The valuation was performed based on the depreciated replacement cost of the assets. The effective date of the valuation is 30 June 2017. The Valuer-general Victoria’s findings supports the valuation of CenITex’s carrying value for Property, plant and equipment and hence no adjustments were made.

Aggregate depreciation recognised as an expense during the year;

 
2017
2016
 
$'000
$'000
     
     
Buildings:    
Leasehold improvements
298
267
Plant and equipment    
Facilities
164
318
Network
4,125
4,874
Servers
3,233
3,424
Storage
3,014
4,588
Office machines and equipment
1
-
Motor vehicles under finance lease
46
43
Total depreciation expense
10,881
13,514

Note 7. Intangible assets

Non-Current assets
Capitalised development (1)
Total
 
Software configuration and installation
Virtual server environment
Identity and access management (IDAM) services
Network environment
End user computer services
Storage consolidation design
Security services
 
2017
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Gross carrying amount                
Opening balance
4,637
1,220
6,897
630
5,775
191
951
20,301
Transfer
-
-
-
-
-
-
-
-
Closing balance
4,637
1,220
6,897
630
5,775
191
951
20,301
Accumulated depreciation and impairment                
Opening balance
(4,473)
(570)
(4,534)
(630)
(5,368)
(191)
(380)
(16,146)
Depreciation expense
(130)
(287)
(1,093)
-
(301)
-
(190)
(2,001)
Transfer
-
-
-
-
-
-
-
-
Closing balance
(4,603)
(857)
(5,627)
(630)
(5,669)
(191)
(570)
(18,147)
Net book value at the end of the financial year
34
363
1,270
-
106
-
381
2,154
Non-Current assets
Capitalised development (1)
Total
 
Software configuration and installation
Virtual server environment
Identity and access management (IDAM) services
Network environment
End user computer services
Storage consolidation design
Security services
 
2016
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Gross carrying amount                
Opening balance
4,637
1,484
6,897
630
5,775
1,274
951
21,648
Transfer
-
(264)
-
-
-
(1,083)
-
(1,347)
Closing balance
4,637
1,220
6,897
630
5,775
191
951
20,301
Accumulated depreciation and impairment                
Opening balance
(3,761)
(460)
(3,155)
(505)
(4,213)
(884)
(190)
(13,168)
Depreciation expense
(712)
(255)
(1,379)
(125)
(1,155)
(84)
(190)
(3,900)
Transfers
-
145
-
-
-
777
-
922
Closing balance
(4,473)
(570)
(4,534)
(630)
(5,368)
(191)
(380)
(16,146)
Net book value at the end of the financial year
164
650
2,363
-
407
-
571
4,155

(1) CenITex capitalizes costs associated with the development, design, build and configuration of desktop, network, server, storage, identity access management, security environments, virtual environments and software that generate future economic benefits to the entity. These assets are depreciated over a useful life that is aligned with the underpinning information technology infrastructure assets.

Note 8. Prepayments

 
2017
2016
 
$'000
$'000
Current    
Software licences and maintenance, and other ICT expenditure
15,603
12,904
Occupancy expenses
-
206
Total prepayments
15,603
13,110

Note 9. Payables

 
2017
2016
 
$'000
$'000
Current payables    
Contractual    
Supplies and services
7,742
15,020
Total contractual payables
7,742
15,020
Other Current Payables    
Other payables
2,542
1,953
Total other Current Payables
2,542
1,953
Statutory    
FBT payable
11
11
Total Statutory Payables
11
11
Total Current payables
10,295
16,984
Total payables
10,295
16,984

(a) Maturity analysis of contractual payables

See Note 17(e) for the maturity analysis of contractual payables.

(b) Nature and extent of risk arising from contractual payables

See Note 17(f) for the nature and extent of risks arising from contractual payables.

Note 10. Borrowings

 
2017
2016
 
$'000
$'000
Current borrowings    
Finance lease liabilities (1) (2)
55
84
Total current borrowings
55
84
Non-current borrowings    
Finance lease liabilities (1) (2)
149
39
Total non-current borrowings
149
39
Total borrowings
204
123

(1) Secured by the assets leased. Finance leases are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

(2) Refer Note 14 ‘Leases’ for details.

