Example Superannuation Series. Guide to annual reports illustrative disclosures 30 June 2016 under AASB 1056

Transcription

1 Example Superannuation Series Guide to annual reports illustrative disclosures 30 June 2016 under AASB 1056 April 2016

2 About this guide Purpose Scope The purpose of this publication is to assist you in preparing annual financial reports for superannuation entities in accordance with the new AASB 1056 Superannuation Entities (AASB 1056) and Australian Accounting Standards (AASBs). This publication illustrates one possible format for the financial statements of a public offer defined contribution superannuation fund and a public offer hybrid superannuation fund, which consists of both a defined benefit section and a defined contribution section. These are based on fictitious superannuation funds. The funds presented in this publication are not first-time adopters of AASBs. While these illustrative financial reports provide a valuable demonstration of AASB 1056 and other AASBs, they should not be used as a substitute for referring to the standards and interpretations themselves, particularly where a specific requirement is not addressed in this publication or where there is uncertainty regarding the correct interpretation of AASB 1056 and/or other AASBs. This publication is based on the International Financial Reporting Standards (IFRS) developed by the IASB as modified by the AASB. This publication reflects the early adoption of AASB 1056 requirements and other AASBs on issue as at 3 February 2016 that must be applied by a superannuation entity with an annual reporting period beginning on 1 July AASBs that are effective for annual periods beginning on or after 1 July 2015 have not been early adopted in preparing these illustrative financial statements. For further details of financial reporting developments impacting financial reporting periods ending 30 June 2016 and beyond refer to: Standards on Issue for standards and interpretations issued after 3 February 2016, available at kpmg.com.au. KPMG Reporting Updates and IFRS News which report on the latest financial reporting developments, available via our Financial Reporting News or at kpmg.com.au. Further information References Acknowledgements To assist you in preparing financial statements for superannuation entities, the following KPMG publications are also recommended: IFRS: New Standards; Annual Disclosure Checklist 30 June 2016; Example Public Company Limited: Illustrative Disclosure ; Guide to annual financial statements Illustrative Disclosure for investment funds December To the left of each item disclosed, reference to the relevant standard, interpretation or regulatory requirement is provided. For example, the reference AASB 101.8(a) means that the disclosure is required by paragraph 8(a) of AASB 101. The references relate to presentation and disclosure only. The illustrative examples, together with the explanatory notes, however, are not intended to be seen as a complete and exhaustive summary of all disclosure requirements that are applicable under lfrss. For an overview of all disclosure requirements that are applicable under IFRSs, see our publication Annual Disclosure Checklist. The following members of KPMG were the principal authors of this publication: Sean Hill Peter Carlson Amali Kiriella Ben Seumahu Yuvina Mailoa Julie Locke 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

3 Example Defined Contribution Superannuation Fund Annual financial report 30 June 2016

4 Contents Page Statement of financial position 3 Income statement 4 Statement of changes in member benefits 5 Statement of changes in reserves 6 Statement of cash flows 7 8 Trustee s declaration to members 42

5 Example Defined Contribution Superannuation Fund Statement of financial positionᵃ As at 30 June 2016 In thousands of dollars Note AASB Assets Cash and cash equivalents AASB (i) Cash and cash equivalents 14(a) 3,338 9,458 Receivables Investment income receivables 10,222 7,117 Unsettled investment sales 1,189 1,262 Other receivables 8 10 Investments Shares in Australian listed companies 3 145, ,931 AASB 1056.AG12 Units in unlisted unit trusts 3 Units in Australian shares trusts 237, ,223 Units in international shares trusts 144, ,823 Units in property and infrastructure trusts 134, ,423 Units in fixed interest securities trusts 328, ,349 AASB (b) Investment properties 4 1, Derivative assets 4,578 2,933 Other assets AASB (o) Deferred tax assets 10(c) 2,195 2,891 AASB Total assets 1,013, ,390 Liabilities Unsettled investment purchases 5,200 5,007 AASB (j) Sundry creditors 1,422 1,668 Derivative liabilities 132, ,793 AASB (n) Current tax liabilities 9,826 3,971 AASB (o) Deferred tax liabilities 10(c) 28,934 29,284 Total liabilities 177, ,723 Net assets available for member benefits 836, ,667 AASB Member benefits 8 832, ,398 Total net assets 3,264 2,269 Equity AASB (r) Operational risk reserve 9 1,922 1,031 AASB (r) Investment reserve 9 1,342 1,238 Total equity 3,264 2,269 The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 9 to 41. ᵃ In this example, Example Defined Superannuation Fund is acting as an agent in respect of insurance arrangements. This insurance arrangement does not give rise to insurance liabilities and assets of the Fund. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 3

6 Example Defined Contribution Superannuation Fund Income statementᵃ For the year ended 30 June 2016 In thousands of dollars Note Superannuation Activities Revenue AASB (b)(iii) Interest revenue AASB (b)(v) Distributions and dividends 97,223 83,093 AASB (f)(i) Net rentals from directly held property AASB 7.20(a)(i) Net changes in fair value of investments 6 38,734 38,923 Net foreign exchange gains / (losses) 2,099 1,919 Total revenue 138, ,464 Expenses Investment expenses 10(a) (5,983) (3,987) General administration expenses 10(b) (6,822) (4,407) Other operating expenses (644) (168) Total expenses (13,449) (8,562) Profit / (loss) from operating activities 125, ,902 AASB (c) Less: net benefits allocated to members accounts (115,766) (105,047) AASB (e) Profit / (loss) before income tax 9,293 10,855 AASB (f) Income tax expenseᵇ 9 (8,298) (9,844) Profit / (loss) after income tax 995 1,011 The income statement is to be read in conjunction with the notes to the financial statements set out on pages 9 to 41. AASB AG15 ᵃ ᵇ In this example, Example Defined Superannuation Fund is acting as an agent in respect of insurance arrangements. Insurance premiums are therefore not revenues or expenses (and therefore do not appear in the income statement). The income tax expense or benefit attributable to profit or loss does not include the taxes levied on concessional contributions, which is included in the statement of changes in member benefits and impacts on the amount of net benefits allocated to members. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 4

7 Example Defined Contribution Superannuation Fund Statement of changes in member benefits For the year ended 30 June 2016 In thousands of dollars Note AASB Opening balance of member benefits 695, ,113 Contributions: AASB (a) Employer 58,091 55,111 AASB (b) Member 42,878 39,564 AASB (d) Transfers from other superannuation funds 67,524 60,347 Government co-contributions AASB (c) Income tax on contributionsᵃ 10 (18,264) (13,903) Net after tax contributions 150, ,258 AASB (e) Benefit payments (128,723) (106,429) AASB (f) Insurance premiums charged to member s accounts (1,214) (753) Death and disability benefits credited to members accounts 1,256 2,132 AASB (g) Benefits allocated to members accounts, comprising: Net investment incomeᵇ 119, ,925 Administration feesᵇ (3,382) (3,875) AASB Closing balance of member benefits 832, ,398 The statement of changes in member benefits is to be read in conjunction with the notes to the financial statements set out on pages 9 to 41. AASB AASB AG20 ᵃ ᵇ Current tax and deferred tax is charged or credited directly to member liabilities and presented in the statement of changes in member benefits when the tax relates to items that are credited or charged, in the same or different period, directly to member liabilities. Where appropriate, separate disclosure of net investment income and the administration costs charged to member accounts is made in the statement of changes in member benefits or in the notes to the financial statements. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 5

8 Example Defined Contribution Superannuation Fund Statement of changes in reservesᵃ For the year ended 30 June 2016 In thousands of dollars Investment reserve Operational risk reserve Total equity Opening balance as at 1 July ,238 1,039 2,269 Net transfers to / from reserves (861) Profit / (loss) Closing balance as at 30 June ,342 1,922 3,264 Opening balance as at 1 July ,258-1,268 Net transfers to / from reserves (1,006) 1,006 - Profit / (loss) ,011 Closing balance as at 30 June ,238 1,031 2,269 The statement of changes in reserves is to be read in conjunction with the notes to the financial statements set out on pages 9 to 41. AASB AG21 ᵃ The interests of members of superannuation entities are liabilities and are not regarded as meeting the definition of an equity instrument in paragraph 11 of AASB 132 Financial Instruments: Presentation, which is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Superannuation entities would not disclose equity information equivalent to that required by paragraphs 79(a) and 80 of AASB 101, in relation to member liabilities. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 6

9 Example Defined Contribution Superannuation Fund Statement of cash flows For the year ended 30 June 2016 In thousands of dollars Note Cash flows from operating activities AASB , 33 Interest received AASB , 33 Dividend and distributions received 94,118 93,282 AASB , 33 Property rentals received AASB (e) Insurance premiums (inwards) 1, AASB (e) Reinsurance premiums (outwards) (1,256) (2,132) General admin expense (7,073) (3,723) Other expenses (639) (171) Investment expenses (5,983) (3,987) AASB Income tax expense (2,443) (7,151) Net cash inflows from operating activities 14(b) 78,392 77,416 AASB Cash flows from investing activities Proceeds from sale of investments Sales of Australian listed companies 21,361 25,633 Sales of units in Australian shares trust 24,123 32,455 Sales of units in international shares trust 43,232 29,032 Sales of units in property and infrastructure trust 77,435 99,803 Sales of units in fixed interest securities trust 78,923 97,336 Sales of investment property Sales of derivatives 3,988 5,382 Payments for purchase of investments Purchase of Australian listed companies (89,872) (78,094) Purchase of units in Australian shares trust (53,204) (48,203) Purchase of units in international shares trust (72,039) (85,642) Purchase of units in property and infrastructure trust (89,235) (83,245) Purchase of units in fixed interest securities trust (44,042) (94,596) Additions to investment properties (40) - Purchase of derivatives (6,793) (7,682) Net cash used in investing activities (106,163) (107,549) AASB , 21 Cash flows from financing activities Employer contributionsᵃ 58,091 55,111 Member contributionsᵃ 42,878 39,564 Transfer from other fundsᵃ 67,524 60,347 Government co-contributionsᵃ Benefits paid to membersᵃ (128,723) (106,429) Income tax paid on contributions received (18,216) (13,782) Contribution surcharge paid (48) (121) Net cash inflows from financing activities 21,651 34,829 Net increase in cash and cash equivalents (6,120) 4,696 Cash at the beginning of the period 9,458 4,762 AASB Cash at the end of the period 3,338 9,458 The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 9 to 41. ᵃ Contributions, transfers-in and benefit payments are treated as financing activities as any member initiated activities will result in changes in the size and composition of the member liability of the superannuation entity. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 7

10 Example Defined Contribution Superannuation Fund Contents 1. Reporting entity 9 2. Basis of preparation 9 3. Fair value of financial instruments Investment properties Changes in fair values Financial risk management Involvement with unconsolidated subsidiaries and structured entities Member liabilities and funding arrangements Reserves Income tax Expenses Auditors remuneration Capital commitments Cash flows reconciliation Related parties Significant accounting policies New standards and interpretations not yet adopted Subsequent events 41 Page International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 8

