Directors Report. Names, qualifications, experience and special responsibilities

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2 Directors Report Directors The Directors present their report on the Credit Union for the year ended 30 June The following persons are directors of the Credit Union at the date of this report: Mr Bruce Pickering Mr Mark Hedges Ms Sharon Howes Ms Jann Gardner Ms Shirley Liew Names, qualifications, experience and special responsibilities Mr Bruce Pickering, B.Comm (Hons), FCPA, FAICD, JP (Chairman) (Audit Committee) (Mergers & Acquisitions Committee) (Risk Committee) (Nominations & Remunerations Committee) Mr Mark Hedges, B.Bus, MBA, M App Fin, CPA, CFTP, GAICD (Deputy Chairman) (Mergers & Acquisitions Committee) (Nominations & Remunerations Committee) (Chairman - Risk Management Committee) Mrs Sharon Howes, B.Sc, Grad Dip Mgt GAICD (Chairman - Nominations & Remunerations Committee) (Risk Management Committee) Ms Jann Gardner, BA LLB, MBA, GAICD (Audit Committee) (Risk Management Committee) (Chair - Mergers & Acquisitions Committee) Ms Shirley Liew, GAICD, MBA, BBUS (Fin), FTIA, FCPA, CIA, CRISC (ISACA), FINSIA(Aff) (Chair - Audit Committee) Accountant Former General Manager Toronto Private Hospital (20 yrs) and Executive Director of East Maitland Private Hospital Ltd and associated companies. Previously (17yrs) financial management experience including Financial Controller & Co. Secretary Treloar Enterprise Holdings Ltd and Senior Accountant Commonwealth Steel Co. Ltd. Group Treasurer Fairfax Media Ltd Director MMP Pty Ltd and its subsidiaries. General Manager Human Resources, Safety and Environment Macquarie Generation Lawyer Former partner Sparke Helmore Lawyers. Director Hunter Medical Research Institute; Member of the Advisory Board to the Faculty of Law and Business Newcastle University; Chair of the Hunter Medical Research Institute (HMRI) Foundation; Non Executive Director StateCover Mutual Ltd. Accountant, Chartered Internal Auditor, Certified Risk and Information Systems Audit, Risk and Governance Specialist. Over 23 years chartered experience mainly at Partner level and Australian Financial Services Advisory Lead with Big 4 and leading accountancy firms. Non-executive Director, Chair of Finance, Risk and Audit Committee Bridge Housing Limited Non-executive Director/Deputy Chair, Care Quality and Risk Committee UnitingCare Ageing Sydney Non-executive Director, Care Quality and Risk Committee Waverly War Memorial Hospital Former Non-executive Director and Chair of Finance, Risk and Audit committee North Western Sydney Health Network Limited, Wesley Mission Aged Care Services. 1

3 Directors Report (continued) Mr John Ford, B.A, Grad Dip Business Studies FIFS, FAMI, Advanced Diploma Superannuation (Retired 13 February 2013) Former Managing Director Hunter United Employees Credit Union Limited, 25 years management experience in Banks, Building Societies and Credit Unions. Grazier. Ms Melanie Kneale B.Bus Sci (Hons) GAICD (Chair - Audit Committee) (Nominations & Remunerations Committee) (Risk Management Committee) (Retired 29 January 2013) Mr Alan J Smyth, B.Comm, (Retired 26 July 2012) Executive and Non-Executive Director including Hunter United and the Black Dog Institute. Formerly COO and CTO of nib Health Funds, Group Executive Strategy at the MBF Group and Partner at Accenture. Over 25 years experience in financial services, service industries and consulting. Accountant Former Project Director, SAP, OneSteel Limited (7 years). Former Finance Manager, OneSteel Market Mills (12 years). Director Hunter United Employees Credit Union Limited (23 years). Directors were in office from the beginning of the financial year until the date of this report, unless otherwise stated. Company secretary The company secretary is Kent Dwyer B.Comm, CPA, AIMM. Mr Dwyer was appointed to the position of company secretary in 2005 and is the Credit Union s Chief Financial Officer. Meetings of directors The numbers of meetings of the Credit Union s board of directors and of each board committee held during the year ended 30 June 2013, and the numbers of meetings attended by each director were: Full Meetings of Directors Audit Committee Risk Management Committee Mergers & Acquisitions Committee Nominations & Remunerations Committee A B A B A B A B A B Bruce Pickering Mark Hedges ** ** John Ford * 8 9 ** ** ** ** ** ** ** ** Jann Gardner ** ** Sharon Howes ** ** 5 5 ** ** 2 2 Melanie Kneale ** ** 0 0 Shirley Liew ** ** ** ** ** ** Alan Smyth ** ** ** ** ** ** A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year * = Executive director ** = Not a member of the relevant committee 2