(a) Maturity analysis of finance lease liabilities

See Note17(e) for the maturity analysis of finance lease liabilities.

(b) Nature and extent of risk arising from finance lease liabilities

See Note 17(f) for the nature and extent of risks arising from finance lease liabilities.

Note 11. Provisions

 
2017
2016
 
$'000
$'000
Current    
     
Annual leave    
     
  • -Unconditional and expected to be settled within 12 months
3,457
3,308
  • Unconditional and expected to be settled after 12 months
1,328
1,340
     
     
Long service leave    
     
  • Unconditional and expected to be settled within 12 months
485
382
  • Unconditional and expected to be settled after 12 months
5,364
4,217
     
     
Provisions related to employee benefit on-costs:    
     
  • Unconditional and expected to be settled within 12 months
631
590
  • Unconditional and expected to be settled after 12 months
1,070
889
     
     
Other Provisions    
  • Provision for Restructuring
1,080
-
Total current provisions
13,415
10,726
Non-current    
Employee benefits
2,954
3,604
Provisions related to employee benefit on-costs
473
577
Total non-current provisions
3,427
4,181
Total provisions
16,842
14,907

Reconciliation of movement in provisions for on-costs

 
2017
2016
 
$'000
$'000
Opening balance
2,057
1,833
     
Additional provisions recognised
940
914
Reductions arising from payments
(823)
(690)
Closing balance
2,174
2,057
Current
1,701
1,480
Non-current
473
577
Total
2,174
2,057

Note 12. Unearned revenue

 
2017
2016
 
$'000
$'000
Unearned revenue
2,416
4,033
Total unearned revenue
2,416
4,033

Note 13. Superannuation

CenITex employees are entitled to receive superannuation benefits and CenITex contributes to defined benefit as well as contribution plans. The defined benefit plan provides benefits based on years of service and final average salary.

CenITex does not recognize any defined benefit liability in respect of the plans because the entity has no legal or constructive obligation to pay future benefits relating to its employees; its only obligation is to pay superannuation contributions as they fall due. The Department of Treasury and Finance recognizes and discloses the State’s defined benefit liabilities in its financial statements under the note for administered items.

However, superannuation contributions for the reporting period are included as part of employee benefits in CenITex’s Comprehensive Operating Statement.

The basis for contributions is determined by the various schemes.

Certain employees of CenITex employed under the Victorian Public Sector Award are entitled to benefits from the Government Employees Superannuation Fund in the event of retirement, disability or death. This fund provides defined lump-sum benefits based on years of service and final average salary.

Details of the major employee superannuation funds and contributions made by CenITex are as follows:

Fund
Contribution
for the year
   
Contribution outstanding at year end
 
2017
2016
2017
2016
 
$'000
$'000
$'000
$'000
Defined benefit plans:        
State Employees Retirement Benefits Scheme (SERBS)
191
211
-
-
Defined contribution plans:        
Victorian Superannuation Fund – VicSuper scheme
2,518
2,530
-
-
Other
2,142
1,882
-
-
Total defined contributions
4,660
4,412
-
-
Total
4,851
4,623
-
-

Note 14. Leases

Finance leases

Finance leases relate to motor vehicles with lease terms of three years. CenITex has options to purchase the motor vehicles for a nominal amount at the conclusion of the lease agreements.

 
Minimum future lease payments
Present value of minimum future lease payments
2017
$'000
$'000
Finance lease liabilities payable    
- Not longer than one year
61
55
- Longer than one year and not longer than five years
154
149
Minimum future lease payments (1)
215
204
Less future finance charges
11
-
Present value of minimum lease payments
204
204
Included in the financial statements as:    
Current finance lease liabilities (refer to Note 10)
-
55
Non-current finance lease liabilities (refer to Note 10)
-
149
Total finance lease liabilities  
204
 
Minimum future lease payments
Present value of minimum future lease payments
2016
$'000
$'000
Finance lease liabilities payable    
- Not longer than one year
86
84
- Longer than one year and not longer than five years
40
39
Minimum future lease payments (1)
126
123
Less future finance charges
3
-
Present value of minimum lease payments
123
123
Included in the financial statements as:    
Current finance lease liabilities (refer to Note 10)
-
84
Non-current finance lease liabilities (refer to Note 10)
-
39
Total finance lease liabilities  
123

1) Minimum finance lease payments include the aggregate of all lease payments and any guaranteed residual.