11 Example Defined Contribution Superannuation Fund AASB (a) (c) 1. Reporting entity Example Defined Contribution Superannuation Fund (the Fund ) is a defined contribution superannuation fund domiciled in Australia. The address of the Fund s registered office is [address]. The Fund primarily is involved in providing retirement benefits to its members. The Fund is constituted by a Trust Deed dated [date] and holds a public offer license primarily to provide superannuation benefits to employees in the [ Name ] industry in Australia. The Trustee of the Fund is Example Trustee Company Limited (RSE No ). AASB (a) AASB ,114 AASB , 8(a),9 AASB Basis of preparation (a) Statement of compliance The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards, other applicable Australian Accounting Standards and the provisions of the Trust Deed and the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations. The Fund is a not-for-profit entity. The financial statements were authorised for issue by the Board of Directors of the Trustee, Example Trustee Company Limited, on [date]. AASB (e) (b) Functional and presentation currency The financial statements are presented in Australian dollars, which is the Fund s functional currency. Amounts have been rounded to the nearest thousand unless otherwise stated. AASB , 125 (c) Use of judgements and estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.n particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: Note 3: Fair values of financial instruments Note 4: Investment properties International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 9

12 Example Defined Contribution Superannuation Fund AASB 12.9A 2. Basis of preparation (continued) (c) Use of judgements and estimates (continued) Subsidiaries are investees controlled by the Fund. The Fund controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Fund meets the definition of an investment entity per AASB 10 Consolidated Financial Statements and therefore recognises and measures investments in its subsidiaries at fair value. In determining whether the Fund meets the definition of an investment entity, Management considered the Group structure as a whole. In particular, when assessing the existence of investment exit strategies and whether the Fund has more than one investment, Management took into consideration the fact that the subsidiary was formed in order to hold investments on behalf of the Fund. Management concluded that the Fund and the subsidiaries each meet the definition of an investment entity. Consequently, Management concluded that the Fund should not consolidate the subsidiaries. AASB (a), (b) AASB (d) AASB (c) (d) Adoption of AASB 1056 Superannuation Entities The Fund has early adopted AASB 1056 Superannuation Entities ( AASB 1056 ) which is applicable for annual reporting periods beginning on or after 1 July In accordance with the transitional provisions of AASB 1056, the Fund has applied the new accounting standard retrospectively and restated comparative information. On initial application AASB 1056, the Fund is not required to and has not presented a statement of financial position as at the beginning of the earlier comparative period. The early adoption of AASB 1056 has resulted in the following: Changes to the format of the financial statements; Changes to the measurement of assets and liabilities from net market value to fair value with the exception of member liabilities and tax assets and liabilities; Recognition of member liabilities in the statement of financial position; Recognition of benefits allocated to members accounts in the income statement; Contributions, transfers in, benefit payments, insurance premiums charged to member accounts, insurance premium paid to members and income tax on contributions are presented separately in the statement of changes in member benefits; Cash flow transactions from contributions relating to member benefits are now presented as financing activities; Statement of changes in reserves are required to be presented; and Additional disclosures on member benefits. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 10

13 Example Defined Contribution Superannuation Fund 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) AASB (f) The table below presents, in respect of the period immediately preceding the date of initial application, the resulting changes as previously reported in the financial statement. (i) Statement of financial position 30 June 2015 In thousands of dollars as previously reported Adjustments 30 June 2015 as restated Assets Cash and cash equivalents 9,458-9,458 Other receivables Investment income receivables 7,117-7,117 Unsettled investment sales 1,262-1,262 Shares in Australian listed companies 100,859 72ᵃ 100,931 Units in unlisted unit trusts Units in Australian shares trust 218, ᵃ 218,233 Units in international shares trust 103,725 98ᵃ 103,823 Units in property and infrastructure trust 128, ᵃ 128,423 Units in fixed interest securities trust 326, ᵃ 326,349 Investment properties Derivative assets 2,933-2,933 Deferred tax assets 2,891-2,891 Total assets 901, ,390 Liabilities Unsettled investment purchases 5,007-5,007 Sundry creditors 1,668-1,668 Derivative liabilities 164, ,793 Current tax liabilities 3,971-3,971 Deferred tax liabilities 29, ᵇ 29,284 Total liabilities (excluding member benefits) 204, ,723 Net assets available for member benefits 697, ,667 Less: Member benefits - 695,398ᶜ 695,398 Total net assets 697, ,823 2,269 Equity Operational risk reserve 0 1,031ᶜ 1,031 Investment reserve 0 1,238ᶜ 1,238 Total Equity 0 2,269 2,269 Explanation of movements (a) Under AASB 1056, assets and liabilities are required to be measured at fair value. AAS 25 required assets and financial liabilities to be measured at net market values. Therefore the movement in the value of investments with the adoption of AASB 1056 is the cost of disposal of investments, which is now required to be included in accordance with fair value measurement. (b) This movement represents the tax effect of the adjustment for investment disposal costs, as a result of investments being measured at fair value in accordance with AASB (c) AASB 1056 requires defined contribution member liabilities to be recognised and measured as the amount of accrued benefits. This movement represents the recognition of this liability on the face of statement of financial position. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 11

14 Example Defined Contribution Superannuation Fund 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) AASB (f) (ii) Income statement In thousands of dollars 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Interest revenue Distributions and dividends 83,093-83,093 Net rentals from directly held property Net remeasurement changes in assets 38, ᵃ 38,923 measured at fair value Net foreign exchange gains / (losses) 1,919-1,919 Contributions: - Employer 55,111 (55,111) ᵇ - Member 39,564 (39,564) ᵇ - Transfers from other superannuation 60,347 (60,347) ᵇ - plans Government co-contributions 139 (139) ᵇ - Insurance proceeds 2,132 (2,132) ᵇ - Total revenue 281,081 (156,617) 124,464 Investment expenses 3,987-3,987 General administration expenses 4,407-4,407 Other operating expenses Insurance premiums charged to members' 1,214 (1,214)ᵇ - accounts Total expense 9,776 (1,214) 8,562 Profit / (loss) from operating activities 290,857 (157,831) 133,026 Less: Net benefits allocated to members' - 105, ,047 accounts Profit/ (loss) before income tax 290,857 (262,878) 27,979 Income tax expense 23,646 (13,802)ᶜ 9,844 Profit / (loss) after income tax 267,211 (249,076) 18,135 Explanation of movements (a) Under AASB 1056, assets and liabilities are required to be measured at fair value. AAS 25 required assets and financial liabilities to be measured at net market values. Therefore investment disposal costs are now required to be included in accordance with fair value measurement. (b) These items are required to be presented separately in the Statement of Changes in Member Benefits. (c) This includes ($13,903,000) of income tax relating to contributions which is now presented separately in the statement of changes in member benefits. An amount of $101,000 relates to the tax effect of disposal cost adjustments at 15%. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 12

15 Example Defined Contribution Superannuation Fund 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) AASB (f) (iii) Statement of cash flows In thousands of dollars 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Cash flows from operating activities Employer contributions 55,111 (55,111)ᵃ - Member contributions 39,564 (39,564)ᵃ - Transfer from other funds 60,347 (60,347)ᵃ - Government co-contributions 139 (139) ᵃ - Interest received Dividend and distributions received 93,282-93,282 Property rentals received Insurance premiums (inwards) Benefits paid to members (106,429) 106,429ᵃ - Contribution surcharge paid (121) 121ᵃ - Insurance premiums (outwards) (2,132) - (2,132) General admin expense (3,723) - (3,723) Other expenses (171) - (171) Investment expenses (3,987) - (3,987) Income tax expense (20,933) 13,782ᵇ (7,151) Net cash inflows from operating activities 112,245 (34,829) 77,416 Cash flows from investing activities Proceeds from sale of investments Sales of Australian listed companies 25,633-25,633 Sales of units in Australian shares trust 32,455-32,455 Sales of units in international shares trust 29,032-29,032 Sales of units in property and infrastructure trust 99,803-99,803 Sales of units in fixed interest securities trust 97,336-97,336 Sales of investment property Sales of derivatives 5,382-5,382 Payments for purchase of investments - Purchase of Australian listed companies (78,094) - (78,094) Purchase of units in Australian shares trust (48,203) - (48,203) Purchase of units in international shares trust (85,642) - (85,642) Purchase of units in property & infrastructure trust (83,245) - (83,245) Purchase of units in fixed interest securities trust (94,596) - (94,596) Additions to investment properties Purchase of derivatives (7,682) - (7,682) Net cash used in investing activities (107,549) - (107,549) International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 13

16 Example Defined Contribution Superannuation Fund 2. Basis of preparation (continued) AASB (f) (d) Adoption of AASB 1056 Superannuation Entities (continued) (iii) Statement of cash flows (continued) In thousands of dollars 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Cash flows from financing activities Employer contributions - 55,111ᵃ 55,111 Member contributions - 39,564ᵃ 39,564 Transfer from other funds - 60,347ᵃ 60,347 Government co-contributions - 139ᵃ 139 Benefits paid to members - (106,429)ᵃ (106,429) Income tax paid on contributions received - (13,782)ᵇ (13,782) Contribution surcharge paid - (121)ᵇ (121) Net cash inflows from operating activities - 34,829 34,829 Net increase/(decrease) in cash and cash 4,696-4,696 equivalents Cash and cash equivalents at the beginning of 4,762-4,762 the period Cash and cash equivalents at the end of the period 9,458-9,458 Explanation of movements (a) (b) Contributions, transfers-in and benefit payments are treated as financing activities as any member initiated activities will result in changes in the size and composition of the member liability of the superannuation entity. Income tax on contributions is presented separately in the cash flows from financing activities. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 14

17 Example Defined Contribution Superannuation Fund 3. Fair values of financial instruments AASB AASB (a) Valuation models The fair value of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or broker quotations. For all other financial instruments, the Trustee determines the fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. AASB Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category includes all instruments for which the valuation technique includes inputs not based on observable data and whose unobservable inputs have a significant effect on the instrument s valuation. AASB 13.93(d) Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which observable market prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The Fund uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter (OTC) derivatives such as interest rate swaps. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and reduces the uncertainty associated with the determination of fair values. The availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. (b) Valuation framework AASB 13.93(g) The Fund has an established control framework with respect to the measurement of fair values. This framework includes a portfolio valuation function, which is independent of front office management and reports to the board of directors, who have overall responsibility for fair value measurements. Specific controls include: verification of observable pricing inputs re-performance of model valuations; a review and approval process for new models and changes to such models; calibration and back-testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; and review of unobservable inputs and valuation adjustments. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 15