4 Directors Report (continued) Principal activities During the year the principal continuing activities of the Credit Union involved the provision of financial services to members in the form of taking deposits and providing financial accommodation as prescribed by the Constitution. There were no significant changes in the nature of the Credit Union s activities during the year. Review of operations A summary of results is set out below: Profit from ordinary activities after income tax expense 494, ,449 The results of the Credit Union s operations during the financial year have not in the opinion of the Directors been substantially affected by any item, transaction or event of a material and unusual nature, not otherwise referred to in this report. The Credit Union s pre-tax profit for the year was $702,338 (2012: $751,685) representing a decrease of 6.6% over the previous financial year, with net profit after tax being $494,401 (2012: $535,449) representing a decrease of 7.7%. Total assets increased to $278,615,206 for the year to 30 June 2013 (2012: $263,689,889). Significant changes in the state of affairs In the opinion of the Directors there were no significant changes in the state of affairs during the year. Likely developments and expected results of operations Disclosure of information relating to future developments in operations of the Credit Union and the expected results of those operations in subsequent years which will not, in the opinion of the directors, be prejudicial to the interests of the Credit Union are contained in the Chairman s Report. Matters subsequent to the end of the financial year No other matters or circumstances have arisen since 30 June 2013 that have significantly affected or may significantly affect: (a) the Credit Union s operations in future financial years; or (b) the results of those operations in future financial years; or (c) the Credit Union s state of affairs in future financial years. Environmental regulation The Credit Union has assessed whether there are any particular or significant environmental regulations which apply to it and has determined that there are none. Insurance of officers During the financial year, the Credit Union paid a premium to insure the directors, company secretary and senior executive management of the Credit Union. In accordance with normal commercial practice, disclosure of the total amount of premium payable under, and the nature of liabilities covered by, the insurance contract is prohibited by a confidentiality clause in the contract. No insurance cover has been provided for the benefit of the auditors of the Credit Union. 3

5 Directors Report (continued) Proceedings on behalf of the Credit Union No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Credit Union, or to intervene in any proceedings to which the Credit Union is a party, for the purpose of taking responsibility on behalf of the Credit Union for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Credit Union with leave of the Court under section 237 of the Corporations Act Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act Details of amounts paid and payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services during the year are disclosed in note 22. A copy of the Auditor s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. Dated the 2 nd day of October The report is made in accordance with a resolution of the Board of Directors. Bruce Pickering Chairman BRUCE PICKERING Mark Hedges Director MARK HEDGES 4

6 Auditor s Independence Declaration As lead auditor for the audit of Hunter United Employees Credit Union Limited for the year ended 30 June 2013, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Hunter United Employees Credit Union Limited during the period. Darren Turner Darren Turner Newcastle Partner 2 October 2013 PricewaterhouseCoopers PricewaterhouseCoopers, ABN PricewaterhouseCoopers Centre, 26 Honeysuckle Drive, PO Box 798, NEWCASTLE NSW 2300 T: , F: , Liability limited by a scheme approved under Professional Standards Legislation. 5

7 Contents Financial Report Statement of Comprehensive Income 7 Statement of Financial Position 8 Statement of Changes in Equity 9 Statement of Cash Flows Directors declaration 44 Independent audit report 45 This financial report covers Hunter United Employees Credit Union Limited as an individual entity. The financial report is presented in the Australian currency. Hunter United Employees Credit Union Limited is a company limited by shares incorporated and domiciled in Australia. Its registered office and principal place of business is: Hunter United Employees Credit Union Limited 130 Lambton Road Broadmeadow NSW 2292 A description of the nature of the Credit Union s operations and its principal activities is included in the directors report on page 3, which is not part of this financial report. The financial report was authorised for issue by the directors on 2 nd October The Credit Union has the power to amend and reissue the financial report. 6