Operating leases

Leasing arrangements
Operating leases relate to buildings with lease terms of three to five years, with an option to extend for a further three years. All operating lease contracts contain market review clauses in the event that CenITex exercises its option to renew. CenITex does not have an option to purchase the leased asset at the expiry of the lease period.

 
2017
2016
 
$'000
$'000
Operating leases payable    
Not longer than one year
12,890
13,605
Longer than one year and not longer than five years
39,148
24,015
Longer than five years
8,150
-
Total operating leases payable (1)
60,188
37,620

(1)The disclosed amount is inclusive of GST.

Note 15. Commitments for expenditure

 
2017
2016
 
$'000
$'000
The following commitments have not been recognised as liabilities in the financial statements:    
(a) Capital expenditure commitments    
Plant and equipment    
Payable:    
Not longer than one year
1,191
6,881
Total capital expenditure commitments (1)
1,191
6,881

(1)The disclosed amount is inclusive of GST.

(b) Lease commitments

Finance lease liabilities and non-cancellable operating lease commitments are disclosed in Note 14.

Note 16. Contingent assets and contingent liabilities

At 30 June 2017, CenITex had no contingent assets or liabilities (As at 30 June 2016: Nil)

Note 17. Financial instruments

(a) Financial risk management objectives and policies

CenITex’s principal financial instruments comprise:

  • cash and deposits
  • receivables (excluding statutory receivables)
  • Investments in managed investment schemes;
  • payables (excluding statutory payables)
  • borrowings.

Details of significant accounting policies and methods adopted in respect of each class of financial asset and financial liability including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised are disclosed throughout Note 1 to these financial statements.

The main purpose in holding financial instruments is to manage CenITex’s financial risks prudently within the government’s policy parameters.CenITex’s main financial risks include credit risk, liquidity risk and interest rate risk. CenITex manages these financial risks in accordance with its Financial Risk Management Policy.

CenITex uses different methods to measure and manage the different risks to which it is exposed. Primary responsibility for the identification and oversight of financial risks rests with CenITex’s Risk and Audit Committee.

(b) Categorisation of financial instruments

 
Loans and Receivables
Available - for - sale
Financial Liabilities at amortised cost
Total
2017        
Contractual Financial Assets        
Cash and deposits
32,156
-
-
32,156
Receivables
4,839
-
-
4,839
Investment and other contractual financial assets        
Managed investment scheme
-
15,000
-
15,000
Total Contractual financial assets
36,995
15,000
-
51,995
Contractual Financial Liabilities        
Payables
-
 
10,284
10,284
Finance lease liabilities
-
 
204
204
Total Contractual financial liabilities
-
 
10,488
10,488
 
Loans and Receivables
Available - for - sale
Financial Liabilities at amortised cost
Total
2016        
Contractual Financial Assets        
Cash and deposits
44,788
-
-
44,788
Receivables
7,479
-
-
7,479
Total Contractual financial assets
52,267
-
-
52,267
Contractual Financial Liabilities        
Payables
-
-
16,973
16,973
Finance lease liabilities
-
-
123
123
Total Contractual financial liabilities
-
-
17,096
17,096

The amount of financial assets disclosed here excludes statutory receivables (i.e. GST input tax credit recoverable).

The amount of financial liabilities disclosed here excludes statutory payables (i.e. taxes payable).