18 Example Defined Contribution Superannuation Fund AASB 13.93(g) 3. Fair values of financial instruments (continued) (b) Valuation models (continued) When third party information, such as broker quotes or pricing services, is used to measure fair value, then the portfolio valuation function assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of Australian Accounting Standards. This includes: verifying that the broker or pricing service is approved by the Fund for use in pricing the relevant type of financial instrument; understanding how the fair value has been arrived at and the extent to which it represents actual market transactions; when prices for similar instruments are used to measure fair value, how these prices have been adjusted to reflect the characteristics of the instrument subject to measurement; and if a number of quotes for the same financial instrument have been obtained, then how fair value has been determined using those quotes. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 16

19 Example Defined Contribution Superannuation Fund AASB 13.93(b) 3. Fair values of financial instruments (continued) (c) Fair value hierarchy The table below analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. As at 30 June 2016 In thousands of dollars Level 1 Level 2 Level 3 Total Financial assets Shares in Australian listed companies 145, ,234 Units in unlisted unit trusts Units in Australian shares trusts Units in international shares trusts Units in property and infrastructure trusts Units in fixed interest securities trusts - 159, , ,485 Derivative assets - 4,578-4, , , , , , ,823 Total financial assets 145, , , ,435 Financial liabilities Derivative liabilities - 132, ,084 Total financial liabilities - 132, , , , , ,351 As at 30 June 2015 In thousands of dollars Level 1 Level 2 Level 3 Total AASB 13.93(c) Financial assets Shares in Australian listed companies 100, ,931 Units in unlisted unit trusts Units in Australian shares trusts - 218, ,233 Units in international shares trusts - 103, ,823 Units in property and infrastructure trusts , ,423 Units in fixed interest securities trusts - 166, , ,349 Derivative assets - 2,933-2,933 Total financial assets 100, , , ,692 Financial liabilities Derivative liabilities - 164, ,793 Total financial liabilities - 164, , , , , ,899 During the current year, shares in Australian listed companies with a carrying amount of $10 thousand were transferred from Level 1 to Level 2 because public price quotations in an active market for these instruments were no longer available. However, there was sufficient information available to measure the fair values of these securities based on observable market inputs. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 17

20 Example Defined Contribution Superannuation Fund 3. Fair values of financial instruments (continued) AASB 13.93(c) (c) Fair value hierarchy (continued) The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy: 30 June 2016 In thousands of dollars Units in unlisted unit trusts AASB 13.93(e) AASB 13.93(e)(i) AASB 13.93(e)(iii) AASB 13.93(e)(iii) AASB 13.93(e)(iv) AASB 13.93(e)(iv) AASB 13.93(e) AASB 13.93(f) Balance at 1 July ,414 Total gains or losses recognised in the income statement 18,474 Purchases 14,027 Sales (17,595) Transfers into level 3 - Transfers out of level 3 - Closing balance as at 30 June ,320 Total gains or losses for the period included in the income statement attributable to changes in unrealised gains and losses relating to financial assets and liabilities held at reporting date 9, June 2015 In thousands of dollars Units in unlisted unit trusts AASB 13.93(e) AASB 13.93(e)(i) AASB 13.93(e)(iii) AASB 13.93(e)(iii) AASB 13.93(e)(iv) AASB 13.93(e)(iv) AASB 13.93(e) AASB 13.93(f) Balance at 1 July ,505 Total gains or losses recognised in the income statement 14,906 Purchases 15,762 Sales (5,759) Transfers into level 3 - Transfers out of level 3 - Closing balance as at 30 June ,414 Total gains or losses for the period included in the income statement attributable to changes in unrealised gains and losses relating to financial assets and liabilities held at reporting date 2,147 (d) Significant unobservable inputs used in measuring fair valueᵃ AASB 13.93(d), (h)(i), 99 The table below sets out information about significant unobservable inputs used in measuring financial instruments categorised as Level 3 in the fair value hierarchy. Description Units in unlisted unit trusts Fair value $ : 303, : 288,414 Valuation technique Adjusted net asset value Unobservable input Discount for lack of marketability / restricted redemptions Range (weighted average) 2016: 8 10% (9%) 2015: 7 10% (8.5%) A significant increase in the discount factor would result in a lower fair value. AASB 13.93(d) ᵃ An entity is not required to create quantitative information to comply with this disclosure requirements if quantitative unobservable inputs are not developed by the entity when measuring fair value (eg. When an entity uses prices from prior transactions or third-party pricing information without adjustment). However, when providing this disclosure an entity cannot ignore quantitative unobservable inputs that are significant to the fair value measurement and are reasonably available to the entity. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 18

21 Example Defined Contribution Superannuation Fund 4. Investment Property a (a) Reconciliation of carrying amount AASB , AASB 13.93(e) AASB (a) AASB 13.93(e) (iii) AASB (g) AASB 13.93(e)(iii) AASB (d) AASB 13.93(f) AASB AASB 13.93(e) In thousands of dollars Opening balance as at 1 July 960 1,160 Additions 40 - Disposals - (272) Net changes in fair value Closing balance as at 30 June 1, AASB (c) Investment property comprises a number of commercial properties that are leased to third parties. Each of the leases contains an initial non-cancellable period of ten years, with annual rents indexed to consumer prices. Subsequent renewals are negotiated with the lessee and historically, the average renewal period is four years. No contingent rents are charged. AASB (e) AASB 13.93(b) (b) (i) Measurement of fair values Fair value hierarchy The fair value of investment property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Fund s investment property portfolio every six months. The fair value measurement for investment property has been categorised as a Level 3 fair value based on the inputs to the valuation technique used. Insights a Because AASB 140 Investment Property makes no reference to making disclosures on a class-by-class basis, it could be assumed that the minimum requirement is to make the disclosures on an aggregate basis for the whole investment property portfolio. If investment property represents a significant portion of the assets, then we prefer entities to disclose additional analysis e.g. portfolio by types of investment property International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 19

22 Example Defined Contribution Superannuation Fund 4. Investment property (continued) (b) (ii) Measurement of fair values (continued) Valuation technique and significant unobservable inputs AAS 13.93(d), (h), (is), 99 The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from the property, taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms. Expected market rental growth (2 3% (2015: 2-3%), weighted average 2.6% (2015: 2.6%)). Void periods (average 6 months after the end of each lease). Occupancy rate (90 95% (2015: 90 93%), weighted average (92.5% (2015: 91.5%)). Rent-free periods (1-year period on new leases). Risk-adjusted discount rates (5 6.3% (2015: 5 6.1%), weighted average 5.8% (2015: 5.55%)). The estimated fair value would increase (decrease) if: expected market rental growth were higher (lower); void periods were shorter (longer); the occupancy rate were higher (lower); rent-free periods were shorter (longer); or the risk-adjusted discount rate were lower (higher). 5. Changes in fair values In thousands of dollars Investments held at the end of the financial year Shares in Australian listed companies (16,685) (17,601) Units in Australian shares trust (13,962) (7,885) Units in international shares trust 8,561 7,611 Units in property and infrastructure trust (8,935) (7,772) Units in fixed interest securities trust 21,429 12,093 Investment properties Derivative assets and liabilities 17,638 23,040 8,942 9,682 In thousands of dollars Investments realised during the financial year Shares in Australian listed companies (7,523) (8,793) Units in Australian shares trust 3,844 2,913 Units in international shares trust 2,382 3,021 Units in property and infrastructure trust 3,214 2,321 Units in fixed interest securities trust 14,892 19,921 Investment properties - (124) Derivative assets and liabilities 12,983 9,982 29,792 29,241 Total 38,734 38,923 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 20

23 Example Defined Contribution Superannuation Fund AASB Financial risk management The Fund s assets principally consist of financial instruments which comprise shares in listed companies, units in collective investment vehicles such as unlisted unit trusts and other unitised investments. The Trustee has determined that this type of investment is appropriate for the Fund and is in accordance with the Fund s published investment strategy. The Board of Directors of the Trustee has overall responsibility for the establishment and oversight of the Fund s risk management framework. The Trustee s risk management policies are established to identify and analyse the risks faced by the Fund, including those risks managed by the Fund s Investment Manager, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Fund s activities. The Trustee acknowledges that an integral part of its good governance practice is a sound and prudent risk management framework. The risk framework is documented in the Fund s Risk Management Framework and Investment Governance Framework which is subject to regular review both by management and the Board and an annual audit of compliance. The Board has established an Investment Committee, consisting of selected Board Members with appropriate Investment experience. The Investment Committee which is responsible for developing and monitoring the Fund s risk management policies related to investment activities. This includes oversight of the allocation of investments to fund managers, evaluating their performance and providing recommendations to the Board who has ultimate responsibility for the appointment of fund managers. The Investment Committee receives quarterly risk management reports from the Fund s Investment Manager and, in turn, reports quarterly to the Board of Directors of the Trustee on its activities. Divergence from target asset allocations and the composition of the portfolio is monitored by the Fund s Investment Manager on a daily basis. Reports from the Fund s Investment Manager include the following: details of the controls it has in place to monitor compliance with the Fund s investment strategy; current asset allocations against target positions; investment performance against benchmarks; and Fund Investment Manager Compliance reporting. Further, the Fund undertakes extensive due diligence to ensure Fund Managers have appropriate skills and expertise to manage the Fund s allocated investments prior to their appointment. The Investment Department tracks the Fund s investment value on a daily basis through appropriate monitoring of the market conditions and benchmark analysis. XYZ Investment Consultants provide expert advice regarding the management of the Fund s investment portfolio in accordance with the investment strategy. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 21

24 Example Defined Contribution Superannuation Fund 6. Financial risk management (continued) AASB 7.33 AASB 7.31 The Trustee s Audit and Compliance Committee oversees how management monitors compliance with the Fund and its controlled entities risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Fund. The Trustee s Audit and Compliance Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit and Compliance Committee. The Fund s investing activities expose it to the following risks from its use of financial instruments: credit risk liquidity risk market risk (a) Credit Risk AASB 7.33, 34 AASB 7.36 (a), (b), (c) Credit risk is the risk that a counterparty to a financial instrument will cause a financial loss to the Fund by failing to discharge an obligation. This loss is in turn borne by the defined contribution members. The Fund has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis by the Finance and Investment Departments. The credit policy provides guidelines as to the appropriate terms and conditions of transactions entered into and the escalation procedures to follow when the recovery of assets is considered doubtful. The carrying amounts of financial assets best represent the maximum credit risk exposure at the reporting date. No collateral is held as security or other credit enhancements exist for all financial assets held. No financial assets are considered past due as all payments are considered recoverable when contractually due. The Fund s maximum exposure to credit risk was as follows: In thousands of dollars Cash and cash equivalents 3,338 9,458 Interest receivables 8 10 Investment income receivables 10,222 7,117 Unsettled investment sales 1,189 1,262 Units in unlisted unit trusts 845, ,828 Derivative assets 4,578 2, , ,608 AASB 7.34(a), 36(a), (c) AASB 7.33(a)(b) AASB 7.33(a)(b) Substantially all of the cash held by the Fund is held by ABC Bank which are rated AA+ based on [Rating Agency Y] ratings. Bankruptcy or insolvency by ABC Bank may cause the Fund s rights with respect to the cash held by ABC Bank to be delayed or limited to the extent it is not covered by the Federal Deposit Guarantee. The Fund monitors its credit risk by monitoring the credit quality and financial positions of the bank through regular analysis of their financial reports. Credit risk associated with receivables is considered low as there is usually a short settlement period. The Fund monitors the ageing of the receivables outstanding on a monthly basis to ensure all receivables do not exceed 30 days. Unsettled investment sales are transactions with investment managers that are awaiting settlement. The credit risk relating to unsettled transactions is considered small due to the short settlement period involved and the high credit quality of the brokers used. The Fund monitors the aging of unsettled trades on a monthly basis to ensure all receivables do not exceed 30 days. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 22

