Note 38. Financial Instruments

Details of the significant policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset and financial liability are disclosed in Note 2: Summary of Significant Accounting Policies.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Directorate does not hold any financial liabilities with floating interest rates, the Directorate is therefore not exposed to movements in interest payable. The Directorate is, however, exposed to movements in interest rates on amounts held in Cash at Bank.

Interest rate risk for financial assets is managed by the Directorate by only investing in floating interest rate investments that are low risk. There have been no changes in risk exposure or processes for managing risk since last financial reporting period.

A sensitivity analysis has not been undertaken as it is considered that the Directorate’s exposure to this risk is insignificant and would have an insignificant impact on its financial results.

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Directorate’s credit risk is limited to the amount of the financial assets it holds net of any allowance for impairment. The Directorate expects to collect all financial assets that are not past due or impaired.

Credit risk is managed by the Directorate for cash at bank by holding bank balances with the ACT Government’s banker, Westpac Banking Corporation. In 2012‑13 as part of the Whole-of-Government banking arrangements, the Directorate transitioned banking services from the Commonwealth Bank to Westpac Banking Corporation. Both of these banks hold a AA- issuer credit rating with Standard and Poors.

Credit risk is managed by the Directorate for investments by only investing surplus funds with the Territory Banking Account, which has appropriate investment criteria for the external fund manager engaged to manage the Territory’s surplus funds.

The Directorate’s receivables are predominantly from insurance companies, ACT Government and State (mainly New South Wales) and the Commonwealth Governments. As the Commonwealth Government and New South Wales Government have a AAA credit rating it is considered that there is a very low risk of default for those receivables. Credit risk for receivables with the New South Wales Ministry of Health, which are for provision of services to patients who reside in New South Wales is managed by having an agreement in place, providing required activity data in a timely manner and requiring provisional payments for these activities.

There has been no change in credit risk exposure since last reporting period.

Liquidity Risk

Liquidity risk is the risk that the Directorate will encounter difficulties in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Directorate’s financial obligations relate to the payment of grants and the purchase of supplies and services. Grants are paid on a quarterly basis and purchases of supplies and services are paid within 30 days of receiving the goods or services.

The main source of cash to pay these obligations is appropriation from the ACT Government which is paid on a fortnightly basis during the year. The Directorate manages its liquidity risk through forecasting appropriation drawdown requirements to enable payment of anticipated obligations. See the maturity analysis provided later in this note for further details of when financial assets and liabilities mature.

The Directorate’s exposure to liquidity risk is considered insignificant based on experience from prior years and the current assessment of risk.

Price Risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether these changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded into the market. The only price risk the Directorate is exposed to results from its investment in the Fixed Interest Portfolio. The Directorate has units in the Fixed Interest Portfolio that fluctuate in value. The price fluctuation in the units of the portfolio is caused by movements in the underlying investments of the portfolio. The underlying investments are managed by an external fund manager who invests in a variety of different securities, including bonds issued by the Commonwealth Government, the State Government guaranteed treasury corporations and semi-government authorities, as well as investment-grade corporate issues.

The Directorate’s exposure to price risk and the management of this risk has not changed since last reporting period.

A sensitivity analysis has not been undertaken for the price risk of the Directorate as it has been determined that the possible impact on profit and loss or total equity from fluctuations in price is immaterial.

Fair Value of Financial Assets and Liabilities

The carrying amounts and fair values of financial assets and liabilities at the end of the reporting period are:

 

  Carrying
Amount
2013
$’000
Fair Value
2013
$’000
Carrying Amount
2012
$’000
Fair Value
2012
$’000
Financial Assets        
Cash and Cash Equivalents 9,562 9,562 69,379 69,379
Receivables 122,304 122,304 53,158 53,158
Investment with the Territory Banking Account 3,011 3,011 2,990 2,990
Total Financial Assets 134,877 134,877 125,527 125,527
         
Financial Liabilities        
Payables 87,773 87,773 79,960 79,960
Finance Leases 6,477 6,477 5,090 5,090
Total Financial Liabilities 94,250 94,250 85,050 85,050

 

Fair Value Hierarchy

The Directorate is required to classify financial assets and financial liabilities into a fair value hierarchy that reflects the significance of the inputs used in determining their fair value. The fair value hierarchy is made up of the following three levels:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly (i.e. prices) or indirectly (i.e. derived from prices); and

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The carrying amount of financial assets measured at fair value, as well as the methods used to estimate the fair value are summarised in the table below. All other financial assets and liabilities are measured, subsequent to initial recognition, at amortised cost and as such are not included in the table below.