8 Hunter United Employees Credit Union Limited Statement of Comprehensive Income Notes Interest income 15,803,618 17,075,723 Interest expense (9,321,357) (10,635,358) Net interest income 6,482,261 6,440,365 Fee and commission income 3 1,315,703 1,190,024 Fee and commission expense 4 (258,775) (272,612) Net fee and commission income 1,056, ,412 Other operating income 3 77,523 33,325 Impairment losses on loans and advances 9(b) (46,984) (31,853) General administration expenses 4 (4,393,747) (4,390,269) Other operating expenses 4 (2,473,643) (2,217,294) Profit before income tax 702, ,685 Income tax expense 5 (207,937) (216,236) 494, ,449 Other comprehensive income Total comprehensive income attributable to members of Hunter United Employees Credit Union Limited 494, ,449 The above statement of comprehensive income should be read in conjunction with the accompanying notes 7

9 Hunter United Employees Credit Union Limited Statement of Financial Position As at 30 June 2013 Notes ASSETS Cash and cash equivalents 6 29,253,368 28,886,724 Other receivables 7 290, ,661 Placements with other financial institutions 8 42,940,513 33,420,905 Loans and advances to members 9 202,338, ,293,455 Other financial assets , ,778 Intangible assets 11 50, ,295 Property, plant and equipment 12 3,617,556 3,665,071 Total Assets 278,615, ,689,889 LIABILITIES Payables 14 1,384,387 1,074,291 Other borrowed funds Deposits due to members ,088, ,003,626 Current tax liabilities ,245 66,311 Provisions , ,614 Deferred tax liabilities 13 & 19 48,284 57,442 Total Liabilities 256,990, ,559,284 Net Assets 21,625,006 21,130,605 EQUITY Reserves 20(a) 3,902,491 3,902,491 Retained profits 20(c) 17,722,515 17,228,114 Total Equity 21,625,006 21,130,605 The above statement of financial position should be read in conjunction with the accompanying notes 8

10 Hunter United Employees Credit Union Limited Statement of Changes in Equity Reserves Retained Profits Total $ Balance as at 1 July ,902,491 16,692,665 20,595,156 Profit for the year - 535, ,449 Other comprehensive income Total comprehensive income for the year as reported in the 2012 financial statements - 535, ,449 Transfers to/from retained profits Prior period adjustment Balance as at 30 June ,902,491 17,228,114 21,130,605 Profit for the year - 494, ,401 Other comprehensive income Total comprehensive income for the year - 494, ,401 Transfers to/from retained profits Prior period adjustment Balance as at 30 June ,902,491 17,722,515 21,626,006 The above statement of changes in equity should be read in conjunction with the accompanying notes 9

11 Hunter United Employees Credit Union Limited Statement of Cash Flows Notes Cash flows from operating activities Interest received 15,935,988 17,267,219 Fees and commissions received 1,320,223 1,189,001 Dividends received 14,952 31,150 Recoveries on loans previously written off 11,090 2,175 Other revenue 122,466 (99,394) Interest paid (9,321,357) (10,635,358) Fees and commissions paid (258,775) (272,613) Payments to employees and suppliers (inclusive of goods and services tax) (6,335,264) (5,918,877) Income taxes paid (304,937) (512,471) Net (increase)/decrease in placements and withdrawals from other financial institutions (9,519,608) 1,007,901 Net (increase)/decrease in loans and advances to members (5,101,557) (13,350,960) Net increase/(decrease) deposits due to members 14,085,074 25,878,104 Net cash inflow (outflow) from operating activities ,295 14,585,877 Cash flows from investing activities Payments for intangibles 11 (16,108) (41,168) Payments for property, plant and equipment 12 (319,464) (472,612) Proceeds from sale of property, plant and equipment 53,743 - Net (increase)/decrease in investment securities Net cash inflow (outflow) from investing activities (281,651) (513,780) Cash flows from financing activities Proceeds from debt securities issued, other deposits and other borrowed funds - - Repayments of debt securities, other deposits and other borrowed funds - - Net cash inflow (outflow) from financing activities - - Net increase/(decrease) in cash and cash equivalents 366,644 14,072,097 Cash and cash equivalents at the beginning of the financial year 28,886,724 14,814,627 Cash and cash equivalents at end of year 6 29,253,368 28,886,724 The above statement of cash flows should be read in conjunction with the accompanying notes 10