(c) Net holding gain /(loss) on financial instruments by category

 
Net holding gain / (loss)
Total interest income / (expense)
Impairment (loss) / reversals
Total
2017
$'000
 
$'000
$'000
Contractual Financial Assets        
Cash and deposits
-
1,282
-
1,282
Receivables
-
-
(335)
(335)
Available -for-sale
-
-
-
-
 
-
1,282
(335)
947
Contractual financial liabilities        
Finance lease liabilities
-
7
-
7
Net holding gain/(loss)
-
1,289
(335)
954
 
Net holding gain / (loss)
Total interest income / (expense)
Impairment (loss) / reversals
Total
2016
$'000
 
$'000
$'000
Contractual Financial Assets        
Cash and deposits
-
1,757
-
1,757
Receivables
-
-
456
456
Available -for-sale
-
-
-
-
 
-
1,757
456
2,213
Contractual financial liabilities        
Finance lease liabilities
-
(6)
-
(6)
Net holding gain/(loss)
-
1,751
456
2,207

The net holding gains and losses disclosed above are determined as follows:

  • For cash and deposits, receivables and available-for-sale financial assets, the net gain or loss is calculated by taking the movement in the fair value of asset, interest income and adding or subtracting gains or losses arising from revaluation of the financial assets minus any impairment recognised in the net result.
  • For financial liabilities measured at amortised cost, the net gain or loss is calculated by taking the interest expense and adding or subtracting foreign exchange gains or losses arising from the revaluation of financial liabilities at amortised cost.

(d) Credit risk exposures

Credit risk arises from the financial assets of CenITex, which comprise cash and deposits, and trade and other receivables. CenITex's exposure to credit risk arises from the potential default of counter parties on their contractual obligations resulting in financial loss to CenITex. Credit risk is measured at fair value and is monitored on a regular basis.

Credit risk associated with CenITex financial assets is minimal because the debtors are government departments.

Provision for impairment of contractual financial assets is recognised when there is objective evidence that CenITex will not be able to collect a receivable. Objective evidence is that debts are more than 150 days overdue.

The carrying amount of financial assets recorded in the financial report, net of any allowances for losses, represents CenITex’s maximum exposure to credit risk without taking account of the value of any collateral obtained.

Table 17.1: Credit risk exposure and ageing analysis of financial assets

  Weighted
average effective
interest rate
Credit risk exposure
Not past due and not impaired
Past due but not impaired
Impaired financial assets
 
Carrying amount
Fixed interest rate
Variable
interest rate
Non-interest
bearing
Less than
1 Month
1–3 months
3 months –
1 year
1–5 years
2017  
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
Cash
1.6%
32,156
20,000
12,156
-
32,156
-
-
-
-
-
Receivables (i)  
4,839
-
-
4,839
4,585
164
69
21
-
-
Investments and other financial assets  
15,000
-
-
15,000
15,000
-
-
-
-
-
   
51,995
20,000
12,156
19,839
51,741
164
69
21
-
-
2016                      
Cash
2.0%
44,788
28,500
16,288
-
44,788
-
-
-
-
-
Receivables (i)  
7,479
-
-
7,479
6,969
93
328
89
-
15
Investments and other financial assets    
-
-
   
-
-
-
-
-
   
52,267
28,500
16,288
7,479
51,757
93
328
89
-
15

(i)Ageing analysis of receivables excludes doubtful debts and statutory receivables for GST input tax credits recoverable. These amounts are no contractual, and are therefore outside the scope of this disclosure.

(e) Liquidity risk

Liquidity risk arises when CenITex is unable to meet its financial obligations as they fall due. CenITex 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 of the date of resolution.

Maximum exposure to liquidity risk is the carrying amounts of financial liabilities. CenITex manages its liquidity risk by:

  • maintaining an adequate level of uncommitted funds that can be drawn at short notice to meet its short-term obligation;
  • careful maturity planning of its financial obligations based on forecasts of future cash flows.