25 Example Defined Contribution Superannuation Fund AASB 7.33(a)(b) 6. Financial risk management (continued) (a) Credit risk (continued) Credit risk arising on investments (unlisted unit trusts is mitigated by the extensive due diligence prior to the appointment of Fund Managers appropriate monitoring of the market conditions and benchmark analysis. Further XYZ Investment Consultants to provide expert investment advice. Substantially all of the assets of the Fund are held by XYZ Custodian Pty Ltd. Bankruptcy or insolvency of the custodian may cause the Fund s rights with respect to securities held by the custodian to be delayed or limited. The Fund monitors its risk by monitoring the credit quality and financial positions of the custodian through regular analysis of their financial reports. The derivatives are entered into with bank and financial institution counterparties, which are rated AA- to AA+, based on [Rating Agency Y] ratings. AASB 7.36(c) AASB 7.33 AASB 7.33(a), (b) 39(c) (b) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Fund s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Fund s reputation. The Fund s liquidity risk is managed on a daily basis by the Investment Department in accordance with policies and procedures in place and the Fund s Liquidity Management Plan. This includes the following: Monthly review of allocation of illiquid assets; Monthly cash flow forecasting of net inflows and outflows, including expected capital commitments due within the next 3 months; and Annual liquidity stress testing The Fund s Trust Deed and Product Disclosure Statement provides for the daily withdrawal of benefits and it is therefore exposed to the liquidity risk of meeting member s withdrawals at any time. The Fund s financial instruments include investments in unlisted investments, which are not traded in an organised public market and which generally may be illiquid. As a result, the Fund may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements. As the amount of these investments is monitored to comply within the asset allocation stipulated in the Fund s Investment Strategy which is not to exceed 40% of the Funds under management this risk is considered minimal. The Fund s investment in Shares in Australian listed companies are considered to be readily realisable as they are all listed on the Australian stock exchange. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 23

26 Example Defined Contribution Superannuation Fund AASB 7.39(a)(b), B11 6. Financial risk management (continued) (b) Liquidity risk (continued) The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements. Contractual cash flows As at 30 June 2016 In thousands of dollars Carrying amount Total Less than 1 month 1-3 months 3-6 months Greater than 6 months Non-derivative financial liabilities Unsettled investment purchases 5,200 5,200 5, Sundry creditors 1,422 1,422-1, Member liabilities 832, , , , , ,057 1, Derivative financial liabilities Gross settled forward foreign exchange contracts: - (Inflows) (788,819) (788,819) (788,819) Ouflows 656, , , , , , As at 30 June 2015 In thousands of dollars Carrying amount Total Contractual cash flows Less than 1 month 1-3 months 3-6 months Greater than 6 months Non-derivative financial liabilities Unsettled investment purchases 5,007 5,007 5, Sundry creditors 1,668 1,668-1, Member liabilities 695, , , , , ,405 1, Derivative financial liabilities Gross settled forward foreign exchange contracts: - (Inflows) (818,314) (818,314) (818,314) Ouflows 653, , , , , , International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 24

27 Example Defined Contribution Superannuation Fund AASB 1056.AG31 6. Financial risk management (continued) (b) Liquidity risk (continued) Member liabilities have been included in the less than one month column, as this is the amount that members could call upon as at year-end. This is the earliest date on which the Fund can be required to pay members liabilities however members may not necessarily call upon during this time. The Fund manages its liquidity risk associated with meeting member withdrawals and pension payments by performing a fortnightly cash flow forecasting of expected payments and monthly cash flow forecasting on net inflows and outflows. AASB 7.33(a) AASB 7.33(b) (c) Market risk Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect the Fund s income or the value of its asset holdings and in turn is reflected in the defined contribution member liabilities. Market risk comprises of three types of risk: - Currency risk - Interest rate risk - Other price risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. To mitigate market risk, the Fund undertakes extensive due diligence prior to the appointment of Fund Managers to ensure that they have appropriate expertise and skill for monitoring of the market conditions and benchmark analysis. Further XYZ Investment Consultants provide expert investment advice. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 25

28 Example Defined Contribution Superannuation Fund AASB 7.33(b) 6. Financial risk management (continued) (c) Market risk (continued) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund invests in financial instruments and enters into transactions that are denominated in currencies other than its functional currency, primarily US dollars, sterling (GBP) and euro (EUR). Consequently, the Fund is exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a manner that has an adverse effect on the value of that portion of the Fund s investments denominated in currencies other than the Australian Dollar. The Fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency within the conditions of the investment strategy. The Fund s strategy on the management of currency risk is driven by the Fund s investment objective and strategy. The Fund s investment strategy specifies that the value of investments denominated in foreign currencies may not exceed XX% of the total funds under management. The Fund s currency risk is managed on a daily basis by the Investment Manager in accordance with the asset allocations as outlined in the Fund s product disclosure statement and investment strategy. This includes monitoring the investment s performance against identified benchmarks. The Fund s total net exposure to fluctuations in foreign currency exchange rates at the balance sheet date is shown in the table below. AASB 7.34(a) AASB 7.40 Sensitivity Analysis A reasonably possible strengthening / (weakening) of the USD, GBP or EUR against all other currencies as at 30 June would have affected the measurement of financial instruments denominated in a foreign currency by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2015 and is not guaranteed. Change for the year in net assets available for member benefits Change for the year in the income statement Carrying In thousands of dollars amount +10% -10% +10% -10% 30 June 2016 USD 21,450 (1,673) 2,045 (1,673) 2,045 GBP 6,327 (575) 703 (575) 703 EUR 9,981 (907) 1,109 (907) 1,109 37,758 (3,156) 3,857 (3,156) 3, June 2015 USD 20,387 (1,853) 2,265 (1,853) 2,265 GBP 5,821 (529) 647 (529) 647 EUR 8,725 (793) 969 (793) ,924 (3,176) 3,881 (3,176) 3,881 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 26

29 Example Defined Contribution Superannuation Fund AASB 7.33(b) 6. Financial risk management (continued) (c) Market risk (continued) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Fund s financial instruments are non-interest-bearing with only cash and cash equivalents being directly subject to interest rate risk. Any excess cash and cash equivalents above immediate working capital requirements are invested in short-term deposits which are available at call to optimise returns. As a result, the Fund is subject to limited exposure to interest rate risk due to fluctuations in the prevailing levels of market interest rates. At the reporting date, the interest rate profile of the Fund s interest-bearing financial instruments is shown in the table below. AASB 7.34(a) AASB 7.40 Sensitivity Analysis An increase / (decrease) of 50 basis points in interest rates at the reporting date would have increased / (decreased) the interest income and the net assets available to pay benefits by the amounts shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. Change for the year in net assets available for member benefits Change for the year in the income statement In thousands of dollars Carrying amount +50bps -50bps +50bps -50bps 30 June 2016 Cash and cash equivalents 3, (17) 17 (17) 3, (17) 17 (17) 30 June 2015 Cash and cash equivalents 9, (47) 47 (47) 9, (47) 47 (47) Other market price risk AASB 7.33(b) Other market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. Other market price risk is mitigated by constructing a diversified portfolio of instruments which are traded on various markets. All investment managers are subject to extensive due diligence prior to being appointed with the recommendation for their appointment and removal made by the Investment Committee to the Board for final approval. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 27

30 Example Defined Contribution Superannuation Fund AASB 7.33(b) 6. Financial risk management (continued) (c) Market risk (continued) Other market price risk (continued) The Investment Department receive monthly reports from all investment managers which are reviewed in detail and assessed against relevant benchmarks and expected returns. Investment manager performance is reported to the Investment Committee and Board on a quarterly basis. Further, the Investment Department tracks the Fund s investment value on a daily basis through appropriate monitoring of the market conditions. XYZ Investment Consultants provide expert advice regarding the management of the Fund s investment portfolio in accordance with the current investment strategy. Sensitivity Analysis The Fund s Investment Department considers the following movements in other market price risk are reasonably possible for the 2015/2016 reporting period: Shares in Australian listed companies: 8% AASB 7.40 Units in unlisted unit trusts: 10% The increase / (decrease) in the market price against the investments of the Fund at 30 June would have increased / (decreased) the change for the year in net assets available for member benefits and the income statement by the amounts shown below. This analysis assumes that all other variables, in particular, interest rates and foreign exchange rates, remain constant. The analysis is performed on the same basis for 2015 and is not guaranteed. Change for the year in net assets available for member benefits Change for the year in the income statement In thousands of dollars Carrying amount Increase Decrease Increase Decrease 30 June 2016 Shares in Australian listed 145,234 11,619 (11,619) 11,619 (11,619) companies Units in unlisted unit trusts 845,623 84,562 (84,562) 84,562 (84,562) 990,857 96,181 (96,181) 96,181 (96,181) 30 June 2015 Shares in Australian listed 100,931 8,074 (8,074) 8,074 (8,074) companies Units in unlisted unit trusts 776,828 77,683 (77,683) 77,683 (77,683) 877,759 85,757 (85,757) 85,757 (85,757) International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 28

31 Example Defined Contribution Superannuation Fund 7. Involvement with unconsolidated subsidiaries and structured entities (a) Subsidiaries AASB 12.19B The table below describes the type of structured entities that the Fund does not consolidate but in which it holds an interest. Name Principal place of business Interest held by the Fund Fair value as at 30 June $ 000 Example Investment Fund A 1 Queen Street, Melbourne 3000, Australia 2016: 100% 2015: 100% 2016: 125, : 120,443 Example Investment Fund B 1 King Street, Melbourne 3000, Australia 2016: 100% 2015: 100% 2016: 89, : 80,209 AASB 12.19D(a) AASB 12.19D(b) AASB 12.19E,F,G As at 30 June 2016, there are no significant restrictions (e.g. borrowing arrangements, regulatory requirements or contractual arrangements) on the ability of an unconsolidated subsidiary to transfer funds to the Fund in the form of dividends or to repay loans or advances made to the unconsolidated subsidiary by the Fund. As at 30 June 2016, the Fund does not have any current commitments or intentions to provide financial or other support to the unconsolidated subsidiary, including commitments or intentions to assist the subsidiary in obtaining financial support. The Fund did not provide financial or other support to the unconsolidated subsidiaries. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 29