12 Hunter United Employees Credit Union Limited Contents of the notes to the financial statements 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES NON-INTEREST REVENUE NON-INTEREST EXPENSE INCOME TAX EXPENSE CASH AND CASH EQUIVALENTS OTHER RECEIVABLES PLACEMENTS WITH OTHER FINANCIAL INSTITUTIONS LOANS AND ADVANCES TO MEMBERS OTHER FINANCIAL ASSETS INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT DEFERRED TAX ASSETS PAYABLES OTHER BORROWED FUNDS DEPOSITS DUE TO MEMBERS CURRENT TAX LIABILITIES PROVISIONS DEFERRED TAX LIABILITIES RESERVES AND RETAINED PROFITS RELATED PARTY TRANSACTIONS REMUNERATION OF AUDITORS CONTINGENCIES COMMITMENTS RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES ECONOMIC DEPENDENCY EVENTS OCCURRING AFTER THE BALANCE SHEET DATE SEGMENT INFORMATION FINANCIAL RISK MANAGEMENT CAPITAL MANAGEMENT

13 1 Summary of significant accounting policies Hunter United Employees Credit Union Limited The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group (UIG) Interpretations and the Corporations Act The Credit Union is a for-profit entity for the purposes of preparing financial statements. Compliance with IFRS The financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and land and buildings. Critical accounting estimates The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Credit Union s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2. (b) Interest income and expense Interest income and expense are recognised in the income statement for all instruments measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Credit Union estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties, transaction costs and premiums incurred or discounts received in relation to the contract that are an integral part of the effective interest rate. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss. (c) Fee and commission income and expense Fees and commissions are generally recognised on an accrual basis when the service has been provided or incurred. Loan fees received in relation to the origination of loans is deferred and recognised as an adjustment to the effective interest rate on loans. The outstanding balance of the deferred origination income is recognised in the balance sheet as a decrease in the value of loan balance outstanding. Expenses incurred directly in relation to the origination of loans, investments and other debt instruments are deferred and recognised as an adjustment to the effective interest rate on loans and debt instruments. The outstanding balance of the deferred origination expenses is recognised in the balance sheet as an increase in the balances outstanding. 12

14 1 Summary of significant accounting policies (continued) (d) Financial assets Financial assets are classified into the following categories : loans and receivables; held to maturity investments; and available-for-sale investments. Hunter United Employees Credit Union Limited Management determines the classification of its financial assets at initial recognition. Refer to notes 1(e) - (g) for accounting policies with respect to the financial assets held by the Credit Union. (e) Loans and receivables Loans and receivables comprise of loans and advances to members. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Credit Union provides money directly to a debtor with no intention of trading the receivables. Loans are recognised when cash is advanced to members. Loans are initially recognised at fair value net of transaction costs. Loans and receivables are carried at amortised cost using the effective interest method. Interest calculated using the effective interest rate method is recognised in the statement of comprehensive income; refer to note 1(b) above. (f) Held-to-maturity investments Held-to-maturity assets comprises of placements with other financial institutions. Held-to-maturity investments are non-derivative financial assets quoted in an active market with fixed or determinable payments and fixed maturities that the Credit Union s management has the positive intention and ability to hold to maturity. Were the Credit Union to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale. Held-to-maturity assets are initially recognised at fair value net of transaction costs and subsequently measured at amortised cost using the effective interest method. Interest calculated using the effective interest rate method is recognised in the statement of comprehensive income; refer to note 1(b) above. (g) Available-for-sale investments Available-for-sale investments are comprised principally of equity securities (non-listed) which are intended to be held for an indefinite period of time, which may be sold if the need arises. Available-for-sale investments are non-derivatives that are designated as available for sale and are not categorised into any of the categories of financial assets at fair value through profit or loss; loans and receivables or held-to-maturity investments. Gains or losses arising from changes in the fair value of the equity instruments are recognised directly in equity via an available-for-sale investment reserve, (refer to note 20(a),(b)) until the equity instrument is derecognised or impaired at which time the cumulative gain or loss previously recognised in the reserve should be recognised in profit or loss. Dividends received on equity instruments are recognised in the statement of comprehensive income when the Credit Union s right to receive payment is established. The fair values of quoted investments in active markets are based on current market prices. Unlisted equity securities which do not have an active market or other methods of determining fair value do not result in a reasonable estimate, then the equity securities are carried at cost less any impairment losses. Dividend income is recorded in the statement of comprehensive income on an accrual basis when the Credit Union s right to receive dividend is established. 13