Table 17.2: Liquidity risk exposure and maturity analysis of financial liabilities

  Weighted
average effective
interest rate
Nominal amount
Liquidity risk exposure
Maturity dates
 
Fixed interest rate
Variable
interest rate
Non-interest
bearing
Less than
1 Month
1–3 months
3 months –
1 year
1–5 years
>5 years
2017  
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
($'000)
Payables (1)  
10,284
-
-
10,284
10,284
-
-
-
-
Finance lease liabilities
3.4%
215
215
-
-
5
9
47
154
-
   
10,499
215
-
10,284
10,289
9
47
154
-
2016                    
Payables (1)  
16,973
-
-
16,973
16,973
-
-
-
-
Finance lease liabilities
6.1%
126
126
-
-
47
26
13
40
-
   
17,099
126
-
16,973
17,020
26
13
40
-

(1)The amounts disclosed are the contractual undiscounted cash flows of each class of financial liabilities.

(f) Market risk

CenITex’s exposure to market risk is primarily through interest rate risk with only insignificant exposure to foreign currency risk and other price risks. Objectives, policies and processes used to manage each of these risks are disclosed in the paragraphs below.

Foreign currency risk
CenITex is exposed to insignificant foreign currency risk through its payables relating to purchases from overseas for which the counterparty invoices are in foreign currency.

Based on past and current assessment of economic outlook, it is deemed unnecessary for CenITex to enter into any hedging arrangements to manage the risk.

Interest rate risk
Exposure to interest rate risk relates solely to cash balances held in deposits at variable interest rates.

CenITex manages this risk by undertaking fixed rate with relatively even maturity profiles. Management has concluded for cash at bank, as financial assets that can be left at floating rate without necessarily exposing CenITex to significant bad risk, management monitors movement in interest rates on a daily basis.

CenITex’s exposure to interest rate risk is set out in tables 17.1 and 17.2.

Sensitivity disclosure analysis

Taking into account future expectations, economic forecasts, and management’s knowledge and experience of the financial markets, CenITex believes the following movements are possible over the next 12 months:

A parallel shift of +1.00% and -1.00% in market interest rates (AUD) from year-end rates of 2% (2016:2%).

Table 17.3 discloses the impact on net result from transactions and equity for each category of financial instrument held by CenITex at year-end, as presented to key management personnel, if the above movements were to occur.

Table 17.3: Market risk exposure

   
2017
   
Interest rate risk
   
–1.00%
1.00%
   
(100 basis points)
(100 basis points)
 
Carrying amount ($‘000)
Net result from transactions
Equity
Net result from transactions
Equity
 
($‘000)
($‘000)
($‘000)
($‘000)
Contractual financial assets:          
Cash and deposits
32,156
(322)
(322)
322
322
Receivables (1)
4,839
-
-
-
-
Investments and other financial assets
15,000
-
-
-
-
           
Financial liabilities:          
Payables (1)
10,284
-
-
-
-
Finance lease liabilities(2)
204
-
-
-
-
Total increase/ (decrease)  
(322)
(322)
322
322
           
   
2016
   
Interest rate risk
   
–1.00%
1.00%
   
(100 basis points)
(100 basis points)
 
Carrying amount ($‘000)
Net result from transactions
Equity
Net result from transactions
Equity
 
($‘000)
($‘000)
($‘000)
($‘000)
Contractual financial assets:          
Cash and deposits
44,788
(448)
(448)
448
448
Receivables (1)
7,479
-
-
-
-
Investments and other financial assets
-
-
-
-
-
           
Financial liabilities:          
Payables (1)
16,973
-
-
-
-
Finance lease liabilities(2)
123
-
-
-
-
Total increase/ (decrease)  
(448)
(448)
448
448

(1) The carrying amount is denominated in Australian Dollars and is non-interest bearing. This item is not subject to the identified risk sensitivities.

(2)Finance lease liabilities relate solely to motor vehicles. Each contract has interest fixed at the inception of the lease. This item is not subject to identified risk sensitivities.

Equity price risk
CenITex is exposed to equity price risk through its investments in managed investment schemes. Such investments are allocated and traded to match the investment objectives appropriate for CenITex’s liabilities. CenITex has appointed a state organisation to manage its investment portfolio in accordance with the Investment Risk Management Plan approved by the Board. The fund manager on behalf of CenITex closely monitors performance and manages the equity price risk through diversification of its investment portfolio. CenITex’s sensitivity to equity price risk is set out below.