 

2013
  Classification According to Fair Value Hierarchy  
  Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Financial Assets        
Investment with the Territory Banking Account –
Fixed Interest Portfolio Account
  3,011 3,011
  3,011 3,011
         
Transfer Between Categories        
There have been no transfers of financial assets or liabilities between Level 1 and Level 2 during the reporting period.
         
2012        
  Classification According to Fair Value Hierarchy  
  Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Financial Assets        
Investment with the Territory Banking Account –
Fixed Interest Portfolio Account
2,990 2,990
  2,990 2,990
         
Transfer Between Categories        
There have been no transfers of financial assets or liabilities between Level 1 and Level 2 during the reporting period.

 

The following table sets out the Directorate’s maturity analysis for financial assets and liabilities as well as the exposure to interest rates, including weighted average interest rates by maturity period as at 30 June 2013. All financial assets and liabilities which have a floating interest rate or are non-interest bearing will mature in 1 year or less. All amounts appearing in the following maturity analysis are shown on an undiscounted cash flow basis.

 

        Fixed Interest Maturing in:    
  Note No. Weighted Average Interest Rate Floating Interest Rate
$’000
1 Year or Less
$’000
Over 1 to 5 Years
$’000
Over 5 Years
$’000
Non-Interest Bearing $’000 Total
$’000
Financial Instruments                
Financial Assets                
Cash and Cash Equivalents 23 3.44% 9,516 46 9,562
Receivables 24   122,304 122,304
Investments with the Territory Banking Account 27   3,011 3,011
Total Financial Assets     9,516 125,361 134,877
                 
Financial Liabilities                
Payables 32   87,773 87,773
Finance Leases 33 7.99% 2,613 4,412 7,025
Total Financial Liabilities     2,613 4,412 87,773 94,798
Net Financial Assets/(Liabilities)     9,516 (2,613) (4,412) 37,588 40,079

 

The following table sets out the Directorate’s maturity analysis for financial assets and liabilities as well as the exposure to interest rates, including weighted average interest rates by maturity period as at 30 June 2012. All financial assets and liabilities which have a floating interest rate or are non-interest bearing will mature in 1 year or less. All amounts appearing in the following maturity analysis are shown on an undiscounted cash flow basis.

 

        Fixed Interest Maturing In:    
  Note No. Weighted Average Interest Rate Floating Interest Rate $’000 1 Year or Less
$’000
Over 1 to 5 Years
$’000
Over 5 Years
$’000
Non-Interest Bearing
$’000
Total
$’000
Financial Instruments                
Financial Assets                
Cash and Cash Equivalents 23 4.87% 69,332 47 69,379
Receivables 24   53,158 53,158
Investments with the Territory Banking Account 27   2,990 2,990
Total Financial Assets     69,332 56,195 125,527
                 
Financial Liabilities                
Payables 32   79,960 79,960
Finance Leases 33 7.18% 3,513 1,905 5,418
Total Financial Liabilities     3,513 1,905 79,960 85,378
Net Financial Assets/(Liabilities)     69,332 (3,513) (1,905) (23,765) 40,148

 

 

  2013
$’000
2012
$’000
Carrying Amount of Each Specified Category of Financial Asset and Financial Liability
Financial Assets    
Loans and Receivables Measured at Amortised Cost 122,304 53,158
Financial Assets at Fair Value through the Profit and Loss Designated
upon Initial Recognition
3,011 2,990
     
Financial Liabilities    
Financial Liabilities Measured at Amortised Cost 94,250 85,050
     
Gains on Each Category of Financial Asset and Financial Liability    
Gains on Financial Assets    
Loans and Receivables Measured at Amortised Cost
Financial Assets at Fair Value through the Profit and Loss Designated
upon Initial Recognition
144 157
 
Gains on Financial Liabilities    
Financial Liabilities Measured at Amortised Cost