Annual Report 2008-2009

Part 4: Financial Statements (continued)

Notes to and forming part of the financial statements
for the year ended 30 June 2009

Note	Description
1	Summary of significant accounting policies
2	Objectives of the AOFM
3	Financial risk management
4	Revenue
5	Expenses
6	Financial assets
7	Non‑financial assets
8	Payables
9	Provisions
10	Cash flow reconciliation
11	Contingent liabilities and assets
12	Executive remuneration
13	Remuneration of auditors
14	Average staffing level
15	Compensation and debt relief in special circumstances
16	Revenue before re‑measurements administered on behalf of government
17	Expenses before re‑measurements administered on behalf of government
18	Administered gains before re‑measurements
19	Administered re‑measurements
20	Assets administered on behalf of government
21	Liabilities administered on behalf of government
22	Administered reconciliation table
23	Administered contingent liabilities and assets
24	Administered financial instruments
25	Market risk sensitivity of administered financial instruments
26	Securities lending facility
27	Disclosures of appropriations
28	Reporting of outcomes
29	Major departmental revenues and expenses by output group and output
30	Major classes of administered revenue and expenses by outcome
31	Communications Fund
32	Events occurring after reporting date

Note 1: Summary of significant accounting policies

1.1 Basis of preparation of the financial statements

The Australian Office of Financial Management (AOFM), a 'prescribed agency' under the Financial Management and Accountability Act 1997 (Commonwealth), is a specialised agency responsible for the management of Australian Government debt and financial assets. The financial statements cover the AOFM as an individual entity and are for the reporting period 1 July 2008 to 30 June 2009. They are required by section 49 of the Financial Management and Accountability Act 1997, and are a general purpose financial report prepared on a going concern basis.

The financial statements have been prepared in accordance with:

the Finance Minister's Orders (FMOs) (being the Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 1 July 2008));
Australian Accounting Standards, including Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period; and
other authoritative pronouncements of the AASB, which includes the Framework for the Preparation and Presentation of Financial Statements.

Since 2005 the AASB has adopted International Financial Reporting Standards of the International Accounting Standards Board for the purposes of setting Australian Accounting Standards, but not in their entirety and with some modification for the private and public not-for-profit sectors.

The financial statements have been prepared on an accruals basis under the historic cost accounting convention, as modified by the revaluation of certain classes of financial assets and financial liabilities (including derivative financial instruments), certain classes of property, plant and equipment and employee entitlements.

The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless disclosure of the full amount is specifically required by the FMOs.

Liabilities and assets which are unrecognised in the departmental Balance Sheet or the Schedule of Assets and Liabilities Administered on Behalf of Government are reported in Note 11 (departmental) and Note 23 (administered).

The continued existence of the AOFM in its present form, and with its present program, is dependent on government policy and on continuing appropriations by Parliament for the AOFM's administration and program.

Administered revenue, expenses, assets, liabilities and cash flows reported in the Schedule of Administered Items and related notes are accounted for on the same basis and using the same policies as for departmental items, except where otherwise stated.

1.2 Communications Fund

In 2005-06 the Communications Fund was established under the Telecommunications (Consumer Protection and Service Standards) Act 1999 to fund improvements in telecommunication services in regional, rural and remote parts of Australia. The AOFM was authorised by the responsible Ministers (the Minister for Broadband, Communications and the Digital Economy and the Minister for Finance and Deregulation) to make investments on behalf of the Department of Broadband, Communications and the Digital Economy (DBCDE). These investments and their earnings are reported by DBCDE and not the AOFM. See Note 31 for additional information.

On 1 January 2009, the Communications Fund was closed and its balance transferred to the Building Australia Fund. The investments of the Building Australia Fund are managed by the Future Fund Board of Guardians.

1.3 Significant accounting estimates and judgments

No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next reporting period.

1.4 Statement of compliance with International Financial Reporting Standards

In some circumstances compliance with Australian Accounting Standards will not lead to compliance with International Financial Reporting Standards. Paragraph 14 of AASB 101 Presentation of Financial Statements requires that where an entity's financial statements comply with International Financial Reporting Standards, then such compliance shall be made in an explicit and unreserved statement in the notes to the financial statements.

These financial statements and associated notes do not fully comply with International Financial Reporting Standards, due to the application of not-for-profit provisions in AASB 116 Property, Plant and Equipment relating to the accounting treatment arising from revaluations.

(a) New Australian Accounting Standards applicable to the reporting period

During 2008-09 an amendment was made to AASB 139 Financial Instruments: Recognition and Measurement to allow reporting entities to reclassify, in limited circumstances, financial assets out of the category fair value through profit and loss. The AOFM did not utilise this amendment to reclassify financial assets.

Other amendments to Australian Accounting Standards that became effective in 2008-09 have not impacted on the AOFM.

(b) New Australian Accounting Standards applicable in future reporting periods

The AOFM is not aware of any new Australian Accounting Standard that has been issued but is not yet effective whose application will have an impact on the AOFM's financial results or financial position in future reporting periods.

In accordance with section 11 of the FMOs, the AOFM is not permitted to adopt a new Australian Accounting Standard or AASB Interpretation earlier than its effective date of application without the approval of the Department of Finance and Deregulation Chief Executive. The AOFM has not early adopted a new Australian Accounting Standard or AASB Interpretation.

1.5 Departmental and administered items

Departmental assets, liabilities, revenue and expenses are those items that are controlled by the AOFM and used or incurred to deliver goods and services to government, including:

computers, plant and equipment;
liabilities for employee entitlements;
revenue deemed appropriated under the Financial Management and Accountability Act 1997; and
employee expenses and other administrative expenses.

Administered assets, liabilities, revenue and expenses are those items which are controlled by the government and managed or overseen by the AOFM on behalf of the government. These items include debt issued to finance the government's fiscal requirements, investments of funds surplus to the government's immediate financing needs and investment in residential mortgage-backed securities to support competition in the residential mortgage market.

The purpose of the separation of administered and departmental items is to enable assessment of the administrative efficiency of the AOFM in providing goods and services to the government.

Administered items are identified separately in the financial statements by shading.

1.6 Revenue (Departmental)

The revenue described in this note is revenue relating to the departmental activities of the AOFM.

(a) Revenue from government — output appropriations

The full amount of the appropriation for departmental outputs for the year (less any formal reductions) is recognised as revenue.

Appropriation receivables are recognised (at their nominal amounts) for output appropriations that are undrawn by the AOFM and have not lapsed.

(b) Resources received free of charge

Resources received free of charge are recognised as revenue when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.

Contributions of assets at no cost of acquisition are recognised as revenue at their fair value when the assets qualify for recognition.

Revenue from the rendering of a service is recognised by reference to the stage of completion of contracts or other agreements to provide the service.

1.7 Transactions with the government as owner (Departmental)

(a) Capital injections

Appropriations designated as 'capital injections' (less any formal reductions) are recognised directly in Contributed Equity in the Balance Sheet in the financial year that the appropriation takes effect.

Appropriation receivables are recognised (at their nominal amounts) for capital injections that are undrawn by the AOFM and have not lapsed.

The AOFM was not appropriated any capital injections from government for 2008-09 (nil for 2007-08).

(b) Distributions to owners

Distributions to owners are debited to Contributed Equity in the Balance Sheet unless the distributions are in the nature of a dividend. Dividends are debited to Retained Surplus in the Balance Sheet.

The AOFM did not make a distribution to owners during 2008-09 (nil for 2007-08).

1.8 Employee benefits (Departmental)

Liabilities for services rendered by employees are recognised at the end of the financial year to the extent that they have not been settled.

(a) Leave

The liability for employee benefits includes provisions for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the AOFM is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees' remuneration at the end of the financial year adjusted for expected increases in remuneration effective from 1 July 2009.

Liabilities for short-term employee benefits (such as wages and salaries and annual leave expected to be settled within 12 months from the end of the financial year) are measured at their nominal amounts.

All long service leave employee benefits are measured at the present value of the estimated future cash flows to be made in respect of all employees at the end of the financial year. In determining the present value of the long service leave liability, the AOFM has commissioned an actuarial assessment by the Australian Government Actuary of the anticipated attrition rates and pay increases through promotion and inflation. The Australian Government Actuary has recommended the application of the shorthand method, as prescribed by the FMOs, for determining the present value of the long service leave liability.

(b) Superannuation

Staff and contractors of the AOFM contribute to the Commonwealth Superannuation Scheme (Defined Benefit), Public Sector Superannuation Scheme (Defined Benefit), Public Sector Superannuation Scheme (Accumulation Plan) and other nominated schemes. Employer contributions (including productivity contributions and salary sacrificed superannuation contributions) of $719,393 were made to these schemes during the financial year (2007-08: $715,371).

The AOFM makes employer contributions to the Australian Government at rates determined by an actuary to be sufficient to meet the cost to the government of the superannuation entitlements of its employees. The liability for defined superannuation benefits payable to an employee upon termination of employment with the Australian Government is recognised in the financial statements of the Department of Finance and Deregulation and is settled by the Australian Government in due course.

An on-cost liability, based on actuarial assessment, has been recognised in the Balance Sheet for employer superannuation contributions payable on accrued annual leave and long service leave as at the end of the financial year. Employer superannuation contributions are payable on leave benefits that are taken during service, but are not payable on leave benefits paid out on termination.

In addition, a liability has been recognised at the end of the financial year for outstanding superannuation contributions payable in relation to the final fortnight of the financial year.

1.9 Leases (Departmental)

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all risks and benefits incidental to ownership of leased non-current assets. Under operating leases the lessor effectively retains substantially all such risks and benefits.

The AOFM holds operating leases only. Operating lease payments are charged to the Income Statement on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

1.10 Cash (Departmental)

Cash means notes and coins held and any deposits held at call with a bank. Deposits held with a bank that are not at call are classified as investments. Cash is recognised at its nominal amount.

1.11 Financial instruments (Departmental)

The AOFM recognises a financial asset or financial liability on its Balance Sheet when and only when it becomes a party to the contractual provisions of the instrument. A financial asset is de-recognised when the right to receive cash flows from the financial asset has expired and substantially all the risks and rewards of ownership have been transferred to another party. A financial liability is de-recognised when the obligation in the contract is discharged, cancelled or has expired.