32 Example Defined Contribution Superannuation Fund 7. Involvement with unconsolidated subsidiaries and structured entities (continued) (b) Structured entitiesᵃ AASB The table below describes the type of structured entity that the Fund does not consolidate but in which it holds an interest. Name Nature and purpose Interest held by the Fund AASB 12.29(c) AASB 12.29(a), (b), (d) Example Investment Fund X To manage assets on behalf of the investors. The vehicle is financed through the issue of units to investors Investments in unit trust issued by the Fund The table below sets out interests held by the Fund in the unconsolidated structured entity. The maximum exposure to loss is the carrying amount of the financial assets held. Fair value Exposure Investment strategy 30 June 2016 $ June 2015 $ June June 2015 Financial statement caption Property 65,090 61,820 74% 74% Units in property and infrastructure trusts Infrastructure 23,250 21,420 26% 26% Units in property and infrastructure trusts 88,340 83, % 100% AASB The Fund did not provide financial or other support to the unconsolidated structured entity and has no intention of providing financial or other support. The Fund can redeem units in the above investment fund once a month on a specified date. AASB 12.B21 ᵃ A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 30

33 Example Defined Contribution Superannuation Fund 8. Member liabilities and funding arrangements (a) Member liabilities AASB AASB AASB 1056.AG31 AASB (b) Obligations relating to member entitlements are recognised as member liabilities. Defined contributions member liabilities are measured as the amount of member account balances as at the reporting date. Defined contribution members bear the investment risk relating to the underlying assets of the Fund. Unit prices are updated on a daily basis for movements in investment markets. There were no unallocated amount as at 30 June 2016 (2015: Nil). In thousands of dollars Member benefits 832, ,398 Unallocated amount - - Reserves 3,264 2,269 Net assets available for member benefits 836, ,667 (b) Funding arrangements Employers provided contributions to the Fund during the financial year at a rate of 9.5% (2015: 9.5%) of the gross salaries of the employees. Members contributions were made in accordance with the requirements of the Trust Deed pursuant to applications contained in the Product Disclosure Statements and Supplements on issue by the Trustee during the year. 9. Reserves The Trustee maintains the an Operational Risk Financial Requirement (ORFR) reserve and an investment reserve. AASB (b) AASB (b) An ORFR reserve is required under Australian Prudential Regulation Authority Standards to maintain adequate financial resources to address potential losses arising from operational risks. The Trustee has assessed a reserve of approximately 0.25% of funds under management as being appropriate for the Fund. The investment reserve comprises the difference between the cumulative amount of investment income (net of investment expenses) allocated to members accounts compared to the cumulative investment income (net of investment expense earned). Reserves are made up of the following balances: In thousands of dollars ORFR reserve 1,922 1,031 Investment reserve 1,342 1,238 3,264 2,269 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 31

34 Example Defined Contribution Superannuation Fund AASB112.80(a) AASB (b) AASB (c) 10. Income tax (a) Recognised in the income statement In thousands of dollars Current tax expense Current year 17,199 20,109 Adjustment for prior period (2,120) (2,003) 15,079 18,106 Deferred tax expense Movement in temporary differences (6,781) (8,622) AASB (c) Total income tax expense 8,298 9,844 (b) Numerical reconciliation between tax expense and profit before income tax In thousands of dollars Profit / (loss) from operating activities 125, ,902 Tax at the complying superannuation fund tax rate of 15% 18,759 17,385 Non-deductible administration expense Non-assessable investment income (3,892) (2,231) Net imputation credit and foreign tax credits (4,451) (3,571) Under / (over) provision in previous year (2,120) (2,003) Other (880) (492) AASB (g) Income tax expense 8,298 9,844 (c) Deferred tax assets and liabilities In thousands of dollars Deferred tax asset Accrued expense 1,982 2,641 Unrealised foreign exchange losses ,195 2,891 Deferred tax liabilities Accrued income 1,713 1,258 Unrealised foreign exchange gains Unrealised gains in investments subject to tax 26,534 27,127 28,934 29,284 (d) Recognised in the statement of changes in member benefits In thousands of dollars Contributions and transfers in recognised in the statement of changes in member benefits 168, ,161 Tax at the complying superannuation fund rate of 15% 25,296 23,274 Non assessable contributions (6,895) (9,313) Exempt pension income (185) (179) Non-deductible contributions surcharge tax Total 18,264 13,903 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 32

35 Example Defined Contribution Superannuation Fund AASB Expenses (a) Investment expenses AASB1056.AG29 (e) In thousands of dollars Investment manager fees 4,892 3,151 Custodian fees Investment consultancy fees ,983 3,987 AASB1056.AG29 (d) (b) General administration expenses AASB1056.AG29 (f), (g), (j) In thousands of dollars Actuarial fees Administration fees 4,681 3,257 APRA fees Audit fees Legal fees Tax agent fees Trustee fees ,822 4, Auditors remunerationᵃ AASB (a) AASB (b), 11 AASB (b), 11 In thousands of dollars Audit services Audit and review of financial statements Other regulatory audit services ᵇ 10 5 Other services ᶜ Taxation services AASB , 11 ᶜ ᵃ ᵇ Disclosures are required regardless whether the entity or a related entity make the payments. Where fees are paid on behalf of the entity by a related party, disclosure as a related party transaction is required Other regulatory audit services would include for example, compliance audit, risk management framework audit and APRA return audit. The amounts could alternatively be disclosed as other services below. An entity must describe the nature of other services provided. There is no requirement to provide an amount for each non-audit services International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 33

36 Example Defined Contribution Superannuation Fund 13. Capital commitments The commitments of the Fund as at 30 June are detailed below: In thousands of dollars Due within one year 9,679 7,548 Due after one year 27,982 26,201 37,661 33, Cash flows reconciliation AASB (a) Reconciliation of cash and cash equivalents In thousands of dollars Cash at bank 3,338 9,458 AASB (b) Reconciliation of cash flows from operating activities In thousands of dollars Profit / loss after income tax 995 1,011 Adjustments for: (Increase) / decrease in assets measured at fair value (38,734) (38,923) (Increase) / decrease in foreign exchange gains and losses (2,099) (1,919) (Increase) / decrease in receivable (3,103) 10,205 Increase / (decrease) in payables (246) 681 Increase / (decrease) in income tax payable 5,855 2,693 Allocation to member s accounts 115, ,047 Insurance premium inwards 1, Insurance premium outwards (1,256) (2,132) 78,392 77,416 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 34

37 Example Defined Contribution Superannuation Fund AASB Related parties (a) Trustee Example Trustee Company Limited (ACN , RSE Licensee ) was appointed as Trustee of the Fund from 1 July The following people were Key Management Personnel of the Fund during the financial year: AASB (f) Directors - Mr. S Hill (Independent chair) - Mr. I Tracey - Ms. A Kiriella - Mr. S McKee - Ms. Y Mailoa (appointed 21 September 2015) - Mr. M Smith (resigned 20 September 2015) Executives - Ms. J Pham - Mr. Z Calabro - Mr. A Hulston (b) Key management personnel compensation The compensation paid to key management personnel in relation to services to the Fund is as follows: AASB (a) AASB (c) AASB (b) In thousands of dollars Short-term employee benefits Other long-term employee benefits Post-employment benefit Apart from those details disclosed in this note, no key management personnel have entered into a contract for services with the Fund since the end of the previous financial year and there were no contracts involving key management personnel subsisting at year end. (c) Other related party transaction AASB Certain key management personnel are members of the Fund. Their membership terms and conditions are the same as those available to other members of the Fund. All Trustee transactions with related parties are conducted on normal commercial terms and conditions, or pursuant to normal membership terms and conditions. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 35

38 Example Defined Contribution Superannuation Fund AASB Significant accounting policies Except for the changes explained in Note 2(d), the Fund has consistently applied the following accounting policies to all periods presented in the financial statements. AASB AASB , (AG53 AG56) AASB , 25 AASB AASB , 46, 55(a) AASB (a) Financial assets and financial liabilities The Fund classifies non-derivative financial assets and financial liabilities at fair value through profit or loss. The Fund initially recognises financial assets and liabilities on the trade date when the entity becomes a party to the contractual provisions of the instrument. The Fund derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. The Fund derecognises a financial liability when its contractual obligations are discharged or cancelled, or expired. A financial asset and financial liability is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in the income statement as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest, dividend income or distribution income, are recognised in the income statement. Financial liabilities at fair value through profit or loss are measured at fair value and changes therein, including any interest expense, are recognised in the income statement. Financial assets and financials liabilities are offset, and the net amount presented in the statement of financial position when and only when, the Fund currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.ᵃ AASB (i) Derivative financial instruments The Fund holds forward foreign exchange contracts to hedge its foreign currency exposures. Derivatives are initially measured at fair value. Any directly attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised in the income statement. AASB 13.9, 24, 42 (ii) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Fund has access at that date. The fair value of a liability reflects its non-performance risk. ᵃ Example Defined Contribution Superannuation Fund has not offset any assets or liabilities and does not have any master netting agreements in place. Thus no additional disclosures have been reflected in the financial statements. Refer to Example Public Company Limited illustrative disclosures for offsetting disclosures. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 36

39 Example Defined Contribution Superannuation Fund AASB 13.79A 16. Significant accounting policies (continued) (a) (ii) Financial assets and financial liabilities (continued) Fair value measurement (continued) Fair values have been determined as follows: Market quoted investments When available, the Fund measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Fund measures instruments quoted in an active market at a mid-price, because this price provides a reasonable approximation of the exit price. AASB Non-market quoted investments If there is no quoted price in an active market, then the Fund uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. Investments for which market quotations are not available are stated at estimated fair value determined by the Trustee as follows: Unlisted securities recorded with reference to recent arm s length transactions, current market value of another instrument substantially the same or discounted cash flows. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate used is a market rate at the balance sheet date applicable for an instrument with similar terms and conditions. Private equity valued according to the most recent valuation obtained from the underlying manager at net market value adjusted for subsequent new investments, redemptions and significant changes in underlying market conditions through to balance date. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Units in unlisted unit trusts and unlisted managed investment schemes Units in unlisted unit trusts and unlisted managed investment schemes are valued at the redemption price at reporting date quoted by the investment managers which are based on the net asset value (NAV) of the underlying investments. Unit values denominated in foreign currency are then translated to Australian dollars at the current exchange rates. Investment properties AASB AASB AASB (a), (e) Investment properties comprise investment interests in land and buildings (including integral plant and equipment). Investment properties are initially recorded at cost of acquisition, including transaction costs, at the date of acquisition. Subsequent to initial recognition, the carrying amount of an investment property is the fair value of the property which is determined using the capitalisation of net rental income and the discounted cash flow methods and also having regard to recent market transactions for similar properties in the same location as the Fund s investment property. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 37