15 1 Summary of significant accounting policies (continued) (h) Offsetting financial instruments Hunter United Employees Credit Union Limited Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (i) Impairment of financial assets (i) Loans and advances to members The Credit Union assesses at each reporting date or more frequently if events or circumstances indicate that they might not be recoverable whether there is objective evidence that a loan or a group of loans is impaired, which includes observable data that comes to the attention of the Credit Union about loss events. The Credit Union first assesses whether objective evidence of impairment exists individually for loans that are individually significant. If the Credit Union determines that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a portfolio of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in the collective assessment of impairment. If there is objective evidence that an impairment loss on loans has been incurred, the amount of the loss is measured as the difference between the asset s carrying amounts and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the loan s original effective interest rate. The carrying amount of the loan is reduced through the use of an allowance for impairment losses account and the amount of the loss is recognised in the statement of comprehensive income. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. When a loan is uncollectable, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loan loss has been determined by management and approved by the Board of Directors. Subsequent recoveries of amounts previously written off shall be reversed directly or by adjusting the provision for loan impairment. The reversal shall not result in a carrying amount of the loan that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the statement of comprehensive income. (ii) Available-for-sale investments A significant or prolonged decline in the fair value of the equity investment below its cost is considered in determining whether the equity instrument is impaired. If there is any objective evidence of impairment for equity investments, the cumulative loss - measured as the difference between the acquisition costs and the current fair value, less any impairment loss on that equity investment previously recognised in profit and loss is removed from the available-for-sale reserve and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on these equity instruments are not reversed through the profit and loss in a subsequent period. (j) Securitisation Participation in any new securitisation program/structure will need to be assessed at each reporting date. Interest income relating to the equitably assigned mortgage loans will be recognised in the statement of comprehensive income of the Credit Union measured at amortised cost using the effective interest rate method. Interest expense on the loan to the special purpose entity will equate to the coupon payable on the loan from the special purpose entity which include the terms and conditions of the arrangements and services between the Credit Union and the special purpose entity. These include adjustments for fees paid directly by the special purpose entity to external party providers, servicing, liquidity fees and residual income. 14

16 1 Summary of significant accounting policies (continued) Hunter United Employees Credit Union Limited (k) Income tax The income tax expense or revenue for the period is the tax payable on the current period s taxable income based on the income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity, such as those that are related to fair value re-measurement of available-for-sale investment securities are also charged directly to equity and is subsequently recognised in the statement of comprehensive income together with the deferred gain or loss. (l) Property, plant and equipment Land and buildings are shown at fair value, based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Credit Union and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Increases in the carrying amounts arising on revaluation of land and buildings are recognised, net of tax, in other comprehensive income and accumulated in reserves in equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset; all other decreases are charged to the statement of comprehensive income. Each year, the difference between depreciation based on the revalued carrying amount of the asset charged to the statement of comprehensive income and depreciation based on the asset s original cost, net of tax, is reclassified from the property, plant and equipment revaluation surplus to retained earnings. 15

17 1 Summary of significant accounting policies (continued) Hunter United Employees Credit Union Limited (l) Property, plant and equipment (continued) Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, or in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term, as follows: Buildings 40 years Vehicles 4 to 5 years Furniture, fittings and equipment 3 to 15 years Leasehold improvements the lease term or 5 years whichever is the shorter The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset s recoverable amount is written down immediately to its recoverable amount if the asset s carrying value amount is greater than its estimated recoverable amount (refer to note 1(o)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income. When revalued assets are sold, it is the Credit Union s policy to transfer the amounts included in the asset revaluation reserve in respect of those assets to retained earnings. (m) Intangible assets Acquired computer software licences which are not an integral part of the related hardware are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. They have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of computer software over their estimated useful lives, which vary from 2.5 to 7 years. Costs associated with the development or maintenance of computer software programs are recognised as an expense as incurred. Costs that are directly associated with the development or production of identifiable and unique software products controlled by the Credit Union, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs directly attributable include software development and employee costs. Computer software development costs recognised as an asset are amortised, when the software is in a condition ready to be used, using the straight-line method over their useful lives. (n) Leases Leases of property, plant and equipment where the Credit Union has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 24). Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. 16

