Reserve Bank of Australia Annual Report – 1985 Financial Statements Summary of Accounting policies

Notes to and Forming Part of the Financial Statements–
30 June 1985

Note 1 Summary of Accounting policies

The financial statements have been based on the forms prescribed by the Reserve Bank Regulations supplemented by information including these Notes which form part of the statements. All amounts are shown in $'000 and have been expressed in Australian dollars unless another currency is indicated.

A number of changes in accounting practices were introduced progressively during 1984/85. Current market values for domestic marketable securities were introduced as from 1 July 1984 bringing them into line with the valuation basis used for gold, foreign currency and foreign marketable securities; current market values are also used for premises and shares in international financial institutions. The effects of the changes are shown in Note 3. In other cases, the statements are prepared on the historical cost basis of accounting. An Investment Revaluation Reserve was established from 1 July 1984; at the same time, gold and foreign currency valuation adjustment components were transferred from the former Reserve for Contingencies and General Purposes and established as separate revaluation reserves – see Note 3. The premises revaluation reserve was established later in the year following formal valuations. New provisions accounts (see Note 1(e) and Note 5) were funded as at the end of the financial year – partly from a re-allocation of a portion of the former Reserve for Contingencies and General Purposes.

None of these changes has materially affected income measurement which is based on realised gains/losses passing through the profit and loss account. Income and expenditure are generally brought to account on an accrual basis.

(a) Gold, foreign exchange and foreign currency translation

Gold is valued at the Australian dollar equivalent on the last business day of June of the average London gold price per fine ounce for the month of June (June 1985 – US$316.49; June 1984 – US$377.67). Foreign exchange includes IMF special drawing rights. Foreign exchange invested in marketable securities is reported at market values on the last business day of June; accrued interest on coupon securities is also included asset revaluation reserve. Income on such assets is translated to Australian dollars using the exchange rate of the date it is received.

Assets and liabilities denominated in foreign currency are converted to Australian dollar equivalents at exchange rates ruling on the last business day of June. Unrealised gains and losses arising from exchange rate fluctuations are taken to the Foreign Currency Revaluation Reserve.

Gains or losses realised on sale of foreign currency are taken to profit and loss.

(b) Commonwealth Government securities

These securities are valued at market prices on the last business day of June. Unrealised gains and losses resulting from such valuations are taken to the Investment Revaluation Reserve (Note 3).

Prior to 1 July 1984, Treasury notes were included at face value; other securities were included at the lower of cost or face value.

(c) Bank premises and other durable assets

Premises are reported at market valuations as at May 1985 determined by independent valuers. Amounts written off with the approval of the Treasurer, in terms of Section 78 of the Reserve Bank Act, are based on market values and annual reassessments of useful life remaining.

Other durable assets are recorded at cost less depreciation, which is calculated at rates appropriate to estimated useful life.

Details of annual net expenditure, revaluation increments and write off/depreciation of these assets are included in Note 6.

(d) Asset revaluation reserves

Asset revaluation reserves have been established to reflect unrealised gains and losses resulting from changes in the market valuation of the Bank's major assets. Those reserves are shown in aggregate in the respective balance sheets of the Central Bank and Note Issue Department.

Movements in the reserves over 1984/85 are set out in Note 3 to the accounts. The opening balances related to gold and foreign currency valuation adjustments have been transferred from the Reserve for Contingencies and General Purposes. The remainder of the Contingencies Reserves in Central Bank and the Note Issue Department, which were more akin to general provisions, have been re-allocated to newly constituted specific provisions (see section (e) of this Note).

(e) Provisions

The accounts continue to include specific provisions for:

  • notes not presented (Note Issue Department only);
  • accrued annual leave;
  • long service leave.

Provision for notes not presented comprises the value of Australian notes of a denomination not exceeding One pound that have been on issue for more than 20 years and Australian notes of a denomination exceeding One pound that have been on issue for more than 40 years; these notes are not included in the item ‘Australian notes on issue’.

For 1984/85, additional provisions have been established to provide cover for risks in relation to items in the Bank's balance sheet arising from:

  • movements in market yields (Commonwealth Government securities and foreign investments);
  • major repairs and maintenance of the Bank's buildings.

The initial transfers to set up these provisions, and any supplementary allocations from 1984/85 earnings, are shown in Note 5. They comprise the allocation of that part of the previous Reserve for Contingencies and General Purposes ($57.6 million for Central Bank and $82.0 million for Note Issue Department) which did not relate to asset revaluation adjustments for gold and foreign currency.

The provisions are assessed at balance date to determine their appropriateness at that time.

(f) Officers' Superannuation Fund

The assets of the Reserve Bank Officers' Superannuation Fund are held by the Bank in accordance with the Reserve Bank (Officers' Superannuation) Rules made pursuant to Section 70 of the Reserve Bank Act, but are not included in these statements. The Bank's contributions to the Fund in accordance with the Rules are included in staff costs in Note 2.