40 Example Defined Contribution Superannuation Fund AASB AASB , Significant accounting policies (continued) (a) (ii) Financial assets and financial liabilities (continued) Fair value measurement (continued) Investment properties Generally, the net market value is determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Fund s investment property every six months. Gain or loss arising from a change in the fair value of the investment property is recognised in the income statement for the period in which it arises. Investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Gain or loss arising from the disposal of investment property is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in the income statement in the period of disposal. AASB 107.6, 7 (b) Cash and cash equivalents Cash and cash equivalents comprise deposits with banks and highly liquid financial assets with maturities of three months or less from the date of acquisition that are subject to an insignificant risk of changes in their fair value and are used by the Fund in the management of short-term commitments. (c) Receivables and payables Receivables and payables are carried at nominal amounts which approximate fair value. Receivables and payables are normally settled within 30 days. (d) Benefits payable Benefits payable comprises the entitlements of members who ceased employment with the employer sponsor prior to year end, but have not been paid by that date. Benefits payables are normally settled within 30 days. AASB AASB , 23(a), (b), (c), 28 (e) Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. AASB (b)(iii) AASB (a) (f) (i) Revenue recognition Interest revenue Interest income is recognised in the income statement as it accrues using the effective interest rate method at the acquisition or origination date. Interest income includes the amortisation of any discount or premium, transaction costs or other differences between the initial carry amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 38

41 Example Defined Contribution Superannuation Fund AASB (c) 16. Significant accounting policies (continued) (f) Revenue recognition (continued) (ii) Dividend income Dividend income is recognised in the income statement on the date the shares are quoted exdividend. For unquoted equity securities, this is usually the date on which the shareholders approve the payment of a dividend. If not received at reporting date, this is reflected in the statement of financial position as a receivable at fair value. (iii) Distribution income Distributions from managed investment schemes and units in unit trusts are recognised in the income statement as at the date the unit value is quoted ex-distribution. If not received at reporting date, this is reflected in the statement of financial position as a receivable at fair value. AASB (iv) Property rental income Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognised as other income. (v) Changes in fair values Changes in fair value of investments (including investment property) are recognised as income and are determined as the difference between the fair value at year end or consideration received (if sold during the year) and the fair value as at the prior year end or cost (if the investment was acquired during the period). (g) Contributions revenue and transfers in Contributions revenue and transfers in are recognised in the statement of changes in member benefits when the control and the benefits from the revenue have transferred to the Fund and is recognised gross of any taxes. AASB AASB 1056.AG15 AASB AASB , 24, 47 (h) Income tax Income tax on for the year comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in members funds in which case it is recognised directly in statement of changes in member benefits. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the statement of financial position date and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit, and differences relating to investments in controlled entities to the extent that it is not probable they will reverse in the foreseeable future. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 39

42 Example Defined Contribution Superannuation Fund AASB , 51C AASB , 56 AASB Significant accounting policies (continued) (h) Income tax (continued) The amount of deferred tax provided is based on the expected manner of realisation of the asset or settlement of the liability, using tax rates enacted or substantively enacted at reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Fund expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For investment property that is measured at net market value, there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be realised. Further, the Fund applies a deferred tax asset cap in line with its current deferred tax asset capping policy, whereby any deferred tax asset is capped at XX% of the Fund s net assets. Deferred tax assets and deferred tax liabilities are offset and the net amount presented in the statement of financial position when and only when, the Fund currently has a legally enforceable right to offset the amounts and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority or either the same taxable entity or different taxable entities that intends either to settle them on a net basis. Income tax has been provided in the current year at the rate of 15% as it is the expectation of the Trustee that the Fund will be treated as a complying superannuation fund. If the Fund is subsequently deemed to be a non-complying fund for the current year, then income tax will be payable at a rate of 45% on the Fund s taxable income. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 40

43 Example Defined Contribution Superannuation Fund AASB , New standards and interpretations not yet adopted ᵃ A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2015, and have not been applied in preparing the financial statements. Those which may be relevant to the Fund are set out below. The Fund does not plan to adopt these standards early. (a) AASB 9 Financial Instruments AASB 9, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The adoption of AASB 9 is expected to have an impact on the Fund s financial assets, but no impact on the Fund s financial liabilities. (b) AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Fund is assessing the potential impact on its financial statements resulting from the application of AASB 15. (c) AASB 16 Leases AASB 16 removes the lease classification test for lessees and requires all leases (including operating leases) to be brought onto the balance sheet. The definition of a lease is also amended and is now the new on/off balance sheet test for lessees. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted where AASB 15 Revenue from Contracts with Customers is adopted at the same time. The Fund is assessing the potential impact on its financial statements resulting from the application of AASB 16. AASB Subsequent events There has been no significant events that have occurred since the end of the financial year to the date of this report which would impact on the operations the financial position of the Fund disclosed in the statement of financial position as at 30 June 2016 or on the results of the operations and the cash flows for the year ended 30 June ᵃ Refer to KPMG publication Standards on Issue for the most up to date listing of standards and interpretations on issue. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 41

44 Example Defined Contribution Superannuation Fund Trustee s declaration In the opinion of the Trustee of Example Defined Contribution Superannuation Fund: i. The accompanying financial statements of Example Defined Contribution Superannuation Fund are drawn up so as to present fairly the financial position of the Fund as at 30 June 2016 and the results of its operations and cash flows for the year ended on that date in accordance with Australian Accounting Standards and the provisions of the Trust Deed dated [date]; and ii. The operations of Example Defined Contribution Superannuation Fund has been carried out in accordance with its Trust deed dated [date], as amended and in compliance with the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations, applicable sections of the Corporations Act 2001 and Regulations and the requirements under Section 13 of the Financial Sector (Collection of Data) Act Signed in accordance with a resolution of the Trustee directors: Dated at [city]. day of [Director_name] Director [Director_name] Director International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 42

45 Example Hybrid Superannuation Fund Annual financial report 30 June 2016

46 Contents Page Statement of financial position 3 Income statement 4 Statement of changes in member benefits 5 Statement of changes in reserves 6 Statement of cash flow 7 8 Trustee s declaration to members 47

47 Statement of financial position As at 30 June 2016 In thousands of dollars Note AASB Assets Cash and cash equivalents AASB (i) Cash and cash equivalents 16(a) 3,338 9,458 Receivables Investment income receivables 10,222 7,117 Unsettled investment sales 1,189 1,262 Contributions receivables 10 1,007 1,482 Other receivables 8 10 Investments Shares in Australian listed companies 3 145, ,931 AASB 1056.AG12 Units in unlisted unit trusts 3 Units in Australian shares trusts 237, ,233 Units in international shares trusts 144, ,823 Units in property and infrastructure trusts 134, ,423 Units in fixed interest securities trusts 328, ,349 AASB (b) Investment properties 4 1, Derivative assets 4,578 2,933 Other assets AASB (o) Deferred tax assets 12(c) 2,195 2,891 AASB (a) Reinsurance assetsᵃ 11 1, AASB Total assets 1,015, ,642 Liabilities Unsettled investment purchases 5,200 5,007 AASB (j) Sundry creditors 1,422 1,668 Derivative liabilities 162, ,793 AASB (n) Current tax liabilities 4,239 3,971 AASB (o) Deferred tax liabilities 12(c) 28,934 29,284 AASB (a) Insurance liabilities ᵃ 11 3,802 3,694 Total liabilities (excluding member benefits) 205, ,417 Net assets available for member benefits 809, ,225 AASB Member benefits AASB 1056.AG10 Defined contribution member liabilities 8(a) 679, ,160 AASB 1056.AG10 Defined benefit member liabilities 8(b) 135, ,274 Total member liabilities 815, ,434 Total net assets 5,391 4,209 Equity AASB (r) Operational risk reserve 9 2,557 1,631 AASB (r) Insurance reserve ,962 AASB (r) Investment reserve AASB 1056.AG8 Defined benefit that are over / (under) funded 8(b) (892) (1,022) Total equity 5,391 4,209 The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 9 to 46. AASB AG44(b) ᵃ In this example, Example Hybrid Superannuation Fund is acting in the capacity of an insurer and therefore insurance liabilities and reinsurance assets are recognised in the statement of financial position. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 3

48 Income statement For the year ended 30 June 2016 In thousands of dollars Note Superannuation Activities Revenue AASB (b)(iii) Interest revenue AASB (b)(v) Distributions and dividends 88,223 83,093 AASB (f)(i) Net rentals from directly held property AASB 7.20(a)(i) Net changes in fair value of investments 5 38,734 38,923 Net foreign exchange gains / (losses) 2,099 1,919 Total revenue 129, ,464 AASB (b) Expenses Investment expenses 13(a) (5,983) (3,987) General administration expenses 13(b) (6,822) (4,407) Other operating expenses (644) (168) Total expenses (13,449) (8,562) Net result from superannuation activities 116, ,902 AASB (e),10 Net result from insurance activitiesᵃ 11(a) Profit / (loss) from operating activities 116, ,941 AASB (c) Less: net benefits allocated to defined contribution members accounts (106,541) (104,947) AASB (d) Less: net change in defined benefit member liabilities (6,901) (6,842) AASB (e) Profit / (loss) before income tax 2,674 4,152 AASB (f) Less: Income tax expense ᵇ 12(a) (1,492) (3,102) Profit / (loss) after income tax 1,182 1,050 The income statement is to be read in conjunction with the notes to the financial statements set out on pages 9 to 46. AASB (e),10 AASB AG15 ᵃ ᵇ In this example, Example Hybrid Superannuation Fund is acting in the capacity of an insurer. Therefore the net results from insurance activities (comprising of insurance contract revenue, insurance claims expenses and reinsurance recoveries) are recognised in the income statement. If a Fund is acting in the capacity of an insurer, the Fund should undertake an assessment to determine whether the Fund continues to meet the definition of an investment entity per AASB 10 Consolidated Financial Statements. The income tax expense or benefit attributable to profit or loss does not include the taxes levied on concessional contributions, which is included in the statement of changes in member benefits and impacts on the amount of net benefits allocated to members. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 4