The AOFM classifies its departmental financial assets as loans and receivables. Loans and receivables primarily comprise amounts due from other parties for the reimbursement of staff costs associated with staff secondments. Loans and receivables are initially recognised at fair value and are subsequently measured at amortised cost. Amounts due from the Official Public Account (OPA) for undrawn departmental appropriations are not financial instruments as they are not contractually based.

Financial liabilities represent trade creditors and accruals and are recognised at the amounts at which they are expected to be settled.

All departmental financial assets and financial liabilities are denominated in Australian dollars, are non-interest bearing and their fair values approximate their carrying values. Accordingly, the AOFM is not exposed to interest rate risk or exchange rate risk on its departmental financial instruments. The AOFM's maximum exposure to credit risk on departmental financial assets approximates their carrying values. The AOFM's exposure to credit risk on its departmental financial instruments is immaterial.

1.12 Infrastructure, plant and equipment (Departmental)

(a) Asset recognition threshold on acquisition

Purchases of infrastructure, plant and equipment are recognised initially at cost in the Balance Sheet, except for purchases costing less than $500, which are expensed at the time of acquisition. The asset recognition threshold is applied to each functional asset. That is, items or components that form an integral part of an asset are grouped as a single asset.

(b) Revaluations

Basis

Following initial recognition at cost, valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not materially differ from the assets' fair values as at the reporting date, in accordance with AASB 116 Property, Plant and Equipment.

Fair value has been determined as depreciated replacement cost for leasehold improvements and market selling price in an active market for computers, plant and equipment.

Revaluation adjustments are made on a class basis. Revaluation increments for a class are credited directly to the revaluation reserve in Equity except to the extent that they reverse a previous revaluation decrement of the same asset class. Revaluation decrements for a class of assets are recognised as an expense directly through the Income Statement except to the extent that they reverse a previous revaluation increment for that class. Upon disposal, any revaluation reserve relating to the asset sold is transferred to Retained Surplus.

For all assets, excluding leasehold improvements, any accumulated depreciation or amortisation as at the revaluation date is eliminated against the gross carrying amount of the asset. For leasehold improvements, accumulated amortisation on revaluation is restated proportionately in accordance with the gross carrying amount of the asset.

Frequency

Infrastructure, plant and equipment assets are formally revalued every three years. All infrastructure, plant and equipment assets were last revalued as at 31 March 2009.

Assets acquired after the commencement of a revaluation are not captured by the revaluation then in progress.

Conduct

All valuations are conducted by an independent qualified valuer.

All infrastructure, plant and equipment assets were assessed for impairment at the end of the financial year. An impairment provision was not required.

(d) Depreciation and amortisation

The depreciable value of infrastructure, plant and equipment assets is written off over the estimated useful lives of the assets to the AOFM using the straight-line method of depreciation. Leasehold improvements are amortised on a straight-line basis over the lesser of the estimated useful life of the improvements and the unexpired period of the lease. The depreciable value of infrastructure, plant and equipment assets is based on a zero residual value.

Depreciation and amortisation rates (useful lives) are reviewed regularly and necessary adjustments are recognised in the current, or current and future reporting periods as appropriate. During the year the AOFM revised the useful lives of the majority of its assets to reflect latest estimated replacement dates. The financial effect of this revision to useful lives was a reduction in depreciation and amortisation expenses for 2008-09 of $9,257.

Depreciation and amortisation expenses have been determined by applying rates to new depreciable assets based on the following useful lives:

Sub-class of depreciable asset	2009	2008
Leasehold improvements	lease term	lease term
Computers	3-5 years	3-5 years
Office equipment	5 years	5 years
Furniture	10 years	10 years

The aggregate amount of depreciation and amortisation allocated to each class of asset during the reporting period is disclosed at Note 5C.

1.13 Computer software (Departmental)

Purchases of computer software are recognised at cost in the Balance Sheet except for purchases costing less than $10,000, which are expensed at the time of acquisition.

An item of software represents:

a software licence granted for greater than 12 months; or
a developed software application.

Developed software is recognised by capitalising all directly attributable internal and external costs that enhance the software's functionality and therefore service potential.

Software assets are amortised on a straight-line basis over their anticipated useful lives, being three to five years (2007-08: three to five years). Software assets are not subject to revaluation.

An impairment assessment was made as at the end of the financial year and an impairment provision was not required.

1.14 Taxation (Departmental)

The AOFM is exempt from all forms of taxation except for Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

Revenue, expenses, assets and liabilities are recognised net of GST, except:

where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
for receivables and payables (where GST is applicable).

Receipts and payments in the Cash Flow Statement are recorded in gross terms (that is, at their GST inclusive amounts).

All supplies provided by the AOFM are input taxed under the GST legislation, except for remuneration benefits provided to staff, services arising from the management of the Communications Fund and staff secondments in Australia. In accordance with applicable GST regulations the AOFM is entitled to a reduced input tax credit (equal to 75 per cent of the GST paid) on some purchases, such as security transaction services, which are applied in making input taxed supplies.

1.15 Reporting of administered activities

Administered revenue, expenses, assets, liabilities and cash flows are presented in the Schedule of Administered Items and related notes. Except where otherwise stated, administered items are prepared on the same basis of accounting and using the same policies as for departmental items, including the application of Australian Accounting Standards.

(a) Administered cash transfers to and from the Official Public Account (OPA)

Administered appropriations from the OPA (such as appropriations for the repayment of maturing debt) or transfers by the AOFM of administered receipts to the OPA (such as proceeds from the issuance of debt) are not reported in the administered financial statements. This accounting treatment seeks to report the government's transactions with parties outside the General Government Sector and acknowledges that these transactions with the OPA are internal to the Administered entity. An exception to the above policy relates to the disclosure of administered cash flows, given that cash transferred between the OPA and the AOFM's administered bank accounts is necessary for the completeness of the cash flow disclosures.

1.16 Exemption from FMOs

Section 17.5 of the FMOs provides an exemption to the AOFM from presenting the Schedule of Income and Expenses Administered on Behalf of Government, and associated notes, as set out in the Annexure to the FMOs. Instead, the AOFM is required to comply with AASB 101 Presentation of Financial Statements for presenting its administered revenue and expenses.

Paragraph 83 of AASB 101 encourages reporting entities to adopt an Income Statement presentation that is most relevant to users in understanding the entity's financial performance.

With the adoption of fair value through profit or loss measurement for certain classes of financial assets and financial liabilities the AOFM has presented its administered revenue and expenses into two categories:

administered operating result before re-measurements; and
administered re-measurements.

The category 'administered operating result before re-measurements' records a financial result that is consistent with an accruals (or amortised cost) basis of accounting under the historic cost accounting convention and is most relevant to the AOFM's role in managing its debt portfolio whereby debt and financial instruments are predominately issued and held to maturity (and with portfolio restructuring a rarity). Where a financial asset is sold or financial liability is bought back prior to maturity the realised gain or loss on sale, calculated on an amortised cost basis, is recognised within this category. Realised and unrealised foreign currency gains and losses are also included in this category.

The category 'administered re-measurements' provides information on the unrealised changes in the market valuation of the portfolio of administered financial assets and financial liabilities during the financial year. This is relevant for assessing changes in financial risk exposures and the value of transactions managed from year to year. The revaluation effect will net to zero over the life of a financial instrument.

1.17 Recognition and de-recognition of financial instruments

The AOFM recognises a financial asset or financial liability in its Schedule of Assets and Liabilities Administered on Behalf of Government when and only when it becomes a party to the contractual provisions of the instrument. A financial asset is de-recognised when the right to receive cash flows from the financial asset has expired and substantially all the risks and rewards of ownership have been transferred to another party. A financial liability is de-recognised when the obligation in the contract is discharged, cancelled or has expired.

The AOFM currently accounts for purchases and sales of financial instruments on a trade date basis, that is, the date on which transactions are entered into. Depending on the transaction type this may be several days prior to settlement.

1.18 Classification and measurement of financial instruments

The AOFM classifies its administered financial assets into the following categories: financial assets at fair value through profit or loss and loans and receivables. The AOFM classifies its financial liabilities in the following categories: financial liabilities at fair value through profit or loss and other financial liabilities. See Note 24A for further details of the AOFM's financial instrument categories.

The AOFM has determined the classifications on the basis of how it manages and assesses the performance of its financial assets and financial liabilities. Where the AOFM's management monitors cost and risk in mark-to-market terms (and not necessarily only in those terms), the AOFM has classified the relevant financial assets and liabilities at fair value through profit or loss.

(a) Non-derivative financial assets at fair value through profit or loss

This category comprises short term Australian dollar denominated deposits, bank accepted bills and negotiable certificates of deposit and longer term Australian dollar denominated semi-government debt, debt issued by foreign government and supranational institutions and residential mortgage-backed securities. Under section 39(2) of the Financial Management and Accountability Act 1997, the AOFM invests public money for the purpose of managing the balance of the OPA, for supporting competition in the residential mortgage market and, for a period during 2008-09, for investing the proceeds from the issuance of Treasury Bonds over and above what was required to meet maturing debt and financing requirements in fixed interest debt securities to offset cost and risk of the additional issuance.

These assets are measured at fair value on initial recognition and at fair value on subsequent measurement. Changes in carrying value are attributed between changes in amortised cost of the asset and other changes. Changes in carrying value attributable to amortised cost are recognised as Interest Revenue in the Schedule of Income and Expenses Administered on Behalf of Government. That is, where a security is acquired at a premium or discount to its par value, the premium or discount is recognised at that time and included in the carrying value of the asset. The premium or discount is amortised over the life of the security using the effective interest method and recognised in Interest Revenue. Other changes in carrying value (including unrealised changes in valuation due to a change in interest rates) are recognised as Administered Re-measurements in the Schedule of the Income and Expenses Administered on Behalf of Government.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The AOFM classifies a financial asset as a loan and receivable (as opposed to a financial asset at fair value through profit or loss) in circumstances where the cost and risk of the asset are not being managed in mark-to-market terms.