   
–15%
+15%
2017
Carrying amount ($‘000)
Net result from transactions
Available-for- sale revaluation surplus
Net result from transactions
Available-for- sale revaluation surplus
         
Contractual Financial assets:          
Investments and other contractual financial assets
15,000
-
(2,250)
-
2,250
 
15,000
-
(2,250)
-
2,250

Investments comprises managed investment schemes that are exposed to movements in equity prices.

(g) Fair value

The fair values and net fair values of financial instrument assets and liabilities are determined as follows:

Level 1 – the fair value of financial instrument with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market prices;
Level 2 – the fair value is determined using inputs other than quoted prices that are observable for the financial asset or liability, either directly or indirectly; and
Level 3 – the fair value is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using unobservable market inputs.

CenITex currently holds a range of financial instruments that are recorded in the financial statements where the carrying amounts are a reasonable approximation of fair value, either due to their short-term nature or with the expectation that they will be paid in full by the end of the 2016-17 reporting period. These financial instruments include:

Financial assets Financial liabilities
Cash and deposits Payables
Receivables
  • For supplies and services
  • Sale of services
  • Other payables
  • Other receivables
 
   
Investments and other financial assets Borrowings – finance lease liabilities
  • Managed investment schemes
-
Financial assets measured at fair value    
     
2017 Carrying amount at
30 June
Fair value measurement using Level 2
Available-for-sale securities
-
-
Managed investment schemes
15,000
15,000
Total
15,000
15,000

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate fair value.

Managed investment schemes: CenITex invests in managed funds, which are not quoted in an active market and which may be subject to restrictions on redemptions such as lock-up periods and redemption dates. CenITex considers the valuation techniques and inputs used in valuing these funds as part of its due diligence prior to investment, to ensure they are reasonable and appropriate and therefore the net asset value (NAV) of these funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, as necessary, to reflect restrictions and redemptions, future commitments and other specific factors of the fund. Depending on the nature and level of adjustments needed to the NAV and the level of trading of CenITex, these funds have been classified as Level 2.

Note 18. Cash flow information

(a) Reconciliation of cash and cash equivalents

For the purpose of the Cash Flow Statement, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown on the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

 
2017
2016
 
$'000
$'000
 
Total cash and deposits
32,156
44,788
Balance as per Cash Flow Statement
32,156
44,788

(b) Reconciliation of net result for the period to net cash flows from operating activities

 
2017
2016
 
$'000
$'000
     
     
Net result for the period
7,039
7,472
Non-cash movements    
Net (gain)/loss on sale or disposal of non-current assets
(189)
433
Depreciation of non-current assets
12,882
17,415
Resources received free of charge or for nominal consideration
(181)
(428)
Increase/(decrease) in provision for doubtful debts
335
(456)
Movements in assets and liabilities    
(Increase)/decrease in receivables
940
(4,469)
(Increase)/decrease in prepayments
(2,493)
391
Increase/(decrease) in payables
(6,890)
9,414
Increase/(decrease) in unearned revenue
(1,617)
3,375
Increase/(decrease) in provisions
1,935)
2,169
Net cash flows from/(used in) operating activities
11,761
35,316

Note 19. Ex gratia payments

No ex-gratia payments were made during the year. (2016: NIL)

Note 20. Responsible persons

In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act 1994 (FMA), the following disclosures are made regarding responsible persons for the reporting period.

Names

The persons who held positions of Ministers, Accountable Officers and members of the Board responsible for CenITex during the financial year were:

Position Name Period
The Minister for Finance and the Minister for Multicultural Affairs The Hon. Robin Scott MP 1 July 2016 to 30 June 2017
Chairman Randall Straw 1 July 2016 to 30 June 2017
Chief Executive Mr. Michael Vanderheide 1 July 2016 to 30 June 2017
Board member Johanna Barker 1 July 2016 to 30 June 2017
Board member Dr. Richard Tait 1 July 2016 to 30 June 2017
Board member Conrad Harvey 1 July 2016 to 30 June 2017
Board member Kathryn Anderson 1 July 2016 to 30 June 2017
Board member Richard Bolt 1 July 2016 to 30 June 2017
Board member Amanda Cattermole 1 July 2016 to 30 June 2017
Board member Gail Moody 1 July 2016 to 24 May 2017
Board member Julie Fahey 1 July 2016 to 30 June 2017
Board member Shaun Condron 16 June 2017 to 30 June 2017