49 Statement of changes in member benefits For the year ended 30 June 2016 For the year ended 30 June 2016 In thousands of dollars Note Defined contribution Defined benefit AASB Opening balance of member benefits 571, , ,343 Contributions: AASB (a) Employer 38,975 19,116 58,091 AASB (b) Member 22,061 2,580 24,641 AASB (d) Transfers from other superannuation funds 58,524-58,524 Government co-contributions AASB (c) Income tax on contributionsᵃ (17,276) (988) (18,264) Net after tax contributions 102,429 20, ,137 Total AASB (e) Benefit payments (100,435) (21,313) (121,748) AASB (f) Insurance premiums charged to member s accounts (935) (279) (1,214) Death and disability benefits credited to members accounts ,256 AASB (g) Benefits allocated to members accounts, comprising: Net investment income ᵇ 109, ,923 Administration fees ᵇ (3,382) - (3,382) AASB (h) Net change in defined benefit member accrued benefits - 6,901 6,901 AASB Closing balance of member benefits 8 679, , ,307 For the year ended 30 June 2015 In thousands of dollars AASB Opening balance of member benefits 356, , ,640 Contributions: AASB (a) Employer 35,702 19,409 55,111 AASB (b) Member 27,534 2,030 29,564 AASB (d) Transfers from other superannuation funds 60,347-60,347 Government co-contributions AASB (c) Income tax on contributionsᵃ (12,996) (907) (13,903) Net after tax contributions 110,726 20, ,258 AASB (e) Benefit payments (100,867) (25,562) (126,429) AASB (f) Insurance premiums charged to member s accounts (651) (102) (753) Death and disability benefits credited to members accounts AASB (g) Benefits allocated to members accounts, comprising: Net investment income ᵇ 108, ,925 Administration fees ᵇ (3,978) - (3,978) AASB (h) Net change in defined benefit member accrued benefits - 6,842 6,842 AASB Closing balance of member benefits 8 571, , ,434 The statement of changes in member benefits is to be read in conjunction with the notes to the financial statements set out on pages 9 to 46. AASB AASB AG20 ᵃ Current tax and deferred tax is charged or credited directly to member liabilities and presented in the statement of changes in member benefits when the tax relates to items that are credited or charged, in the same or different period, directly to member liabilities. ᵇ Where appropriate, separate disclosure of net investment income and the administration costs charged to member accounts is made in the statement of changes in member benefits or in the notes to the financial statements. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 5

50 Statement of changes in reservesᵃ For the year ended 30 June 2016 In thousands of dollars Operational risk reserve Insurance reserve Investment reserve Unallocated surplus / (deficiency) Total equity Opening balance as at 1 July ,631 2, (1,022) 4,209 Net transfers to / from DC member (618) - - accounts Net transfers to / from DB member accounts Profit / (loss) ,182 Closing balance as at 30 June ,557 3, (892) 5,391 Opening balance as at 1 July ,533 2, (1,635) 3,159 Net transfers to / from DC member accounts Net transfers to / from DB member accounts Profit / (loss) ,050 Closing balance as at 30 June ,631 2, (1,022) 4,209 The statement of changes in reserves is to be read in conjunction with the notes to the financial statements set out on pages 9 to 46. AASB AG21 ᵃ The interests of members of superannuation entities are liabilities and are not regarded as meeting the definition of an equity instrument in paragraph 11 of AASB 132 Financial Instruments: Presentation, which is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Superannuation entities would not disclose equity information equivalent to that required by paragraphs 79(a) and 80 of AASB 101, in relation to member liabilities. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 6 6

51 Statement of cash flows For the year ended 30 June 2016 In thousands of dollars Note Cash flows from operating activities AASB , 33 Interest received AASB , 33 Dividend and distributions received 85,118 93,282 AASB , 33 Property rentals received AASB (e) Insurance premiums (inwards) 1, Reinsurance recoveries AASB (e) Reinsurance premiums (outwards) (401) (389) General admin expense (7,073) (5,087) Other expenses (639) (171) Investment expenses (5,983) (3,987) AASB Income tax expense (1,224) (3,412) Net cash inflows from operating activities 16(b) 71,661 81,951 AASB Cash flows from investing activities Proceeds from sale of investments Sales of Australian listed companies 21,361 25,633 Sales of units in Australian shares trust 24,123 32,455 Sales of units in international shares trust 43,232 34,713 Sales of units in property and infrastructure trust 96,011 99,803 Sales of units in fixed interest securities trust 88,923 89,336 Sales of investment property Sales of derivatives 3,988 5,382 Payments for purchase of investments Purchase of Australian listed companies (89,872) (88,094) Purchase of units in Australian shares trust (53,204) (48,203) Purchase of units in international shares trust (72,039) (85,642) Purchase of units in property and infrastructure trust (89,235) (83,245) Purchase of units in fixed interest securities trust (45,340) (58,904) Additions to investment properties (40) - Purchase of derivatives (6,793) (7,682) Net cash used in investing activities (79,645) (84,176) AASB , 21 Cash flows from financing activities Employer contributionsᵃ 58,566 54,861 Member contributionsᵃ 24,641 29,564 Transfer from other fundsᵃ 58,524 60,347 Government co-contributionsᵃ Benefits paid to membersᵃ (121,748) (126,429) Income tax paid on contributions received (18,216) (13,782) Contribution surcharge paid (48) (121) Net cash inflows from financing activities 1,864 4,579 Net increase in cash and cash equivalents (6,120) 2,354 Cash at the beginning of the period 9,458 7,104 AASB Cash at the end of the period 3,338 9,458 The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 9 to 46. ᵃ Contributions, transfers-in and benefit payments are treated as financing activities as any member initiated activities will result in changes in the size and composition of the member liability of the superannuation entity. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 7

52 Contents Page 1. Reporting entity 9 2. Basis of preparation 9 3. Fair value of financial instruments Investment properties Changes in fair values Financial risk management Involvement with unconsolidated subsidiaries and structured entities Member liabilities and funding arrangements Reserves Contribution receivables Insurance Income tax Expenses Auditors remuneration Capital commitments Cash flows reconciliation Related parties Significant accounting policies New standards and interpretations not yet adopted Subsequent events 46 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 8

53 AASB (a) (c) AASB Reporting entity Example Hybrid Superannuation Fund (the Fund ) is a hybrid contribution superannuation fund, which consists of both a defined benefit section and a defined contribution section. The defined benefit section is closed to new entrants from [DD Month YYYY]. The Fund is domiciled in Australia. The address of the Fund s registered office is [address]. The Fund primarily is involved in providing retirement benefits to its members. The Fund is constituted by a Trust Deed dated [date] and holds a public offer license primarily to provide superannuation benefits to employees in the [ Name ] industry in Australia. The Trustee of the Fund is Example Trustee Company Limited (RSE No ). AASB (a) AASB ,114 AASB ,8(a),9 AASB Basis of preparation (a) Statement of compliance The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards, other applicable Australian Accounting Standards and the provisions of the Trust Deed and the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations. The Fund is a not-for profit entity. The financial statements were authorised for issue by the Board of Directors of the Trustee, Example Trustee Company Limited, on [date]. AASB (e) (b) Functional and presentation currency The financial statements are presented in Australian dollars, which is the Fund s functional currency. Amount has been rounded to the nearest thousand unless otherwise stated. AASB , 125 (c) Use of judgements and estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: Note 3: Fair values of financial instruments Note 4: Investment properties Note 11: Insurance International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 9

54 AASB 12.9A 2. Basis of preparation (continued) (c) Use of judgements and estimates (continued) Subsidiaries are investees controlled by the Fund. The Fund controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Fund meets the definition of an investment entity per AASB 10 Consolidated Financial Statements and therefore recognises and measures investments in its subsidiaries at fair value. In determining whether the Fund meets the definition of an investment entity, Management considered the Group structure as a whole. In particular, when assessing the existence of investment exit strategies and whether the Fund has more than one investment, Management took into consideration the fact that the subsidiary was formed in order to hold investments on behalf of the Fund. Management concluded that the Fund and the subsidiaries each meet the definition of an investment entity. Consequently, Management concluded that the Fund should not consolidate the subsidiaries. AASB (a), (b) AASB (d) AASB (c) (d) Adoption of AASB 1056 Superannuation Entities The Fund has early adopted AASB 1056 Superannuation Entities ( AASB 1056 ) which is applicable for annual reporting periods beginning on or after 1 July In accordance with the transitional provisions of AASB 1056, the Fund has applied the new accounting standard retrospectively and restated comparative information. On initial application AASB 1056, the Fund is not required to and has not presented a statement of financial position as at the beginning of the earlier comparative period. The early adoption of AASB 1056 has resulted in the following: Changes to the format of the financial statements; Changes to the measurement of assets and liabilities from net market value to fair value with the exception of member liabilities and tax assets and liabilities; Recognition of reinsurance assets, insurance liabilities, employer sponsor receivables and member liabilities in the statement of financial position; Recognition of benefits allocated to members accounts in the income statement; Contributions, transfers in, benefit payments, insurance premiums charged to member accounts, insurance premium paid to members and income tax on contributions are presented separately in the statement of changes in member benefits; Cash flow transactions from contributions relating to member benefits are now presented as financing activities; Statement of changes in reserves are required to be presented; and Additional disclosures on member benefits, reinsurance assets and insurance liabilities. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 10

55 AASB (f) 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) The table below presents, in respect of the period immediately preceding the date of initial application, the resulting changes as previously reported in the financial statement. (i) Statement of financial position In thousands of dollars Assets 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Cash and cash equivalents 9,458-9,458 Other receivables Investment income receivables 7,117-7,117 Unsettled investment sales 1,262-1,262 Contributions receivables 1,482-1,482 Shares in Australian listed companies 100,859 72ᵃ 100,931 Units in unlisted unit trusts Units in Australian shares trust 218, ᵃ 218,233 Units in international shares trust 103,725 98ᵃ 103,823 Units in property and infrastructure trust 128, ᵃ 128,423 Units in fixed interest securities trust 326, ᵃ 326,349 Investment properties Derivative assets 2,933-2,933 Deferred tax assets 2,891-2,891 Reinsurance assets - 770ᵇ 770 Total assets 903,196 1, ,642 Liabilities Unsettled investment purchases 5,007-5,007 Sundry creditors 1,668-1,668 Derivative liabilities 164, ,793 Current tax liabilities 3,971-3,971 Deferred tax liabilities 29, ᶜ 29,284 Insurance liabilities - 3,694ᵇ 3,694 Total liabilities (excluding member benefits) 204,622 3, ,417 Net assets available for member benefits 698,574 (2,349) 696,225 Defined contribution member liabilities - 571,160ᵈ 571,160 Defined benefits member liabilities - 129,274ᵈ 129,274 Total net assets 698,574 (602,783) 4,209 Equity Operational risk reserve - 1,631ᵈ 1,631 Insurance reserve - 2,962ᵈ 2,962 Investment reserve - 638ᵈ 638 Defined benefit that are over/ (under) funded - (1,022)ᵈ (1,022) Total Equity - 4,209 4,209 Explanation of movements (a) Under AASB 1056, assets and liabilities are required to be measured at fair value. AAS 25 required assets and financial liabilities to be measured at net market values. Therefore the movement in the value of investments with the adoption of AASB 1056 is the cost of disposal of investments, which is now required to be included in accordance with fair value measurement. (b) AASB 1056 requires that any insurance contract liabilities and assets are measured in a manner consistent with the way in which defined benefit member liabilities are measured. Therefore, reinsurance assets and insurance liabilities have been recognised in the statement of financial position. (c) This movement represents the tax effect of the adjustment for investment disposal costs, as a result of investments being measured at fair value in accordance with AASB (d) AASB 1056 requires both defined contribution and defined benefit member liabilities to be recognised and measured as the amount of accrued benefits. This movement represents the recognition of this liability on the face of statement of financial position. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 11