Currently, this category comprises debt on allocation to, and advances made to the State and Territory governments.

Until July 1990, the Australian Government borrowed on behalf of the State and Territory governments and allocated a portion of the proceeds of its Treasury Bond raisings to those governments to fund the redemption of previous allocations of raisings. Until 1986, the Australian Government also borrowed on behalf of the State and Territory governments to raise new borrowings. In addition to Treasury Bond allocations, there are outstanding balances on stock issued by the States prior to 1 January 1924 and taken over by the Australian Government in 1927 (under the original Financial Agreement Act). The States and Territories are responsible for meeting all obligations as to interest and principal on the debt on allocation to them in accordance with the provisions of the Financial Agreement Act 1994 (the current agreement). As at 30 June 2009 approximately $10 million of perpetual debt with no fixed maturity date issued by New South Wales, Victoria and South Australia remained outstanding under the arrangements governed by the Financial Agreement Act 1994 ($11 million as at 30 June 2008). All other debt has been redeemed. Redemption of the perpetual debt is at the discretion of the relevant State.

In addition to debt governed by the Financial Agreement Act 1994, the Australian Government, from 1945 to 1989, made advances to the State and Territory governments under Commonwealth-State financing arrangements, which were not evidenced by the issue of securities (namely, housing advances and specific purpose capital advances). The principal value of these advances outstanding (for which the AOFM is responsible for administering) was $3,162 million as at 30 June 2009 ($3,253 million as at 30 June 2008).

Loans and receivables assets are measured at fair value on initial recognition and at amortised cost on subsequent measurement using the effective interest method. Changes in carrying value, including amortisation of premiums or discounts are recognised as Interest Revenue in the Schedule of Income and Expenses Administered on Behalf of Government.

For financial assets measured at amortised cost, interest revenue earned but not yet received is recognised as Accrued Revenue in the Schedule of Assets Administered on Behalf of Government.

Currently this category comprises all Commonwealth Government Securities (CGS) debt with the exception of debt on allocation to State and Territory governments and overdues.

These liabilities are measured at fair value on initial recognition and at fair value on subsequent measurement. Changes in carrying value are attributed between changes in amortised cost of the liability and other changes. Changes in carrying value attributable to amortised cost are recognised as Interest Expense in the Schedule of Income and Expenses Administered on Behalf of Government. That is, where a security is issued at a premium or discount to its par value, the premium or discount is recognised at that time and included in the carrying value of the liability. The premium or discount is amortised over the life of the security using the effective interest method and recognised in Interest Expense. Other changes in carrying value (including unrealised changes in valuation due to a change in interest rates) are recognised as Administered Re-measurements in the Schedule of Income and Expenses Administered on Behalf of Government.

For Treasury Capital Indexed Bonds, the principal value appreciates over time with the rate of inflation (in line with a six month lagged consumer price index). As future inflation rates are uncertain, an estimate of the Australian Government's future redemption cost on maturity is not disclosed in the financial statements. Capital accretion is recognised in Interest Expense.

There are no options available to either the Australian Government or the holder of the securities to exchange or convert CGS. There are also no options to either party for early redemption.

(d) Other non-derivative financial liabilities

This category comprises debt on allocation to State and Territory governments and overdues.

These liabilities are measured at fair value on initial recognition and at amortised cost on subsequent measurement using the effective interest method. Changes in carrying value are recognised as Interest Expense in the Schedule of Income and Expenses Administered on Behalf of Government.

For financial liabilities measured at amortised cost, interest incurred but not yet paid is recognised as Payables in the Schedule of Liabilities Administered on Behalf of Government.

(e) Derivative financial instruments

Derivatives are required by AASB 139 Financial Instruments: Recognition and Measurement to be measured at fair value on initial recognition and at fair value on subsequent measurement. The accounting treatment for changes in fair value depends on whether the derivative is designated as a hedging instrument, and on the nature of the hedge.

The AOFM has not designated a hedge relationship between its derivatives and physical CGS debt portfolio. Accordingly, the AOFM's domestic interest rate swaps must be classified at fair value through profit or loss. Refer to Note 2 and Note 3 for details on the AOFM's use of interest rate swaps.

Changes in the carrying value of interest rate swaps are attributed between changes in amortised cost of the swaps and other changes. Changes in carrying value attributable to amortised cost are recognised as Interest Expense (for the pay leg) and as Interest Revenue (for the receive leg) in the Schedule of Income and Expenses Administered on Behalf of Government. Other changes in carrying value (including unrealised changes in valuation due to a change in interest rates) are recognised as Administered Re-measurements in the Schedule of Income and Expenses Administered on Behalf of Government.

No swap debtors have been assessed as being unable to meet contractual obligations due to the Australian Government as at 30 June 2009 (nil for 30 June 2008). Consequently, the AOFM has not included an allowance for uncollectability of amounts due on interest rate swap contracts.

1.19 Fair value estimation of financial instruments

Where a financial instrument is traded in an active market, fair value is based on quoted market rates, as at the end of the financial year. Where market rates are unavailable because a financial asset or financial liability is not traded in an active market, valuation techniques are used, including quotes for similar instruments and discounted cash flow analysis.

Fair value is synonymous with market value and represents the estimated exchange equivalent price using relevant inputs from reference markets and valuation techniques. Fair value is determined on the presumption that the reporting entity is a going concern and is operating in an active market under normal conditions, without any intention or need to liquidate, curtail materially the size of its activities or undertake transactions on adverse terms. Where markets are distorted or illiquid, with pricing not necessarily reflective of underlying credit and cash flow fundamentals, assumptions may be necessary to derive the fair value of a financial instrument.

(a) Non-derivative financial instruments at fair value

The fair value of domestic CGS is based on discounted cash flows using a zero coupon curve valuation methodology created from observable market rates. The zero coupon curve is based on market yields of the most liquid components of the domestic CGS debt portfolio as at the end of the financial year.

The fair values of domestic semi-government and foreign government and supranational institutions debt investments are based on observable market quotes for each issue.

The fair value of term deposit investments with the RBA is based on a zero coupon curve using the overnight cash rate and overnight indexed swap rates. These yields reflect the default free credit risk status of the RBA. The fair value of short term marketable securities is based on a zero coupon curve using the overnight cash rate and bank bill swap rates.

For residential mortgage-backed securities each issue is modelled to determine its weighted average life, which is tested and compared against other sources where available. Fair value is determined using the weighted average life, market quotes (where available) and assumptions based on credit quality considerations.

As the secondary market for the Australian Government's foreign currency denominated debt is largely illiquid, the valuation approach for foreign currency denominated debt is based on deposit and swap rates in each relevant foreign currency.

(b) Derivative financial instruments

The net fair value of domestic interest rate swaps is based on discounted cash flows using a zero coupon curve valuation methodology created from observable market swap rates as at the end of the financial year.

1.20 Other significant administered accounting policies

(a) Revenue

All administered revenue is revenue relating to the activities performed by the AOFM on behalf of the Australian Government.

Interest revenue is earned on loans to State and Territory governments, residential mortgage-backed securities, term deposits, fixed interest and discount securities and the receive legs of interest rate swaps. Interest is credited to revenue as it accrues and is calculated on an amortised cost basis using the effective interest method.

Net interest earnings on securities lending are reported as revenue when received.

(b) Grants

Under the Financial Agreement Act 1994, the Australian Government assists the State and Territory governments to redeem maturing debt on allocation to them. Payments made to the State and Territory governments under these arrangements are recognised as grants expenses as and when they fall due and payable.

In accordance with section 20.1 of the FMOs borrowing costs are expensed as incurred. Under AASB 123 Borrowing Costs, borrowing costs attributable to a qualifying asset may be capitalised or expensed. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. The AOFM's borrowing program does not specifically raise funds for qualifying assets.

(d) Cash

The AOFM maintains a number of administered operational bank accounts with the RBA. Interest is not paid on these accounts. Deposits are recognised at their nominal amounts.

(e) Securities lending facility

The AOFM has a securities lending facility available for Treasury Bonds. The facility is operated by the RBA and is governed by the terms and conditions of an agency agreement between the RBA and the AOFM. The purpose of the facility is to enhance the efficiency of the bond market by allowing bond market participants to borrow Treasury Bonds (generally for a period of no more than several days) when they are not readily available from other sources in the market.

The securities lending facility operates by entering into two simultaneous repurchase agreements with the party wishing to borrow securities — a repurchase agreement (the sale of Treasury Bonds to the party and agreement to buy them back at a future time at an agreed price) and a reverse-repurchase agreement (the purchase of securities from the party and agreement to sell them back at a future time at an agreed price). The net effect of these two transactions is that the Australian Government holds securities as collateral, and not cash.

In 2008-09 the range of securities accepted as collateral was widened to include all securities accepted by the RBA as general collateral in repurchase agreements that the RBA undertakes with the market. The securities lending facility was also widened to include intra-day (as well as overnight) borrowing of Treasury Bonds.

The exchange of securities is market value matched subject to a 2 per cent initial margin imposed by the AOFM for credit risk mitigation purposes. There is provision for making margin calls after initial exchange where the securities pledged as collateral by the other party fall in value relative to the Treasury Bonds loaned under the facility. The repurchase and reverse-repurchase agreements are at-call, that is, they do not have set terms.

Interest is payable under the facility where lending is overnight. The interest rate payable by the other party is the RBA target cash rate. The interest rate payable by the Australian Government is the target cash rate less a margin determined by the AOFM. Net interest earnings of the Australian Government are reported as revenue when received. The temporary sale of CGS under the facility is recorded off-balance sheet. See Note 26 for details of transactions undertaken during the financial year under the facility.

(f) Foreign currency

Transactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. Foreign currency receivables and payables are translated at the exchange rates current as at the end of the financial year. Net foreign exchange gains and losses (both realised and unrealised) arising from foreign currency transactions are reported in the Schedule of Income and Expenses Administered on Behalf of Government.

Note 2: Objectives of the AOFM

The AOFM manages a portfolio of debt and financial assets on behalf of the Australian Government. It issues Treasury Bonds to finance projected budget deficits and support interest rate markets and Treasury Notes to manage the within-year financing task. It also manages the government's cash in the Official Public Account (OPA) which is surplus to immediate requirements by making investments in short term deposits with the RBA and debt securities. It undertakes the administration, financial and operational risk management, and financial reporting of its portfolio of debt and assets.