Remuneration
Remuneration received or receivable by the Accountable Officer in connection with the management of CenITex during the reporting period was in the range : $360,000 to $ 369,999 ($350,000 to $359,999 in 2015-16)

Note 21. Remuneration of executives

The number of executive officers, other than ministers and accountable officers, and their total remuneration during the reporting period are shown in the table below. Total annualised employee equivalents provides a measure of full time equivalent executive officers over the reporting period.

Remuneration comprises employee benefits in all forms of consideration paid, payable or provided by the entity, or on behalf of the entity, in exchange for services rendered, and is disclosed in the following categories.

Short-term employee benefits include amounts such as wages, salaries and annual leave that are usually paid or payable on a regular basis, as well as non-monetary benefits such as allowances and free or subsidised goods or services.

Post-employment benefits include pensions and other retirement benefits paid or payable on a discrete basis when employment has ceased.

Other long-term benefits include long service leave, other long service benefits or deferred compensation.

Termination benefits include termination of employment payments, such as severance packages.

Remuneration of executive officers
2017
$'000
2016
$'000
Short-term employee benefits
743
 
Post-employment benefits
77
 
Other long-term benefits
-
 
Termination benefits
97
 
Total remuneration (a)
917
 
Total number of executives
4
5
Total annualised employee equivalents (b)
3.0
3.8

Notes:
a)No comparatives have been reported because remuneration in the prior year was determined in line with the basis and definition under FRD 21B. Remuneration previously excluded non-monetary benefits and comprised any money, consideration or benefit received or receivable, excluding reimbursement of out-of-pocket expenses, including any amount received or receivable from a related party transaction. Refer to the prior year’s financial statements for executive remuneration for the 2015-16 reporting period.
b) Annualised employee equivalent is based on the time fraction worked over the reporting period.

Note 22. Related party transactions

CenITex is a wholly owned and controlled entity of the State of Victoria, that provides ICT services to other wholly owned entities of the State of Victoria.

Related parties of CenITex include:
· all key management personnel, their close family members and business interests (controlled entities, joint ventures and entities they have significant influence over);
· all cabinet ministers and their close family members; and
· all departments and public sector entities that are controlled and consolidated into the whole of state consolidated financial statements.

All related party transactions have been entered into on an arm’s length basis.

Significant transactions with government - related entities

During the year, CenITex had the following government - related entity transactions:

Related party
Revenue from
services provided
$000
Department of Health and Human Services
38,809
Department of Justice and Regulation
34,967
Department of Economic Development, Jobs, Transport & Resources
32,620
Department of Environment, Land, Water and Planning
31,622
Department of Treasury and Finance
6,789
Department of Premier and Cabinet
6,500
Public Transport Victoria
5,372
Environment Protection Authority
1,682
Other Victorian Government Departments and Antities
7,983
Total
166,344

Key management personnel

Key management personnel of CenITex include the relevant Minister, The Hon. Robin Scott MP, Minister for Finance and the Minister for Multicultural Affairs, the Chairman members of the Board of Directors and the Chief Executive. The compensation detailed below excludes the salaries and benefits the relevant Minister receives. The Minister’s remuneration and allowances is set by the Parliamentary Salaries and Superannuation Act 1968 and is reported within the Department of Premier and Cabinet’s Financial Report.

Compensation
2017
$000
Salaries and other short term employee benefits
496
Post-employment benefits
39
Other long-term employment benefits
9
Termination benefits
-
Board member fees
14
Total key management personnel compensation
558

Transactions with key management personnel and other related parties

Given the breadth and depth of State government activities, related parties transact with the Victorian public sector in a manner consistent with other members of the public e.g. stamp duty and other government fees and charges. Further, employment processes within the Victorian public sector occur on terms and conditions consistent with the Public Administration Act 2004 and Codes of Conduct and Standards issued by the Victorian Public Sector Commission. Procurement processes occur on terms and conditions consistent with the Victorian Government Procurement Board requirements.

