Reserve Bank of Australia Annual Report – 1996 Financial Statements Events Subsequent to Balance Date

Note 16 Events Subsequent to Balance Date

(i) Repurchase Transactions As from 1 July 1996, the Bank has changed its accounting policy for repurchase agreements. Such agreements had been treated as outright sales and purchases subject to a contract to reverse the transactions at a future date. Under the new policy, securities sold but contracted for purchase under repurchase agreements are retained on the balance sheet as a separate item “Securities sold under repurchase agreements” within the relevant investment portfolio and are valued at market prices; the counterpart obligation to repurchase is included in “Other Liabilities”. The difference between the sale and repurchase price is recognised as interest expense in the profit and loss account over the term of the agreement.

Securities held but contracted for sale under repurchase agreements continue to be recognised within the relevant investment portfolio at contract amount and will be disclosed as a separate item “Securities held under repurchase transactions”. The difference between the purchase and sale price is recognised as interest income over the term of the agreement.

This change in policy will result in lower recorded sales out of the Bank's investment portfolios; hence, in any given year realised gains/losses will be lower than under the previous policy and unrealised gains/losses will be higher. The change in policy has no effect on the financial statements for 1995/96. If it had applied, its impact would have been a decrease in profit of $55.3 million in respect of transactions in Commonwealth Government securities and $4.4 million for transactions in foreign securities. The following table sets out the impact the policy would have had on relevant balance sheet items as at 30 June 1996.

(ii) Exchange Settlement Accounts As from 12 July 1996, the Bank is paying interest on balances remaining overnight in Exchange Settlement Accounts of banks and special service providers. This has no effect on the financial statements for 1995/96.