Note 39. 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 the 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 (Westpac).  Westpac holds a AA- issuer credit rating with Standard and Poors. An AA credit rating is defined as ‘very strong capacity to meet financial commitments’.

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 ACT Government, Commonwealth Government and insurance companies for compensable patients. As the Commonwealth Government has a AAA credit rating it is considered that there is a very low risk of default for those receivables.

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 user charges revenue from the ACT Local Health Network Directorate and 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 by  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 Cash Enhanced Fund. The Directorate has units in the Cash Enhanced Fund 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
2015
$'000

Fair Value
Amount
2015
$'000

Carrying
Amount
2014
$'000

Fair Value
Amount
2014
$'000

Financial Assets

 

 

 

 

Cash and Cash Equivalents

105,069

105,069

107,256

107,256

Receivables

23,610

23,610

19,740

19,740

Investment with the Territory Banking Account

3,027

3,027

3,015

3,015

Total Financial Assets

131,706

131,706

130,011

130,011

 

 

 

 

 

Financial Liabilities

 

 

 

 

Payables

54,269

54,269

42,647

42,647

Finance Leases

-

-

6,198

6,198

Total Financial Liabilities

54,269

54,269

48,845

48,845

Fair Value Hierarchy

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.

2015

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 -

  Cash Enhanced Fund

-

3,027

-

3,027

Total Financial Assets

-

3,027

-

3,027

 

 

 

 

 

2014

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 -

  Cash Enhanced Fund

-

3,015

-

3,015

Total Financial Assets

-

3,015

-

3,015

Transfer Between Categories

There have been no transfers of financial assets or liabilities between Level 1 and Level 2 during the current and previous 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 2015.  Except for non-current payables, 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.

 

Note
No.

Weighted
Average
Interest
Rate

Floating
Interest
$'000

Fixed Interest Maturing In:

Non-Interest
Bearing
$'000

Total
$'000

 

1 Year
or Less
$'000

Over 1 Year
to 5 Years

Over
5 Years

Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

23

 

-

-

-

-

105,069

105,069

Receivables

24

 

-

-

-

-

23,610

23,610

Investments with the Territory Banking

   Account

27

3.10%

3,027

-

-

-

-

3,027

Total Financial Assets

 

 

3,027

-

-

-

128,679

131,706

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

Payables

32

 

-

-

-

-

54,269

54,269

Finance Leases

33

5.62%

-

-

-

-

-

-

Total Financial Liabilities

 

 

-

-

-

-

54,269

54,269

 

 

 

 

 

 

 

 

 

Net Financial Assets / (Liabilities)

 

 

3,027

-

-

-

74,410

77,437

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 2014.  Except for non-current payables, 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.

 

Note
No.

Weighted
Average
Interest
Rate

Floating
Interest
$'000

Fixed Interest Maturing In:

Non-Interest
Bearing
$'000

Total
$'000

 

1 Year
or Less
$'000

Over 1 Year
to 5 Years

Over
5 Years

Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

23

 

-

-

-

-

107,256

107,256

Receivables

24

 

-

-

-

-

19,740

19,740

Investments with the Territory Banking

   Account

27

3.45%

3,015

-

-

-

-

3,015

Total Financial Assets

 

 

3,015

-

-

-

126,996

130,011

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

Payables

32

 

-

-

-

-

42,647

42,647

Finance Leases

33

5.62%

-

2,437

4,199

-

-

6,636

Total Financial Liabilities

 

 

-

2,437

4,199

-

42,647

49,283

 

 

 

 

 

 

 

 

 

Net Financial Assets / (Liabilities)

 

 

3,015

(2,437)

(4,199)

-

84,349

80,728

Carrying Amount of Each Category of Financial Asset and Financial Liability

2015
$'000

2014
$'000

Financial Assets

 

 

Loans and Receivables Measured at Amortised Cost

23,610

19,740

Financial Assets at Fair Value through the Profit and Loss Designated

   upon Initial Recognition

3,027

3,015

Financial Liabilities

 

 

Financial Liabilities Measured at Amortised Cost

54,269

48,845

 

 

 

Gains/(Losses) on Each Category of Financial Asset and Financial Liability

 

 

 

 

 

Gains/(Losses) on Financial Assets

 

 

Financial Assets at Fair Value through the Profit and Loss Designated

   upon Initial Recognition

97

98