From 2003 until recently, debt issuance by the AOFM had been undertaken solely with the objective of maintaining the Treasury Bond and Treasury Bond futures markets rather than for budget funding purposes. Successive budget surpluses removed the need to borrow to fund the budget. Issuance was maintained at levels that matched maturing debt obligations to support the continued operation of these markets, as they allow market participants to better manage their interest rate risk and thereby contribute to a lower cost of capital in Australia. They also help strengthen the financial system against the potential impacts of financial shocks. For a period (between August 2008 and February 2009) additional debt was issued over and above what was required to meet maturing debt obligations in order to further support the liquidity of the Treasury Bond market. The proceeds of this additional issuance were invested in fixed interest assets to offset the cost and risk of the additional issuance.

Since the release of the Updated Economic and Fiscal Outlook on 3 February 2009, the proceeds of issuance have been used for budget funding. The Outlook presented revised fiscal forecasts for budget deficits in 2008-09 and subsequent years. This required the AOFM to increase its financing program and resume Treasury Note issuance. The Treasury Bond market has moved from a relatively steady state to one where the debt on issue is increasing and where new issuance is competing with other AAA rated issues (including other sovereigns, semi-governments and institutions issuing government guaranteed debt). To assist with the efficient placement of debt, the AOFM will initiate a promotional program to intensify its market liaison with investors and intermediaries.

Until 2008 the AOFM used interest rate swaps to reduce the cost of its borrowing. However, due to changing yield curves and reductions in the term premium, the potential to make savings in debt servicing costs has declined. No new swaps have been executed since late in 2007 and in 2008-09 the AOFM was running down its portfolio of interest rate swaps.

The AOFM manages the overall level of cash in the OPA by making short term deposits with the RBA and buying short-dated discount securities to offset fluctuations in the daily flows in and out of the OPA. It may also make short term borrowings from the public by issuing Treasury Notes. The OPA is part of the Balance Sheet of the Department of Finance and Deregulation and not part of the AOFM's Balance Sheet. The AOFM holds continuing balances of short term assets and debt to allow it to respond flexibly and quickly to swings in cash requirements.

In September 2008, the government announced that the AOFM would invest up to $4 billion in residential mortgage-backed securities (RMBS) to support competition in the Australian residential mortgage market. In October 2008, this initiative was extended to $8 billion, of which a maximum of $4 billion may be in RMBS securities issued by authorised deposit taking institutions. The AOFM acquired a total of $6,203.420 million of AAA (or equivalent) rated RMBS up to year end.

AOFM's borrowing and portfolio management activities comply with applicable accounting standards and legislative requirements. The key legislative mechanisms that governed these activities during the reporting period were as follows:

the Commonwealth Inscribed Stock Act 1911 and associated regulations represent the Australian Government's primary vehicle for the creation and issuance of domestic stock prescribed under the Act, including Treasury Bonds and Treasury Notes;

in July 2008, the Act was amended to provide the Treasurer with an authority to borrow up to a limit of $75 billion. The limit excludes stock and securities on issue on the commencement of the amendment, other than Treasury Bonds. A further amendment was made in February 2009 to allow the Treasurer to increase the limit by an additional $125 billion in special circumstances by making a declaration. The Act provides for the Treasurer to delegate his borrowing power to certain officials, which must be accompanied by a direction made in writing and which specifies the maximum face value of stock and securities that may be issued under the Act and the Loans Securities Act 1919. In March 2009 the Treasurer made a declaration that special circumstances existed and increased the limit to the maximum provided by the Act.

the Loans Redemption and Conversion Act 1921 gives the Treasurer the power to borrow money necessary for the purpose of paying off, repurchasing or redeeming any loan;
the Loans Securities Act 1919 includes provision relating to overseas borrowings and provides authority to enter into swaps and other financial agreements;

in July 2008, the Act was amended to provide the Treasurer with an explicit authority to enter into securities lending arrangements of up to a maximum of $5 billion at any time and for the collection of collateral.

the Loans (Temporary Revenue Deficits) Act 1953 gives the Treasurer the power to borrow to meet within-year deficits of the Consolidated Revenue Fund. All borrowings raised under the authority of this Act must be repaid in the same financial year;
the Financial Agreement Act 1994 formalises debt consolidation and redemption arrangements applying since 1 July 1990 between the Australian Government and the States and Territories; and
section 39 of the Financial Management and Accountability Act 1997 gives the Treasurer the power to invest public money in authorised investments;

in July 2008, the Act was amended to broaden the Treasurer's investment powers to allow investment for any purpose and not only for managing debt. The amendment also widened the range of eligible investments.

Note 3: Financial risk management

The AOFM is exposed to risks arising from financial instruments on its administered Balance Sheet comprising interest rate risk, exchange rate risk, liquidity risk, credit risk and prepayment risk. These risks are managed within a financial risk management framework that includes directions from the Treasurer, policies and limits approved by the Secretary to the Treasury and overseen by the CEO and senior management of the AOFM. The Secretary to the Treasury is advised by Treasury, the AOFM and the AOFM Advisory Board.

Timing mismatches between the Australian Government's receipts and expenditures cause large fluctuations in the volume of short term assets and liabilities held by the AOFM, and thus in the overall size of its net portfolio, relative to the gross volume of debt outstanding. To provide stability in the management of the longer term component of its debt, long term financing and short term financing are managed through separate portfolios, the long term debt portfolio and the cash management portfolio. The AOFM's investments in residential mortgage-backed securities are managed in a separate portfolio. Housing Advances to State and Territory governments (which were not evidenced by the issue of securities) made under previous Commonwealth-State financing arrangements are also held in a separate portfolio.

(a) Interest rate risk

Interest rate risk represents the risk to debt servicing costs and investment returns and to the value of debt and financial assets caused by changes in interest rates. The AOFM largely holds its debt and assets until maturity. Accordingly, the primary measure used to assess cost is the accruals basis of accounting under the historic cost accounting convention. Market value cost measures (which include unrealised changes in the valuation of financial assets and financial liabilities due to changes in interest rates) are considered to be secondary.

Long term debt portfolio

Prior to 30 June 2008, the AOFM managed the cost and interest rate risk of its long term debt portfolio in accordance with an interest rate risk management policy using domestic interest rate swaps. This was guided by reference to a benchmark portfolio that reflected the desired trade-off between expected cost and potential variability around the expected cost. In 2007-08, a review of the benchmark portfolio and the assumptions supporting it concluded that the interest rate risk management policy should be changed in 2008-09 and that interest rate swaps were no longer to be undertaken. Given that they no longer served a policy objective, the AOFM commenced a program in 2008-09 to run-down its portfolio of interest rate swaps by terminating its agreements with counterparties. See Note 24B for details of the AOFM's interest rate swap portfolio.

With the increased issuance of debt in 2008-09 and subsequent years, the AOFM is able to manage the interest rate structure of the long term debt portfolio through the choice of instruments and bond series in issuing debt. The cost and interest rate risk of the long term debt portfolio is regularly measured and reported to senior management, the Secretary to the Treasury and the AOFM Advisory Board.

For a period during the financial year (and when the AOFM issued additional debt to maintain market liquidity), the proceeds of debt issuance over and above what was required to meet maturing debt obligations were invested in fixed interest assets to offset the cost and risk of the additional issuance. This additional issuance and associated assets were managed within a separate portfolio. With the deterioration in the budget position and the need to finance projected budget deficits the portfolio was rolled into the long term debt portfolio. The assets are gradually being liquidated as opportunities arise as an additional source of funding.

Cash management portfolio

The primary objective of the cash management portfolio is liquidity management but other objectives are to minimise the net cost of funding and the cash balance and to invest excess balances efficiently.

Residential mortgage-backed securities

The objective set by the government for the AOFM's investment in the residential mortgage-backed securities market is to enhance competition in the residential mortgage market in Australia. Interest earned on residential mortgage-backed securities comprises a floating interest rate (set against the 1-month BBSW rate) plus a fixed margin set at the time each investment is acquired. The AOFM monitors movements in these interest rates as part of its management of the overall portfolio.

See Note 24C for details of the AOFM's interest rate risk profile.

(b) Exchange rate risk

Exchange rate risk arises from debt denominated in foreign currency. Only a small residual amount of such debt remains in the AOFM's portfolio and the AOFM seeks to repurchase this debt when available on acceptable terms. The volume of foreign currency debt remaining is monitored by senior management. See Note 24D for details of the AOFM's exposure to foreign exchange risk.

The AOFM manages the government's liquidity risk by maintaining sufficient cash and short term investments to ensure that the government can meet its financial obligations, both planned and unplanned, as and when they fall due. In 2008-09 the AOFM resumed issuance of Treasury Notes to assist in the management of the within-year financing task. The AOFM maintains the daily volume of cash in the OPA, within limits set by the Treasurer and the Minister for Finance and Deregulation, by monitoring the projected daily transactions of major spending and revenue agencies and by undertaking investment of funds that are surplus to cash requirements and the issuing of Treasury Notes to the wholesale market to meet short-falls in cash requirements. The AOFM also has access to an overdraft facility with the RBA. The overdraft facility is not to be used in normal day-to-day operations but only to cover temporary, unexpected shortfalls of cash and it has a limit of $1 billion. Should circumstances arise for the overdraft to exceed this limit, Ministerial approval is required.

Senior management monitors the daily balances in the OPA, holdings of short term assets and the need for the issuance of Treasury Notes.

(d) Credit risk

Investments

The AOFM's investment activity is made in accordance with legislative limits, delegations and directions from the Treasurer and policies and limits established by the Secretary to the Treasury. Section 39 of the Financial Management and Accountability Act 1997 and associated regulations specify authorised investments. Directions from the Treasurer further limit the class of acceptable assets. The Secretary to the Treasury sets class and individual issuer exposure limits, including credit rating requirements.