18 1 Summary of significant accounting policies (continued) (o) Impairment of assets Hunter United Employees Credit Union Limited Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (p) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition or less that are readily convertible to known amounts of cash,, including cash, deposits at call and highly liquid investments which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within other borrowed funds in liabilities on the statement of financial position. (q) Accounts receivable Accounts receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Accounts receivables are generally due for settlement within 30 days. Collectability of accounts receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of accounts receivables) is used when there is objective evidence that the Credit Union will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the accounts receivable is impaired. The amount of the impairment allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When an accounts receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income. (r) Financial liabilities Financial liabilities may be held at fair value through profit or loss or at amortised cost. When a financial liability is recognised, initially it should be measured at its fair value net of transaction costs, unless the financial instrument is designated as fair value through profit or loss. Refer to note 1(s) for the accounting policy with respect to the financial liabilities of the Credit Union. (s) Deposits due to members Represents deposits accepted from members. Deposits initially recognised at fair value (being fair value of consideration received) are subsequently measured at amortised cost using the effective interest method, refer to note 1(b) above. 17

19 1 Summary of significant accounting policies (continued) (t) Payables Hunter United Employees Credit Union Limited These amounts represent liabilities for goods and services provided to the Credit Union prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method; refer to note 1(b) above. (u) (i) Employee benefits Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised as payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. (iii) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Credit Union recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. (iv) Superannuation Contributions are made by the Credit Union to an employee's superannuation fund and are charged as expenses when incurred. The Credit Union has no legal obligation to cover any shortfall in the fund's obligation to provide benefits to employees on retirement. (v) On-costs Costs that are a consequence of employment, but which are not employee benefits, such as payroll tax and workers compensation insurance are recognised as other liabilities. (v) Goods and Services Tax (GST) The Credit Union is treated as an input taxed entity for GST purposes. This means that in most circumstances GST is not chargeable on the services provided and GST incurred by the Credit Union is not recoverable from the Australian Taxation Office. Accordingly, the amount of GST incurred that is not recoverable is recognised as part of the cost of acquisition of an asset or as part of an item of expense. (w) New and amendments to accounting standards and UIG interpretations Certain new and amendments to accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2013 reporting periods. The Credit Union has not applied the new amendments at 30 June The Credit Union s assessment of the impact of these new and amended standards and interpretations is set out below. 18

20 1 Summary of significant accounting policies (continued) (w) Hunter United Employees Credit Union Limited New and amendments to accounting standards and UIG interpretations (continued) (i) AASB 9 Financial Instruments, AASB Amendments to Australian Accounting Standards arising from AASB 9 and AASB Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB Amendments to Australian Accounting Standards Mandatory Effective Date of AASB 9 and Transition Disclosures (effective for annual reporting periods beginning on or after 1 January 2015). AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2015 but is available for early adoption. The current the requirements for classification and measurement of financial assets will not have a material impact on the Credit Union. The Credit Union has not yet made an assessment of the impact of the proposed amendments until all amendments have been confirmed. Early adoption has not been considered at this time. (ii) AASB 13 Fair Value Measurement and AASB Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013). In September, the AASB issued AASB 13 to bring together in a single source, guidance for all fair value measurements required in other Standards. AASB 13 provides a clearer definition of fair value, a framework for measuring fair value and requires enhanced disclosure about fair value measurement. The Credit Union does not use fair value measurements extensively and where it does it does not consider the impacts will be significant. It is therefore unlikely that the new rules will have a significant impact on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The Credit Union does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June (iii)aasb Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013). In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the Corporations Act While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot be adopted early. The Corporations Act requirements in relation to remuneration reports will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future. (iv) AASB Amendments to Australian Accounting Standard - Offsetting Financial Assets and Financial Liabilities and AASB Disclosures -Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014 and 1 January 2013 respectively). In June 2012, the AASB approved amendments to the application guidance in AASB 132 Financial Instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities in the balance sheet. These amendments are effective from 1 January They are unlikely to affect the accounting for any of the Credit Union s offsetting arrangements. However, the AASB has also introduced more extensive disclosure requirements into AASB 7 which will apply from 1 January When they become applicable, the Credit Union will have to provide a number of additional disclosures in relation to any offsetting arrangements. The Credit Union intends to apply the new rules for the first time in the financial year commencing 1 July (v) AASB Amendments to Australian Accounting Standard arising from Annual Improvements cycle (effective for annual periods beginning on or after 1 January 2013). In June 2012, the AASB approved a number of amendments to Australian Accounting Standards as a result of the annual improvements project. The Credit Union does not expect that any adjustments will be necessary as the result of applying the revised rules. 19

