Reserve Bank of Australia Annual Report – 1986 Financial Statements Summary of Accounting Policies

Notes to and Forming Part of the Financial Statements
30 June 1986

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. Current market values are used for the Bank's major asset holdings including domestic and foreign marketable securities, gold and foreign currency; current market values are also used for premises and shares in international financial institutions. The impact on the relevant asset revaluation reserves is shown in Note 3. In other cases, the statements are prepared on the historical cost basis of accounting.

Income measurement is based on realised gains/losses passing through the profit and loss account. That part of the Investment Revaluation Reserve and/or Foreign Currency Revaluation Reserve relating to investments and/or currencies disposed of in the course of the financial year is transferred to earnings for inclusion in the calculation of income. (See, also, Note 3.) 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 1986 — US$342.72; June 1985 — US$316.49).

Foreign exchange includes IMF special drawing rights amounting to $478.1 million at 30 June ($360.0 million at 30 June 1985). Marketable securities are reported at market values on the last business day of June; accrued interest on coupon securities is also included in the item Gold and Foreign Exchange. Unrealised market valuation adjustments are taken to the appropriate asset revaluation reserve. Income on such assets is translated to Australian dollars using the exchange rate of the date it is received.

Although Note Issue Department is eligible to hold investments in UK government securities under Section 38 of the Reserve Bank Act, as from 1 July 1985 all UK investments have been allocated to the Central Bank. There has been a corresponding increase in Funds held by the Bank. The overall impact on Note Issue Department earnings is minimal.

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).

(c) Bank premises and other durable assets

Premises are reported at market valuations determined annually 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 these 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 reflect unrealised gains and losses resulting from changes in the market values 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 1985/86 are set out in Note 3 to the accounts.

(e) Provisions

The accounts include specific provisions for:

  • movements in market yields (Commonwealth Government securities and foreign investments);
  • major repairs and maintenance of the Bank's buildings;
  • 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 or Two dollars that have been on issue for more than 20 years and Australian notes of a denomination exceeding One pound or Two dollars that have been on issue for more than 40 years; these notes are not included in the item “Australian notes on issue”.

The provisions are assessed at balance date to determine their appropriateness at that time. Any transfers out of these provisions or supplementary allocations from 1985/86 earnings, are shown in Note 5.

(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.