Eligible investments are as follows:

Securities issued or guaranteed by the Commonwealth, a State or Territory;

individual issuer limits apply;

AAA rated securities issued or guaranteed by the government of a foreign country in Australian dollars;

individual issuer limits apply;

AAA rated securities issued by a financial institution or supranational in Australian dollars;

individual issuer limits apply;

bills of exchange and negotiable certificates of deposit rated at least A1 or equivalent issued in Australian dollars by an authorised deposit taking institution, where the remaining term to maturity is no more than 12 months;

class and individual issuer limits apply;

commercial paper issued in Australian dollars rated at least A1+ or equivalent where the remaining term to maturity is no more than 12 months;

class and individual issuer limits apply;

deposits with the Reserve Bank of Australia; and

no limits exist for this class;

AAA rated or equivalent residential mortgage-backed securities;

a program limit of $8 billion, of which a maximum of $4 billion may be in securities issued by authorised deposit taking institutions, with no single issuer limits.

The AOFM CEO approves the individual issuer names eligible for investment and from time to time may impose further restrictions on class and individual issuer exposure limits.

Residential mortgage-backed securities (RMBS)

The credit quality of the RMBS derives from the underlying quality of the mortgage assets and structural enhancements such as lenders mortgage insurance, liquidity facilities, and the issue of different classes of securities. At the time of acquisition, each RMBS issue must meet a range of eligibility criteria set by the AOFM, including AAA (or equivalent) credit rating by at least two ratings agencies, denomination in Australian dollars and fully amortising. Mortgages backing the securities must be secured by a first registered prime mortgage over Australian residential property and meet various limits, including mortgage loan size and loan-to-value ratios. Each mortgage pool must be subject to independent review by a leading accounting firm to provide assurance that the eligibility criteria have been met. The AOFM monitors the performance of each RMBS issue through a monthly report by the issuer on mortgage portfolio characteristics. See Note 24E for details of the AOFM's portfolio of RMBS.

Interest rate swaps

Credit risk exposures arise when domestic interest rate swaps that the AOFM has executed with counterparties have a positive market value in favour of the AOFM. The AOFM ensures that these counterparty credit risk exposures remain acceptable by containing key measures of credit risk within approved limits. Its credit risk policy establishes credit risk management principles and controls, credit risk mitigation strategies, measures for assessing counterparty credit quality, exposure limits and reporting in relation to interest rate swaps.

Under the credit risk policy:

interest rate swaps may only be executed with those counterparties who have a Master Agreement with the AOFM which includes netting arrangements, right-to-break clauses and early termination clauses for credit rating downgrades;

the credit risk associated with favourable contractual positions is reduced by netting arrangements to the extent that if a default event occurs, all amounts with the counterparty are terminated and settled on a net basis;

swap counterparties must have a long term senior credit rating of at least A (by Standard and Poor's) and A2 (by Moody's) where a Collateral Support Annexe is in place, and AA- (by Standard and Poor's) and Aa3 (by Moody's) where a Collateral Support Annexe is not in place;

a Collateral Support Annexe requires a counterparty to post collateral in the form of Australian dollars with the AOFM to offset some of the AOFM's credit exposure to it, where the current exposure reaches a specified level;

credit risk limits apply to the current exposure and potential exposure for each counterparty;

current exposure is the current mark-to-market value of all swaps with a counterparty;
potential exposure is a conservative estimate of the extent to which the current exposure could vary over time with changes in interest rates; and

regular reporting is provided to senior management of the current and potential exposures by counterparty, and together with the results of stress testing current exposure for credit downgrades and changes in market interest rates.

Other assets and credit exposures

The AOFM has a credit risk exposure on its advances (not evidenced by the issue of securities) to the State and Northern Territory governments. This risk is regarded as minimal.

To protect the Australian Government's financial position with respect to securities lending arrangements, the market value of the collateral securities taken from counterparties is at least 2 per cent greater than the market value of the Treasury Bonds lent. The AOFM has the right to seek additional collateral if there is a decline in the market value of the collateral securities relative to the lent securities.

(e) Prepayment risk

The residential mortgage-backed securities acquired by the AOFM are fully amortising, pass through instruments. This means that the principal collections from the underlying portfolio of mortgages are repaid to the holders of the securities thereby reducing the principal outstanding on them.

Principal and interest on the underlying loans are received by the servicer and paid to an issuer bank account. On a scheduled basis, typically monthly, in accordance with a set priority of payments (a 'cash flow waterfall'), the cash collected is used to pay any taxes, fees and expenses of the issuer, and interest and principal due on each class of outstanding RMBS. Due to the pass through nature of the RMBS, the repayment of principal of the RMBS is dependent upon the timing of principal repayments on the underlying mortgages and the operation of the cash flow waterfall. Accordingly, the rate at which principal is repaid on the RMBS varies over time and the actual date that the securities will be repaid in full cannot be precisely determined (this is referred to a prepayment risk). The AOFM monitors the performance of each RMBS issue through a monthly report made available by the issuer. The report provides details of cash received from payments on the underlying mortgages, payments made under the cash flow waterfall, the rate of loan principal repayments ahead of scheduled principal payments and the estimated weighted average remaining life of the RMBS.

Note 4: Revenue

Note 5: Expenses

Amounts relate to minimum lease payments only. Novated lease payments from salary packaging of motor vehicles are disclosed in 'other employee expenses'.

Note 6: Financial assets

Appropriations receivable-undrawn are appropriations controlled by the AOFM but held in the OPA under the government's 'just-in-time' drawdown arrangements. As at 30 June 2009, the balance comprised undrawn equity injections of $949,070 ($949,070 as at 30 June 2008) and undrawn output appropriations of $15,771,575 ($13,094,575 as at 30 June 2008).

Note 7: Non-financial assets

All revaluations are independent and are conducted in accordance with the revaluation policy stated at Note 1.12. In 2008-09, the revaluations were conducted by an independent valuer, the Australian Valuation Office. As at 31 March 2009, a revaluation increment was made of $58,642 being $4,015 for leasehold improvements and $54,627 for computers, plant and equipment. The full value of the revaluation increments for each class of assets was recognised in revenue to reverse previous revaluation decrements recognised as expenses.

Note 8: Payables

Settlement is usually made net 30 days.

Note 9: Provisions

Under AASB 101 Presentation of Financial Statements, liabilities are to be classified as current where the creditor has a legal right to payment within 12 months, even where payment is not expected.
The value of employee entitlement provisions expected to be settled over the next 12 months is $0.338 million ($0.312 million as at 30 June 2008).
In accordance with the terms of its lease agreement for office accommodation, the AOFM is required to restore its leased premises to original condition at the conclusion of the lease. The AOFM has made a provision to recognise this obligation.

Note 10: Cash flow reconciliation

Note 11: Contingent liabilities and assets

Unquantifiable contingencies

The AOFM is not aware of any unquantifiable contingencies as of the signing date that require disclosure in the financial statements.

Remote contingencies

The AOFM has indemnified a number of contractors providing goods and services under contract for losses incurred by the contractor due to, amongst other things, the AOFM's failure to observe certain terms of contract, or for wrongful, unlawful or negligent acts committed by the AOFM. The AOFM is not aware of any event that has occurred that may trigger action under the indemnities.

Note 12: Executive remuneration

The number of Senior Executive Service employees who received or were due to receive total remuneration of $130,000 or more is as follows:

	2009	2008
$310,000 to $324,999	-	1
$355,000 to $369,999	1	-
The aggregate amount of total remuneration of executives shown above	$368,534	$317,060
The aggregate amount of separation and redundancy payments during the year to executives shown above	-	-

Remuneration means any money, consideration or benefit including wages, salaries, performance pay, accrued leave entitlements (excluding superannuation on-costs), superannuation contributions (including notional contributions made to defined benefits schemes at a rate determined by the Department of Finance and Deregulation), the cost of motor vehicles, housing, commuting, fringe benefits tax and allowances. Remuneration does not include reimbursement of out-of-pocket expenses incurred for work related purposes. Where the AOFM is not entitled to an input tax credit, remuneration includes the non-recoverable GST amount.

Note 13: Remuneration of auditors

Financial statement audit services are provided free of charge to the AOFM. The fair value of the audit services provided by the Australian National Audit Office was:

	2009 $	2008 $
Remuneration of auditors	285,623	261,000

Auditors' remuneration is disclosed inclusive of GST.

No other services were provided by the Auditor-General.

Note 14: Average staffing level

The average staffing level for the AOFM during the year was:

	2009	2008
Average staffing level (ASL)(a)	30	29

Paid ASL only.

Note 15: Compensation and debt relief in special circumstances

Departmental

No ‘Act of Grace’ payments were made during the reporting period (nil for 2007‑08).

No waivers of amounts owing to the government were made pursuant to subsection 34(1) of the Financial Management and Accountability Act 1997 during the reporting period (nil for 2007‑08).

No payments were made under the ‘Defective Administration Scheme’ during the reporting period (nil for 2007‑08).

No payments were made under section 73 of the Public Service Act 1999 during the reporting period (nil for 2007‑08).

No payments were made under ex‑gratia programs during the reporting period (nil for 2007‑08).

Administered

No ‘Act of Grace’ payments were made during the reporting period (nil for 2007 08).

One waiver of amounts owing to the government was made pursuant to subsection 34(1) of the Financial Management and Accountability Act 1997 during the reporting period for $21 (nil for 2007 08).

No payments were made under the ‘Defective Administration Scheme’ during the reporting period (nil for 2007 08).

No payments were made under section 73 of the Public Service Act 1999 during the reporting period (nil for 2007 08).

No payments were made under ex gratia programs during the reporting period (nil for 2007 08).

Note 16: Revenue before re-measurements administered
on behalf of government^(a)

All revenue is recognised using the effective interest method.

Note 17: Expenses before re-measurements administered
on behalf of government^(a)

All expenses are recognised using the effective interest method.

Note 18: Administered gains before re-measurements

Total net gains (losses) on sale of financial instruments represents the total proceeds received or receivable from the sale or termination, less the amortised cost carrying value using the effective interest method at the time of sale or termination.

