Reserve Bank of Australia Annual Report – 1990 Financial Statements Summary of Accounting Policies

Notes to and Forming Part of the Financial Statements
30 JUNE 1990

Note 1 Summary of Accounting Policies

The financial statements have been prepared in accordance with the Reserve Bank Act and based on the form prescribed by the Reserve Bank Regulations supplemented by information, including these Notes, which form part of the statements. Australian Accounting Standards are followed to the extent that they do not conflict with the Reserve Bank Act and are relevant to a central bank.

All amounts are shown in $'000 and are expressed in Australian dollars unless another currency is indicated. Current market values are used for the Bank's major assets including domestic and foreign marketable securities, gold and foreign currency, and also for premises and shares in international financial institutions. The impact on the relevant asset revaluation reserves is shown in Note 3. In other cases, an historical cost basis of accounting is used.

Except for the item mentioned in the last paragraph of Note 1(f), income measurement is based on realised gains/losses passing through the profit and loss account. That part of the Investments 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 the profit and loss account for inclusion in the calculation of net operating earnings. (See Note 3.) Revenue and expenses are brought to account on an accrual basis.

(a) Note Issue Department

The Banking Legislation Amendment Act 1989 discontinued the need for a separate Note Issue Department. As a result, Note Issue Department accounts have been merged with the other accounts of the Bank and no balance sheet or other details are shown for the Department for 1989/90. Notes to the accounts also reflect the change.

This change did not have any effect on the total assets, liabilities or net profits of the Bank in 1989/90. The balance sheet is fully comparable with the consolidated accounts shown for 1988/89.

(b) Gold, foreign exchange and foreign currency translation

Gold includes gold loans and is valued at $A446.39 an ounce (June 1989 $A486.69). Current year's value is the Australian dollar equivalent of the 3 p.m. fix in the London gold market on the last business day of June; in previous years an average of daily prices in London in June was converted to Australian dollars at the end month exchange rate. About 7 per cent of the Bank's total gold holdings were gold loans at 30 June 1990.

Foreign exchange is mainly invested in various types of government securities and bank deposits; it includes International Monetary Fund special drawing rights amounting to the equivalent of $379.4 million at 30 June ($398.2 million at 30 June 1989). 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. Earnings on such assets are translated to Australian dollars using the exchange rate of the date they are 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. This practice differs from Australian Accounting Standards.

Gains or losses realised on sale of foreign currency are taken to profit and loss. At 30 June, the Bank was a party to contracts for the sale/purchase of foreign currencies in respect of which settlement had yet to be effected.

(c) 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 Investments Revaluation Reserve. This item includes $74.0 million accrued interest ($103.4 million at 30 June 1989). In the course of its market operations, the Bank engages in repurchase agreements involving Commonwealth Government securities. At 30 June 1990, the Bank was contracted to sell $100.7 million of securities and to purchase $2,455.4 million after balance date under repurchase agreements.

(d) Bank premises and other durable assets

Premises are reported at market valuations determined on a triennial basis by independent valuers. A revaluation was conducted in 1989. Amounts written off 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.

(e) Asset revaluation reserves

Asset revaluation reserves reflect unrealised gains and losses resulting from changes in the market values of the Bank's major assets. Movements in the reserves over 1989/90 are set out in Note 3 to the accounts.

(f) Provisions

The accounts include specific provisions for:

  • movements in market yields (Commonwealth Government securities and foreign investments);
  • movements in exchange rates;
  • major repairs and maintenance of the Bank's buildings;
  • accrued annual leave; and
  • long service leave.

The Provision for the Effects of Movements in Market Yields, in conjunction with the Investments Revaluation Reserve, provides against losses arising from fluctuations in the prices of securities held by the Bank. The Provision for the Effects of Movements in Exchange Rates, in conjunction with the Foreign Currency Revaluation Reserve, provides against losses arising from fluctuations in exchange rates. Amounts are set aside for each of these provisions, with the approval of the Treasurer, before the determination of net profit (section 78 of the Reserve Bank Act). Charges against both Provisions were necessary in 1989/90 because the current market values of the relevant assets fell below average cost (see Note 3, 5).

The Provision for Notes Not Presented, which reflected statutory reporting requirements concerning older notes not returned to the Bank, is no longer maintained as a separate account. The Banking Legislation Amendment Act removed the need for this account. The balance ($48.0 million) was transferred to Australian Notes on Issue. This change did not affect the profit and loss account.

Henceforth, the Bank will assess the value of notes, from series whose issue ceased at least ten years previously, judged to have been destroyed and therefore unavailable for presentation. At 30 June 1990, following this review, an amount of $35 million was written off Notes on Issue and transferred to profit and loss. It is included in Other Revenues in Note 2.

(g) 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.