21 1 Summary of significant accounting policies (continued) (w) Hunter United Employees Credit Union Limited New and amendments to accounting standards and UIG interpretations (continued) (vi) AASB Interpretation 21 Levies (effective 1 January 2014). Interpretation 21 was issued by the AASB in June It sets out the accounting for an obligation to pay a levy imposed by a government in accordance with legislation. The interpretation clarifies that a liability must be recognized when the obligating event occurs, being the event that triggers the obligation to pay the levy. The Credit Union has reviewed the levies it is paying and determined that the accounting for these levies will not be affected by the interpretation. No adjustments will therefore be necessary to any of the amounts recognised in the financial statements. The Credit Union will apply the interpretation from 1 July (vii) AASB Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets (effective 1 January 2014). The AASB has made small changes to some of the disclosures that are required under AASB 136 Impairment of Assets. These may result in additional disclosures if the Credit Union recognises an impairment loss or the reversal of an impairment loss during the period. The Credit Union intends to apply the amendment from 1 July (viii) AASB Amendments to Australian Accounting Standards Novation of Derivatives and Continuation of Hedge Accounting (effective 1 January 2014). The AASB has made small amendments to AASB 139 Financial Instruments: Recognition and Measurement. The amendments will allow entities to continue hedge accounting, where a derivative contract that was designated as a hedge has been novated to a central counterparty as a consequence of laws or regulations. The Credit Union intends to apply the amendments from 1 July Since the Credit Union has not novated or entered into any hedging contracts in the current or prior periods, applying the amendments will not affect any amounts recognised in the financial statements. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 20

22 Hunter United Employees Credit Union Limited 2 Critical accounting estimates and judgments in applying accounting policies The Credit Union makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Impairment losses on loans and advances The Credit Union reviews loans to assess impairment at least on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Credit Union makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a loan. This evidence may include observable data indicating that there has been an adverse change in the payment status of the borrower or national or local economic conditions that correlate with defaults on assets in a group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the loan portfolio when scheduling its future cash flows. The methodology and assumptions are reviewed regularly. (ii) Held-to-maturity investments The Credit Union follows the guidance of AASB 139 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgment. In making this judgment, the Credit Union evaluates its intention and ability to hold such investments to maturity. If the Credit Union fails to keep these investments to maturity other than for specific circumstances for example, selling an insignificant amount close to maturity it will be required to reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value, not amortised cost. If the entire class of held-to-maturity investments is tainted, there would be no material impact to the statement of comprehensive income as these investments are predominantly interest bearing deposits which will continue to be measured at amortised cost. However, the tainting will impact on the classification from held-to-maturity to available-for-sale by $42,940,513 (2012: $33,420,905). Furthermore, the Credit Union will not be able to classify any financial assets as held-to-maturity for the following two annual reporting periods. (iii) Securitisation and special purpose entity The Credit Union participated in the formation of a special purpose entity (SPE) primarily for the purpose of asset securitisation transactions which allow investors to invest in mortgage backed securities. The Credit Union does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the Credit Union does control an SPE, it makes judgments about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. On consideration of all factors the Credit Union has not consolidated the SPE. If the SPE had been consolidated it would result in a consolidated group whose financial position and financial performance would not be materially different from that reported by Hunter United Employees' Credit Union Limited as parent. 21