Note 19: Administered re-measurements

Net market revaluation gains (losses) represents the unrealised fair value gains (losses) on the portfolio of administered financial assets and financial liabilities. Changes in the carrying value of financial assets and financial liabilities are attributed between changes in the amortised cost carrying value and other changes in carrying value. Changes attributable to amortised cost are recognised in revenue before re-measurements or expenses before re-measurements. Other changes in carrying value (including due to a change in interest rates) are recognised as administered re-measurements. Where a financial asset is sold or a financial liability is repurchased during the financial year, the cumulative unrealised market value gain or loss at the time of the sale is reversed against administered re-measurements. The revaluation effect will net to zero over the life of a financial instrument, either at maturity or on termination prior to maturity.

Note 20: Assets administered on behalf of government^(a)

Where the AOFM applies fair value accounting to a financial asset, the aggregate value of the financial asset is recorded against a single financial statement class. Where the historic cost accounting convention is applied, the value of a financial asset is disaggregated and recorded against several financial statement classes (for example, the principal value of a financial asset is classified separately to coupons receivable on the asset).
Refer to Note 27F for special account balances.
The maturity profile is based on contractual re-pricing dates.

Note 20: Assets administered on behalf of government (continued)

FMA = Financial Management and Accountability Act 1997.
The maturity profile is based on contractual re-pricing dates, with the exception of residential mortgage-backed securities. For residential mortgage-backed securities the maturity profile is based on the weighted average life of each investment and disregarding estimated principal repayments prior to that time.

Note 21: Liabilities administered on behalf of government ^(a)

Where the AOFM applies fair value accounting to a financial liability the aggregate value of the financial liability is recorded against a single financial statement class. Where the historic cost accounting convention is applied, the value of a financial liability is disaggregated and recorded against several financial statement classes (for example: the principal value of a financial liability is classified separately to coupons payable on the liability).
The maturity profile is based on contractual re-pricing dates.

Note 22: Administered reconciliation table

Note 23: Administered contingent liabilities and assets

Unquantifiable contingencies

The AOFM is not aware of any unquantifiable contingencies as of the signing date that require disclosure in the financial statements.

Remote contingencies

The government has indemnified agents of foreign currency denominated loans issued by the Australian Government outside Australia against any loss, liability, costs, claims, charges, expenses, actions, or demands due to any misrepresentation by the Australian Government and any breach of warranties. The AOFM is not aware of any event that has occurred that may trigger action under the indemnities.
In the unlikely event of default by a borrower of Treasury Bonds under the securities lending facility, the AOFM would be in a position to sell the securities pledged by the borrower to offset the increased liability to the government. As at 30 June 2009 there were no open transactions under the AOFM’s securities lending facility (nil as at 30 June 2008).

Note 24: Administered financial instruments

Note 24A: Categories of administered financial assets and liabilities

Under Australian Accounting Standards a financial instrument must be measured at fair value on initial recognition. After initial recognition the accounting treatment for a financial instrument is dependent on the category under which the financial instrument is classified. The following table illustrates AOFM's financial instruments by category:

Note 24: Administered financial instruments (continued)

Note 24B: Interest rate swaps

Under the interest rate risk management framework which applied before 2008-09 for the purposes of managing the cost and interest rate risk associated with the debt portfolio, the AOFM entered into domestic interest rate swap contracts under which it is obliged to receive and pay interest at fixed and/or floating interest rates. These swaps are not held for trading purposes, nor are they designated for hedge accounting. No new swaps have been executed since November 2007 and the AOFM is running down its portfolio.

The following table outlines the notional principal amount of swaps outstanding as at 30 June 2009. The notional principal amounts are not exchanged and act as a reference upon which interest payments can be calculated.

The following table contains details of swap terminations and maturities during 2008-09, together with net proceeds received by the AOFM on termination of agreements.

Note 24: Administered financial instruments (continued)

Note 24B: Interest rate swaps (continued)

During the year the AOFM made collateral calls on several interest rate swap counterparties when the value of the swaps moved in its favour beyond a specified level. Collateral was posted by the swap counterparties in the form of Australian dollars. The AOFM paid interest on these funds at the actual overnight cash rate. Total interest paid by the AOFM for 2008-09 on collateral held was $342,851 (2007-08: nil). With the termination of swaps with the relevant counterparties, the exposures were subsequently restored to within acceptable limits and the funds were returned.

Note 24: Administered financial instruments (continued)

Note 24C: Interest rate risk

The AOFM's exposure to interest rate risk and corresponding weighted average effective interest rates as at 30 June 2009 for each class of financial assets and financial liabilities is set out below. The maturity profile is based on contractual re-pricing dates except for residential mortgage-backed securities in which the maturity profile is based on the weighted average life of each issue. Those financial instruments with a fixed interest rate expose the net debt portfolio to changes in fair value with changes in interest rates, whilst those financial instruments at floating interest rates expose the net debt portfolio to changes in debt servicing costs with changes in interest rates. The extent to which the AOFM can match the re-pricing profile of its physical assets with those of its physical liabilities is limited by the differences in the volumes and the need for assets to be available for cash management or other purposes.

Amounts are represented on a gross basis. This differs from the presentation in the Schedules of Assets and Liabilities Administered on Behalf of Government, where amounts are on a net basis.
Interest rates are nominal interest rates with exception to Treasury Capital Indexed Bonds (which are real interest rates).

Note 24: Administered financial instruments (continued)

Note 24C: Interest rate risk (continued)

Financial liabilities in the long term debt portfolio comprise debt instruments that incur a nominal interest rate and debt instruments that incur a real interest rate. As at 30 June 2009, the weighted average interest rate of debt instruments at nominal interest rates is 5.15 per cent and the weighted average interest rate of debt instruments at real interest rates is 4.22 per cent.

Note 24: Administered financial instruments (continued)

Note 24C: Interest rate risk (continued)

Amounts are represented on a gross basis. This differs from the presentation in the Schedules of Assets and Liabilities Administered on Behalf of Government, where amounts are on a net basis.
Interest rates are nominal interest rates with exception to Treasury Capital Indexed Bonds (which are real interest rates).

Note 24: Administered financial instruments (continued)

Note 24C: Interest rate risk (continued)

Financial liabilities in the long term debt portfolio comprise debt instruments that incur a nominal interest rate and debt instruments that incur a real interest rate. As at 30 June 2008, the weighted average interest rate of debt instruments at nominal interest rates is 6.58 per cent and the weighted average interest rate of debt instruments at real interest rates is 4.22 per cent.

Note 24: Administered financial instruments (continued)

Note 24D: Foreign exchange risk

Foreign exchange risk arises from debt the AOFM holds in foreign denominated currencies and represents the risk to debt servicing costs and the value of the net debt portfolio caused by a change in foreign exchange rates. Currently the AOFM's foreign exchange risk arises from contractual obligations on foreign currency loans and securities. The AOFM's exposure to foreign exchange risk is not material.

The Australian equivalent principal value of foreign currency loans and securities is disclosed in the following table:

Note 24: Administered financial instruments (continued)

Note 24E: Residential mortgage-backed securities

The AOFM has acquired a portfolio of AAA rated (or equivalent) residential mortgage-backed securities with a face value of $6,203.420 million (under a total program limit of $8,000 million). As at the end of the financial year the principal outstanding was $6,024.139 million. Details of residential mortgage-backed securities acquired by the AOFM since the government announced this initiative in September 2008 are contained in the following table:

Note 24: Administered financial instruments (continued)

Note 24F: Credit risk

The AOFM's assets are of strong credit quality. Over the reporting period the AOFM limited its financial investments to term deposits with the RBA and investment grade money market securities. In addition, its loans comprise advances and debt on allocation to the State and Territory governments.

The AOFM has an exposure to financial institutions in relation to its swap contracts. This risk is mitigated by the swap counterparties being reputable financial institutions and the ability for the AOFM to obtain collateral against its main counterparties.

The AOFM's exposure to credit risk under the securities lending facility is zero.

The following tables set out the AOFM's credit risk by asset class and long term credit rating as at 30 June 2008 and 30 June 2009.

Where a counterparty has a split rating, the AOFM's exposure to the counterparty is allocated to the lower credit rating.
The RBA does not issue debt in the wholesale market and accordingly does not have a credit rating. However, as Australia's central bank it is deemed to have the same credit rating as the Australian Government.

Note 24: Administered financial instruments (continued)

Note 24F: Credit risk (continued)

Where a counterparty has a split rating, the AOFM's exposure to the counterparty is allocated to the lower credit rating.

Note 24: Administered financial instruments (continued)

Note 24F: Credit risk (continued)

Where a counterparty has a split rating, the AOFM's exposure to the counterparty is allocated to the lower credit rating.
The RBA does not issue debt in the wholesale market and accordingly does not have a credit rating. However, as Australia's central bank it is deemed to have the same rating as the Australian Government.

Where a counterparty has a split rating, the AOFM's exposure to the counterparty is allocated to the lower credit rating.

Note 24: Administered financial instruments (continued)

Note 24G: Net fair values of administered financial assets and liabilities

Comprises the face value of financial instruments, with the exception of Treasury Capital Indexed Bonds where the inflation adjusted capital value at the end of the financial year is included in the principal figure. An estimate of the redemption value on maturity is not provided for Treasury Capital Indexed Bonds. For all other financial liabilities the principal value represents the amount due on maturity.
Loans to State and Territory governments are recognised at amortised cost in the Schedule of Assets Administered on Behalf of Government. These transactions are not traded and, especially for those with the longest terms to maturity, a direct market benchmark to underpin fair value measurement does not exist. In estimating aggregate net fair value, the AOFM based its valuation from data on Treasury Bonds.

Note 24: Administered financial instruments (continued)

Note 24G: Net fair values of administered financial assets and liabilities (continued)

Note 24: Administered financial instruments (continued)

Note 24G: Net fair values of administered financial assets and liabilities (continued)

Comprises the face value of financial instruments, with the exception of Treasury Capital Indexed Bonds where the inflation adjusted capital value at the end of the financial year is included in the principal figure. An estimate of the redemption value on maturity is not provided for Treasury Capital Indexed Bonds. For all other financial liabilities the principal value represents the amount due on maturity.
Loans to State and Territory governments are recognised at amortised cost in the Schedule of Assets Administered on Behalf of Government. These transactions are not traded and, especially for those with the longest term to maturity, a direct market benchmark to underpin fair value measurement does not exist. In estimating aggregate net fair value, the AOFM based its valuation from data on Treasury Bonds.