During the year, Victorian Rail Track provided telecommunications services to CenITex. Randall Straw, the chairman of the CenITex Board, is a member of the Victorian Rail Track Telecommunications Committee. Victorian Rail Track was awarded a contract with CenITex under a State purchase contract on terms and conditions equivalent for those that prevail in arm’s length transactions under the State’s procurement process. The transaction involved the provision of ICT services to support the intra-Government Secured Network with a value of $1.3 Million in the year.

All other transactions that have occurred with Key Management Personnel (KMP) and their related parties have not been considered material for disclosure. In this context, transactions are only disclosed when they are considered necessary to draw attention to the possibility that the Department’s financial position and profit or loss may have been affected by the existence of related parties, and by transactions and outstanding balances, including commitments, with such parties.

Note 23. Remuneration of auditors

 
2017
2016
 
$'000
$'000
Victorian Auditor - General’s Office    
Audit of the financial report
168
143
Total
168
143

Note 24. Events occurring after the balance date

No matters and/or circumstances have arisen since the end of the reporting period which significantly affect or may significantly affect the operations of CenITex, the results of those operations, or the state of affairs of CenITex in future financial years.

Statutory Certification

The attached financial statements for CenITex for the year ended 30 June 2017 have been prepared in accordance with Direction 5.2 of the Standing Directions of the Minister for Finance under the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards including interpretations, and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and notes to and forming part of the financial statements, present fairly the financial transactions during the year ended 30 June 2017 and the financial position of CenITex as at that date.

At the time of signing, we are not aware of any circumstance which would render any particulars included in the financial statements to be misleading or inaccurate.

We authorise the attached financial statements for issue on 12 October 2017.

image of signature of Randall Straw

Randall Straw
Chairman

image of signature of Michael Vanderheide

Michael Vanderheide
Chief Executive

image of signature of Catherine Ho

Catherine Ho
Chief Financial Officer


Auditor-General’s report

VAGO - Victorian Auditor-General's Office

Independent Auditor's Report

To the Board Members of CenITex

Opinion

I have audited the financial report of CenITex which comprises the:

  • balance sheet as at 30 June 2017
  • comprehensive operating statement for the year then ended
  • statement of changes in equity for the year then ended
  • cash flow statement for the year then ended
  • notes to the financial statements, including significant accounting policies
  • Declaration in the Financial Statements.

In my opinion the financial report presents fairly, in all material respects, the financial position of CenITex as at 30 June 2017 and its financial performance and cash flows for the year then ended in accordance with the financial reporting requirements of the Financial Management Act 1994 and applicable Australian Accounting Standards.

Basis for Opinion

I have conducted my audit in accordance with the Audit Act 1994 which incorporates the Australian Auditing Standards. My responsibilities under the Act are further described in the Auditor’s responsibilities for the audit of the financial report section of my report.

My independence is established by the Constitution Act 1975. My staff and I are independent of CenITex in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to my audit of the financial report in Australia. My staff and I have also fulfilled our other ethical responsibilities in accordance with the Code.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Board Members’ responsibilities for the financial report

The Board Members are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards and the Financial Management Act 1994, and for such internal control as the Board Members determine is necessary to enable the preparation and fair presentation of a financial report that is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the Board Members are responsible for assessing CenITex's ability to continue as a going concern, and using the going concern basis of accounting unless it is inappropriate to do so.

Auditor’s responsibilities for the audit of the financial report

As required by the Audit Act 1994, my responsibility is to express an opinion on the financial report based on the audit. My objectives for the audit are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

As part of an audit in accordance with the Australian Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also:

  • identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CenITex’s internal control.
  • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board Members.
  • conclude on the appropriateness of the Board Members' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on CenITex's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause CenITex to cease to continue as a going concern.
  • evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

I communicate with the Board Members regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

Melbourne
13 October 2017

image of signature of Tim Maxfield

Timothy Maxfield
as delegate for the Auditor-General of Victoria