1. Defined benefit superannuation plans
Under IFRS, Melbourne Water will be required to recognise the surplus or deficit of defined benefit plans as an asset or liability in the statement of financial position and has elected for all movements, including actuarial gains and losses, to be recognised in the profit or loss.
The cumulative effect of the above requirement on the financial position at 30 June 2005 will be the recognition of a defined benefit asset of $10.3 million ($8.4 million 2004). Defined benefit income will increase by $1.9 million for the financial year ended 30 June 2005.
2. Property, Plant and Equipment
Melbourne Water has elected to measure land and buildings on transition to IFRS at fair value and has used that fair value as the item’s deemed cost at that date. This election has been made in accordance with current government policy. Fair value is determined by reference to market based evidence to determine the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction.
The effect of the revaluation to fair value for land and buildings is an increase in the carrying amount of land by $576.4 million to $763.4 million and a decrease in the value of buildings by $9.2 million to $15.2 million. As a result of the election,
the current revaluation reserve of $32.3 million will be reset to zero. Net changes to depreciation and gain/losses on disposal will result in reduced expenses of $1.9 million.
3. Agriculture
Under IFRS, Melbourne Water will be required to revalue the carrying amount of livestock held to fair value less estimated point of sale costs at each balance date. Fair value is determined by reference to readily available external market based evidence, which in this case is deemed to be the carcass value appropriate for each category of livestock.
The cumulative effect of the above requirement on the financial position at 30 June 2005 will be a decrease in the existing livestock asset of $3.8 million to $18.6 million ($15.6 million 2004). Expenditure relating to livestock will increase by $3.6 million for the financial year ended 30 June 2005.
4. Taxation
Under IFRS, Melbourne Water will be required to replace the income statement liability method of tax effect accounting with the comprehensive balance sheet method. The impact of this change in accounting policy is expected to result in an increase to the deferred tax liability of $36.0 million and an increase in the deferred tax asset of $1.3 million as at 30 June 2005. 5. Capitalised Interest
Melbourne Water has previously capitalised borrowing costs relating to qualifying assets. On adoption of IFRS, Melbourne Water has elected to immediately expense all borrowing costs as they are incurred, even when relating to qualifying assets.
This election has been made in accordance with current government policy.
The impact of this change in accounting policy is expected to result in a reduction in the carrying values of qualifying assets as at 30 June 2005 of $270.5 million. Depreciation expense will also decrease by $3.7 million as a consequence.
6. Intangibles
Prior to the transition to IFRS, Melbourne Water classified all purchased software as minor plant and equipment. Under IFRS all purchased software that is not integral to the operation of specific hardware has been transferred to the Intangible asset category. The impact of this change in accounting policy is expected to result in a reduction in property, plant and equipment of
$3.5 million and an offsetting increase in intangibles of $3.5 million as at 30 June 2005. 7. Financial Instruments
Melbourne Water has elected to apply the first-time adoption exemption available under AASB 1 First-time adoption of Australian equivalent to International Financial Reporting Standard to defer the date of transition of AASB 139 Financial Instruments: Recognition and Measurement until 1 July 2005.
Accordingly, there will be no quantitative impact on the financial positions as at 1 July 2004 and 30 June 2005 and the financial performance for the year ended 30 June 2005.
On adoption of IFRS, it is anticipated that there will be no significant changes in recognition of assets and liabilities relating to financial instruments.
In the opinion of the directors of Melbourne Water Corporation:
(a) the accompanying financial statements are drawn up so as to present fairly, in all material respects the financial performance of the Corporation for the year ended 30 June 2005 and the financial position of the Corporation as at that date;
(b) at the date of this statement there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they fall due;
(c) the accompanying financial statements are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board of directors; and
(d) the Corporation’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.
We certify that the financial statements have been prepared in accordance with the requirements of the Financial Management Act 1994, including the Directions and applicable accounting standards.
We are not aware, at the date of this statement, of any circumstance which would render any particulars in the financial statements to be misleading or inaccurate.
Dated at Melbourne on this 19th day of August 2005.
On behalf of the board:
Cheryl Batagol Chairman
Robert Skinner Managing Director
Malcolm Haynes Chief Finance Officer