Note 24: Administered financial instruments (continued)

Note 24H: Contractual maturities of financial liabilities

The following table discloses the undiscounted value of the contractual maturities of financial liabilities as at the end of the financial year, including estimated future interest payments.

The interest payments and principal value are indexed against the (all groups) Australian Consumer Price Index (CPI). There is a six month lag between the calculation period for the CPI and its impact on the value of interest and principal. Interest payments and principal value on redemption are projected at the CPI for the March quarter and held constant thereafter.
Perpetual debt and overdue debt has been excluded from this analysis.

The interest payments and principal value are indexed against the (all groups) Australian Consumer Price Index (CPI). There is a six month lag between the calculation period for the CPI and its impact on the value of interest and principal. Interest payments and principal value on redemption are projected at the CPI for the March quarter and held constant thereafter.
Perpetual debt and overdue debt has been excluded from this analysis.
Interest flows on swaps are disclosed on a net basis and floating interest rates are projected at the relevant reference rate as at the end of the financial year from the first reset in 2008-09 and held constant thereafter.

Note 24: Administered financial instruments (continued)

Note 24I: Movement in Commonwealth Government Securities on issue (face value)

The inflation adjusted capital accretion for Treasury Capital Indexed Bonds is excluded from these amounts.
This includes foreign currency denominated amounts. Changes in value due to foreign currency translation are shown in the 'Other' column. The foreign currency denominated face value is restated into Australian dollars for the opening and closing values using end of year exchange rates.

The inflation adjusted capital accretion for Treasury Capital Indexed Bonds is excluded from these amounts.
This includes foreign currency denominated amounts. Changes in value due to foreign currency translation are shown in the 'Other' column. The foreign currency denominated face value is restated into Australian dollars for the opening and closing values using end of year exchange rates.

Note 24: Administered financial instruments (continued)

Note 24J: Movement in investments held (face value)

Note 25: Market risk sensitivity of administered financial instruments

AASB 7 Financial Instruments: Disclosures requires each entity with financial instruments to present a market risk sensitivity analysis for each type of market risk exposure arising from financial instruments held. Market risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices.

The main types of market risk the AOFM's portfolio of debt and financial assets is exposed to are domestic interest rate risk and domestic inflation risk. Moreover, by generally issuing/buying and holding to maturity (and with portfolio restructuring a rarity), the market risk most relevant to the AOFM is the risk of fluctuations to future principal amounts and future interest cash flows arising from changes in interest rates and inflation. The risk of fluctuations in the fair value of AOFM's net debt portfolio is of a secondary order.

Accordingly, the AOFM has focused its market risk sensitivity analysis on an accruals (or amortised cost) basis of accounting under the historic cost accounting convention, as it provides the best predictive value of future cash flows (and hence costs and returns) arising from the AOFM's portfolio of debt and financial assets.

(a) Interest rate risk sensitivity analysis

Changes in domestic interest rates will impact on debt servicing costs of AOFM's Treasury Bonds and Treasury Notes when the AOFM enters the primary market to raise new borrowings or refinance maturing debt. When the AOFM borrows to repay maturing debt, there is a risk that debt servicing costs will change due to the interest rate on the new debt being higher or lower than the interest rate on the maturing debt. Furthermore, when AOFM enters the market to raise new borrowings the interest cost locked-in will be dependent on the absolute level of market interest rates at that time. In a rising (falling) interest rate market, debt servicing costs will rise (fall) each time the primary market is accessed to raise borrowings. Changes in interest rates have no impact on future cash flows on principal amounts.

Australian dollar interest rate swaps, which comprise the AOFM receiving a fixed interest rate and paying a floating interest rate (or vice-versa), subject the portfolio to fluctuations in future net cash flows at the time each floating rate leg is reset against the relevant reference market interest rate. When interest rates rise (fall), net swap interest revenue will fall (rise).

For a period during the 2008-09 financial year the proceeds of debt issuance over and above what was required to meet maturing debt obligations were invested in fixed interest assets to offset the cost and risk of the additional issuance. Since the release of the Updated Economic and Fiscal Outlook in February 2009, and the need to finance projected budget deficits, the assets are being liquidated as opportunities arise. When these investments mature or are sold they will not be re-invested, and accordingly there is no reinvestment risk. However, changes in interest rates will have an impact on the value of proceeds realised on their sale, and as a result the yield earned on them.

Note 25: Market risk sensitivity of administered financial instruments (continued)

Australian dollar denominated residential mortgage-backed security investments held by the AOFM comprise the AOFM receiving interest at a floating interest rate plus a fixed margin set at the time the investment is acquired. When interest rates rise (fall), investment return will also rise (fall).

As the manager of the government's liquidity, the AOFM holds a fluctuating portfolio of Australian dollar short term deposits and discount securities. These investments have fixed interest rates and given their use for cash management purposes they have very short terms to maturity (generally no more than a few months). When these investments mature and are re-invested at the prevailing market interest rate, the return may change due to re-investment at a higher or lower interest rates. Changes in interest rates have no impact on future cash flows on principal amounts.

Under previous Commonwealth-State financing arrangements the Commonwealth made concessional Australian dollar loans to the States and the Northern Territory. These loans are of a fixed interest credit foncier nature. Changes in market interest rates will not cause a fluctuation on future cash flows of interest or principal.

At 1 July 2009, if domestic interest rates had experienced an immediate 100 basis point parallel upward (downward) movement across the yield curve, and if that change were to persist for the 12 months to 30 June 2010, with all other variables held constant, the effect on AOFM's operating result before re-measurements (calculated on an accruals basis) and equity position for the year ended 30 June 2010 would be as follows:

Note 25: Market risk sensitivity of administered financial instruments (continued)

Operating result sensitivity to changes in domestic interest rates
(calculated on an accruals basis)

Note 25: Market risk sensitivity of administered financial instruments (continued)

The corresponding figures for the previous 12 months are as follows:

Operating result sensitivity to changes in domestic interest rates
(calculated on an accruals basis)

(b) Inflation risk sensitivity analysis

The AOFM currently has three series of Treasury Capital Indexed Bonds on issue. These instruments have their principal value indexed against the (all Groups) Australian Consumer Price Index (CPI). The interest is a fixed rate of interest payable on the accreted principal value. Accordingly they expose the AOFM to cash flow risk on interest payments and the value of principal payable on maturity. There is a six month lag between the calculation period for the CPI and its impact on the value of interest and principal. As the CPI increases, debt servicing costs and the principal payable on maturity will also rise.

Note 25: Market risk sensitivity of administered financial instruments (continued)

At 1 July 2009, if the CPI were to experience an immediate 1 per cent increase (decrease) and that change were to persist for 12 months to 30 June 2010, with all other variables held constant, the effect on the AOFM's operating result before re-measurements (calculated on an accruals basis) and equity position for the year ended 30 June 2010 would be as follows:

Operating result sensitivity to changes in the consumer price index
(calculated on an accruals basis)

Note 25: Market risk sensitivity of administered financial instruments (continued)

The corresponding figures for the previous 12 months are as follows:

Sensitivity to changes in the consumer price index
(calculated on an accruals basis)

Interest rate risk sensitivity has been measured assuming that for the next 12 months domestic interest rates are 100 basis points higher and lower across the entire yield curve than those observed as at year end. The analysis was performed as follows:

the sensitivity of debt servicing costs for the next 12 months on Treasury Bonds comprised a comparison of:

debt servicing costs on the planned issuance program to refinance maturing debt and to raise new borrowings for the next 12 months at the observed or estimated market yield for the relevant line of stock as at year end; and
debt servicing costs on the planned issuance program to refinance maturing debt and to raise new borrowings for the next 12 months at yields that are 100 basis points higher and lower than the observed or estimated market yield for the relevant line of stock as at year end;

the sensitivity of debt serving costs for the next 12 months on Treasury Notes comprised a comparison of:

debt servicing costs on Treasury Notes held at the end of the financial year for the full 12 months at the observed 3-month Treasury Note rate as at year end; and
debt servicing costs on Treasury Notes held at the end of the financial year for the full 12 months at yields 100 basis points higher and lower than the observed 3-month Treasury Note rate as at year end. The 100 basis point shift is applied from the date the positions held as at 30 June 2009 mature and is held constant at that level thereafter;

the sensitivity of returns for the next 12 months on interest rate swaps comprised a comparison of:

the return on each floating rate leg at the relevant reference market interest rate (being either the 3-month or 6-month BBSW rate) as at year end; and
the return on each floating rate leg at a yield that is 100 basis points higher and lower than the relevant reference market interest rate as at year end. The 100 basis point shift is applied from the date of the first rate re-set for the next financial year for each floating rate leg and is held constant at that level thereafter;

the sensitivity of returns for the next 12 months on residential mortgage-backed securities comprised a comparison of:

the return at the relevant reference market interest rate (being the 1-month BBSW rate plus specific fixed margin set for each deal at the time of acquisition); and
the return at a yield that is 100 basis points higher and lower than the relevant reference market interest rate as at year end plus the fixed margin for each deal. The 100 basis point shift is applied from the date of the first rate re-set for the next financial year and is held constant at that level thereafter;

the sensitivity of returns for the next 12 months on term deposits comprised a comparison of:

the return on term deposits held at end of the financial year for the full 12 months at the relevant reference market interest rate (being the 1-month Overnight Indexed Swap (OIS) rate) as at year end; and
the return on term deposits held at the end of the financial year for the full 12 months at a yield that is 100 basis points higher and lower than the 1-month OIS rate as at year end. The 100 basis point shift is applied from the date of the first re-investment and is held constant at that level thereafter.

Note 25: Market risk sensitivity of administered financial instruments (continued)

Inflation risk sensitivity has been measured assuming that for each quarter in the next financial year the CPI is 1 per cent higher and lower (when compared to the year before) than in the base case. The analysis was performed as follows:

the sensitivity of debt servicing costs for the next financial year on Treasury Capital Indexed Bonds comprised a comparison of:

debt servicing costs for the next financial year on the basis that inflation persists at the average rate experienced in the financial year (base case); and
debt servicing costs for the next financial year on the basis that the CPI index is higher and lower by 1 per cent than the assumed base case level for each quarter.

For the purposes of calculating sensitivity analysis, it has been assumed that the AOFM will issue $59,000 million of Treasury Bonds during the 2009-10 financial year (2008-09: $5,300 million). It is also assumed that the volume of Treasury Notes outstanding as at 30 June 2009 of $16,700 million remains unchanged throughout the 2009-10 financial year (2008-09: nil). In addition it is assumed that the volume of term deposit investments will remain at levels as at 30 June 2009 of $26,500 million for the full 12 months to 30 June 2010 (2008-09: $29,050 million). Residential mortgage-backed securities will have a principal repayment rate based on an estimated cash flow waterfall for each issue acquired to 30 June 2009. During 2009-10 the AOFM will make further investments of $1,750 million in RMBS. These new issues have been modelled on a 24 per cent per annum principal repayment rate, with a deferred start. Interest earned on investments is assumed to be returned to the OPA when received and not re-invested. It is further assumed for the purposes of the sensitivity analysis that the AOFM will not run down its remaining interest rate swaps or fixed interest investments, nor will it undertake issuance of Treasury Capital Indexed Bonds during 2009-10 (2008-09: nil).

The sensitivity analysis does not consider possible adjustments that the AOFM might make to the composition of its portfolio in response to the assumed interest rate changes.

(d) Fair value sensitivity

The fair value sensitivity of the portfolio (excluding loans to State and Territory governments, which are measured on an accruals basis) to changes in domestic interest rates as at 30 June 2009 was $35.966 million per basis point ($19.5 million per basis point as at 30 June 2008). A 1 basis point parallel increase (decrease) in interest rates across the yield curve would result in a favourable (unfavourable) change of $35.966 million in the fair value of the portfolio as at 30 June 2009 ($19.5 million as at 30 June 2008).

The risk of fluctuations in the fair value of the AOFM's net debt portfolio is of a secondary order.

Note 26: Securities lending facility

Details of Treasury Bonds loaned to bond market participants on an overnight basis under the securities lending facility are as follows:

2009
Bond series	Number of transactions	Face value of Treasury Bonds loaned $'000	Net income earned $'000
(i) Open transactions as at the beginning of the financial year
Nil
(ii) New transactions completed during the financial year
September 2009	56	1,570,000	280
August 2010	87	3,101,300	690
June 2011	57	1,229,200	347
May 2013	28	1,349,450	202
June 2014	26	636,300	176
April 2015	64	2,136,544	356
February 2017	28	1,255,870	284
May 2021	28	1,479,600	280
	374	12,758,264	2,615
(iii) Open transactions as at the end of the financial year
Nil

2008
Bond series	Number of transactions	Face value of Treasury Bonds loaned $'000	Net income earned $'000
(i) Open transactions as at the beginning of the financial year
Nil
(ii) New transactions completed during the financial year
August 2008	3	68,200	7
September 2009	20	481,500	48
August 2010	6	75,900	6
June 2011	20	700,072	76
April 2012	3	94,000	8
May 2013	10	382,300	58
April 2015	15	308,700	45
February 2017	9	370,000	32
March 2021	2	34,100	3
	88	2,514,772	283
(iii) Open transactions as at the end of the financial year
Nil

Note 26: Securities lending facility (continued)

In 2008-09 the securities lending facility was widened to allow intra-day borrowing of Treasury Bonds. Interest is not payable under the facility for intra-day lending. Intra-day lending during 2008-09 was as follows:

2009
Bond series	Number of transactions	Face value of Treasury Bonds loaned $'000
September 2009	8	1,433,200
June 2011	3	176,500
May 2013	1	250,000
April 2015	4	96,500
	16	1,956,200

Note 27: Disclosures of appropriations

Note 27A: Acquittal of authority to draw cash from the Consolidated Revenue Fund (Appropriations) for Ordinary Annual Services Appropriations

Outcome 1 — Enhance the Commonwealth's capacity to manage its net debt portfolio

Included in Other Receivables in Note 6A.
The undrawn, unlapsed administered appropriation of $10,000.00 is not required by AOFM and under section 11 of Appropriation Act (No. 1) 2008-09 is formally relinquished when the AOFM's 2008-09 annual report is tabled in Parliament. The reduction is effective in 2009-10 and will be shown in next year's financial statements as a reduction.

Note 27: Disclosures of appropriations (continued)

Note 27A: Acquittal of authority to draw cash from the Consolidated Revenue Fund (Appropriations) for Ordinary Annual Services Appropriations (continued)

Outcome 1 — Enhance the Commonwealth's capacity to manage its net debt portfolio

The undrawn, unlapsed administered appropriation was formally lapsed by the Minister for Finance and Deregulation in 2008-09.

Note 27: Disclosures of appropriations (continued)

Note 27B: Acquittal of authority to draw cash from the Consolidated Revenue Fund (Appropriations) for Other than Ordinary Annual Services Appropriations

Outcome 1 — Enhance the Commonwealth's capacity to manage its net debt portfolio

Note 27: Disclosures of appropriations (continued)

Note 27C: Acquittal of authority to draw cash from the Consolidated Revenue Fund — Administered Special Appropriations (unlimited amount)

Note 27: Disclosures of appropriations (continued)

Note 27C: Acquittal of authority to draw cash from the Consolidated Revenue Fund — Administered Special Appropriations (unlimited amount) (continued)

The AOFM draws appropriations to make investments. Some of these investments are used to manage the daily variations in the balance of the Official Public Account (OPA). The cash flows into and out of the OPA are highly variable from day-to-day and so in consequence are the number, size and timing of these investments.

Note 27: Disclosures of appropriations (continued)

Note 27C: Acquittal of authority to draw cash from the Consolidated Revenue Fund — Administered Special Appropriations (unlimited amount) (continued)

Master Agreements executed between the Commonwealth and swap counterparties provide for settlement of interest rate swaps on a net basis per transaction. All amounts in relation to these transactions are disclosed in this note on an aggregate basis.

Note 27: Disclosures of appropriations (continued)

Note 27C: Acquittal of authority to draw cash from the Consolidated Revenue Fund — Administered Special Appropriations (unlimited amount) (continued)

Note 27: Disclosures of appropriations (continued)

Note 27D: Acquittal of authority to draw cash from the Consolidated Revenue Fund — Special Appropriations (Refund Provisions)

In 2008-09 the AOFM did not utilise section 28 of the Financial Management and Accountability Act 1997. In 2007-08 the AOFM drew down $50,000 under section 28 of the Financial Management and Accountability Act 1997 to repay monies received from a counterparty in error.

Note 27E: Acquittal of authority to draw cash from the Consolidated Revenue Fund — Special Appropriations (FMA section 39)

FMA = Financial Management and Accountability Act 1997.

See Note 24J for further details.

Note 27: Disclosures of appropriations (continued)

Note 27F: Special accounts (Administered)

Debt Retirement Reserve Trust Account (DRRTA)

Legal Authority — Financial Management and Accountability Act 1997, section 21.
Purpose —to fund the redemption of the State and Territory debt governed by the Financial Agreement Act 1994. Monies standing to the credit of the DRRTA are applied to repurchase debt of the States and the Northern Territory.

Note 27G: Assets held in trust (Administered)

Monies standing to the credit of the Debt Retirement Reserve Trust Account are held on behalf of the States and Northern Territory. These monies are held for the purposes prescribed by the Financial Agreement Act 1994.

Details of balances, payments and receipts in relation to the Debt Retirement Reserve Trust Account are provided in Note 27F: Special accounts (Administered).

Note 28: Reporting of outcomes

Note 28A: Net cost of outcome delivery

Note 29: Major departmental revenue and expenses by output group and output

The AOFM delivers a single output — debt management. The Income Statement provides the major classes of departmental revenue earned and expenses incurred to support this output.

Note 30: Major classes of administered revenue and expenses by outcome

The AOFM delivers a single outcome — to enhance the Commonwealth's capacity to manage its net debt portfolio, offering the prospect of savings in debt servicing costs and an improvement in the net worth of the Commonwealth over time. The Schedule of Income and Expenses Administered on Behalf of Government provides the major classes of administered revenue and expenses attributable to this outcome.

Note 31: Communications Fund

Until 1 January 2009, the AOFM acted as an agent for the Department of Broadband, Communications and the Digital Economy (DBCDE) in making investments on behalf of the Communications Fund. These investments and their earnings are reported by DBCDE and not the AOFM.

The Communications Fund was established by Part 9C of the Telecommunications (Consumer Protection and Service Standards) Act 1999. The Communications Fund consists of a special account and investments.

Telecommunications (Consumer Protection and Service Standards) Act 1999 (Part 9C)	DBCDE (Responsible Agency) 2009 $'000	DBCDE (Responsible Agency) 2008 $'000
Opening Balance (at cost)	2,356,419	2,215,986
Investment earnings receipts	94,457	140,592
Expense payments	(158)	(159)
Transfers to Building Australia Fund (at cost)	(2,450,718)	-
Balance of investments (at cost) — 30 June	-	2,356,419

This table is prepared on a cash basis, showing net receipts and payments.

In the 2008-09 Budget it was announced that the Communications Fund would close during the year and its assets would be transferred to the Building Australia Fund (managed by the Future Fund Board of Guardians). On 1 January 2009 the Communications Fund was abolished and its investments were transferred to the Building Australia Fund. The market value of the investments transferred on 1 January 2009 was $2,468,395,373. Following the transfer, the Building Australia Fund paid investment management costs of $163,830 (excluding GST) incurred, but not paid, by the Communications Fund.

Note 32: Events occurring after reporting date

There have been no significant events occurring after the reporting date that would materially affect these financial statements.

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Publications

Annual Report 2008-2009

Part 4: Financial Statements (continued)

Notes to and forming part of the financial statements for the year ended 30 June 2009

Notes to and forming part of the financial statements
for the year ended 30 June 2009