56 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) AASB (f) (ii) Income statement In thousands of dollars 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Interest revenue Distributions and dividends 83,093-83,093 Net rentals from directly held property Net measurement changes in assets measured 38, ᵃ 38,923 at fair value Net foreign exchange gains / (losses) 1,919-1,919 Contributions: Employer 55,111 (55,111) ᵇ - Member 39,564 (39,564) ᵇ - Transfers from other superannuation plans 60,347 (60,347) ᵇ - Government co-contributions 139 (139) ᵇ - Total revenue 278,949 (154,485) 124,464 Investment expenses 3,987-3,987 General administration expenses 4,407-4,407 Other operating expenses Total expense 8,562-8,562 Net result from insurance activities - 39ᶜ 39 Profit / (loss) from operating activities 270,387 (154,446) 115,941 Less: Net benefits allocated to defined - (104,947)ᵈ (104,947) contribution members accounts Less: Net change in defined benefit member benefits - (6,842) ᵈ (6,842) Profit/ (loss) before income tax 270,387 (266,235) 4,152 Income tax expense 16,904 (13,802)ᵉ 3,102 Profit / (loss) after income tax 253,483 (252,433) 1,050 Explanation of movements (a) Under AASB 1056, assets and liabilities are required to be measured at fair value. AAS 25 required assets and financial liabilities to be measured at net market values. Therefore investment disposal costs are now required to be included in accordance with fair value measurement. (b) These items are required to be presented separately in the Statement of Changes in Member Benefits. (c) Disclosure of net results from insurance activities in the income statement is required in instances where a superannuation entity acts in the capacity of an insurer in respect of defined contribution members. (d) This movement represents ther recognition of net benefits allocated to the members on the face of the income statement, as a result of the adoption of AASB (e) This includes ($13,903,000) of income tax relating to contributions which is now presented separately in the statement of changes in member benefits. An amount of $101,000 relates to the tax effect of disposal cost adjustments at 15% International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 12

57 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) (iii) Statement of cash flows AASB (f) In thousands of dollars 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Cash flows from operating activities Employer contributions 54,861 (54,861)ᵃ - Member contributions 29,564 (29,564)ᵃ - Transfer from other funds 60,347 (60,347)ᵃ - Government co-contributions 139 (139)ᵃ - Interest received Dividend and distributions received 93,282-93,282 Property rentals received Insurance premiums (inwards) Reinsurance recoveries Reinsurance premium (outwards) (389) - (389) Benefits paid to members (126,429) 126,429ᵃ - Contribution surcharge paid (121) 121ᵃ - General admin expense (5,087) - (5,087) Other expenses (171) - (171) Investment expenses (3,987) - (3,987) Income tax expense (17,194) 13,782ᵇ (3,412) Net cash inflows from operating activities 86,530 (4,579) 81,951 Cash flows from investing activities Proceeds from sale of investments Sales of Australian listed companies 25,633-25,633 Sales of units in Australian shares trust 32,455-32,455 Sales of units in international shares trust 34,713-34,713 Sales of units in property and infrastructure trust 99,803-99,803 Sales of units in fixed interest securities trust 89,336-89,336 Sales of investment property Sales of derivatives 5,382-5,382 Payments for purchase of investments Purchase of Australian listed companies (88,094) - (88,094) Purchase of units in Australian shares trust (48,203) - (48,203) Purchase of units in international shares trust (85,642) - (85,642) Purchase of units in property & infrastructure trust (83,245) - (83,245) Purchase of units in fixed interest securities trust (58,904) - (58,904) Additions to investment properties Purchase of derivatives (7,682) - (7,682) Net cash used in investing activities (84,176) - (84,176) International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 13

58 2. Basis of preparation (continued) (d) Adoption of AASB 1056 Superannuation Entities (continued) AASB (f) (iii) Statement of cash flows (continued) In thousands of dollars 30 June 2015 as previously reported Adjustments 30 June 2015 as restated Cash flows from financing activities Employer contributions - 54,861ᵃ 54,861 Member contributions - 29,564ᵃ 29,564 Transfer from other funds - 60,347ᵃ 60,347 Government co-contributions - 139ᵃ 139 Benefits paid to members - (126,429)ᵃ (126,429) Income tax paid on contributions received - (13,782)ᵇ (13,782) Contribution surcharge paid - (121)ᵇ (121) Net cash inflows from operating activities - 4,579 4,579 Net increase/(decrease) in cash and cash 2,354-2,354 equivalents Cash and cash equivalents at the beginning of 7,104-7,104 the period Cash and cash equivalents at the end of the period 9,458-9,458 Explanation of movements (a) Contributions, transfers-in and benefit payments are treated as financing activities as any member initiated activities will result in changes in the size and composition of the member liability of the superannuation entity. (b) Income tax on contributions is presented separately in the cash flows from financing activities. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 14

59 3. Fair values of financial instruments AASB AASB (a) Valuation models The fair value of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or broker quotations. For all other financial instruments, the Trustee determines the fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. AASB Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category includes all instruments for which the valuation technique includes inputs not based on observable data and whose unobservable inputs have a significant effect on the instrument s valuation. AASB 13.93(d) Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which observable market prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The Fund uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter (OTC) derivatives such as interest rate swaps. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and reduces the uncertainty associated with the determination of fair values. The availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. (b) Valuation framework AASB 13.93(g) The Fund has an established control framework with respect to the measurement of fair values. This framework includes a portfolio valuation function, which is independent of front office management and reports to the board of directors, who have overall responsibility for fair value measurements. Specific controls include: verification of observable pricing inputs re-performance of model valuations; a review and approval process for new models and changes to such models; calibration and back-testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; and review of unobservable inputs and valuation adjustments. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 15

60 AASB 13.93(g) 3. Fair values of financial instruments (continued) (b) Valuation models (continued) When third party information, such as broker quotes or pricing services, is used to measure fair value, then the portfolio valuation function assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of Australian Accounting Standards. This includes: verifying that the broker or pricing service is approved by the Fund for use in pricing the relevant type of financial instrument; understanding how the fair value has been arrived at and the extent to which it represents actual market transactions; when prices for similar instruments are used to measure fair value, how these prices have been adjusted to reflect the characteristics of the instrument subject to measurement; and if a number of quotes for the same financial instrument have been obtained, then how fair value has been determined using those quotes. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 16

61 AASB 13.93(b) 3. Fair values of financial instruments (continued) (c) Fair value hierarchy The table below analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. As at 30 June 2016 In thousands of dollars Level 1 Level 2 Level 3 Total Financial assets Shares in Australian listed companies 145, ,234 Units in unlisted unit trusts Units in Australian shares trusts Units in international shares trusts Units in property and infrastructure trusts Units in fixed interest securities trusts - 159, , ,485 Derivative assets - 4,578-4, , , , , , ,823 Total financial assets 145, , , ,435 Financial liabilities Derivative liabilities - 162, ,084 Total financial liabilities - 162, , , , , ,351 As at 30 June 2015 In thousands of dollars Level 1 Level 2 Level 3 Total Financial assets Shares in Australian listed companies 100, ,931 Units in unlisted unit trusts Units in Australian shares trusts - 218, ,233 Units in international shares trusts - 103, ,823 Units in property and infrastructure trusts , ,423 Units in fixed interest securities trusts - 166, , ,349 Derivative assets - 2,933-2,933 Total financial assets 100, , , ,692 AASB 13.93(c) Financial liabilities Derivative liabilities - 164, ,793 Total financial liabilities - 164, , , , , ,899 During the current year, shares in Australian listed companies with a carrying amount of $10 thousand were transferred from Level 1 to Level 2 because public price quotations in an active market for these instruments were no longer available. However, there was sufficient information available to measure the fair values of these securities based on observable market inputs. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 17

62 3. Fair values of financial instruments (continued) AASB 13.93(c) (c) Fair value hierarchy (continued) The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy: 30 June 2016 In thousands of dollars Units in unlisted unit trusts AASB 13.93(e) AASB 13.93(e)(i) AASB 13.93(e)(iii) AASB 13.93(e)(iii) AASB 13.93(e)(iv) AASB 13.93(e)(iv) AASB 13.93(e) AASB 13.93(f) Balance at 1 July ,414 Total gains or losses recognised in the income statement 18,474 Purchases 14,027 Sales (17,595) Transfers into level 3 - Transfers out of level 3 - Closing balance as at 30 June ,320 Total gains or losses for the period included in the income statement attributable to changes in unrealised gains and losses relating to financial assets and liabilities held at reporting date 9, June 2015 In thousands of dollars Units in unlisted unit trusts AASB 13.93(e) AASB 13.93(e)(i) AASB 13.93(e)(iii) AASB 13.93(e)(iii) AASB 13.93(e)(iv) AASB 13.93(e)(iv) AASB 13.93(e) AASB 13.93(f) Balance at 1 July ,505 Total gains or losses recognised in the income statement 14,906 Purchases 15,762 Sales (5,759) Transfers into level 3 - Transfers out of level 3 - Closing balance as at 30 June ,414 Total gains or losses for the period included in the income statement attributable to changes in unrealised gains and losses relating to financial assets and liabilities held at reporting date 2,147 (d) Significant unobservable inputs used in measuring fair valueᵃ AASB 13.93(d), (h)(i), 99 The table below sets out information about significant unobservable inputs used in measuring financial instruments categorised as Level 3 in the fair value hierarchy. Description Units in unlisted unit trusts Fair value $ : 303, : 288,414 Valuation technique Adjusted net asset value Unobservable input Discount for lack of marketability / restricted redemptions Range (weighted average) 2016: 8 10% (9%) 2015: 7 10% (8.5%) A significant increase in the discount factor would result in a lower fair value. AASB (d) ᵃ An entity is not required to create quantitative information to comply with this disclosure requirements if quantitative unobservable inputs are not developed by the entity when measuring fair value (eg. When an entity uses prices from prior transactions or third-party pricing information without adjustment). However, when providing this disclosure an entity cannot ignore quantitative unobservable inputs that are significant to the fair value measurement and are reasonably available to the entity. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 18

63 4. Investment Propertyᵃ (a) Reconciliation of carrying amount AASB , AASB 13.93(e) AASB (a) AASB 13.93(e) (iii) AASB (g) AASB 13.93(e)(iii) AASB (d) AASB 13.93(f) AASB AASB 13.93(e) In thousands of dollars Opening balance as at 1 July 960 1,160 Additions 40 - Disposals - (272) Net changes in fair value Closing balance as at 30 June 1, AASB (c) Investment property comprises a number of commercial properties that are leased to third parties. Each of the leases contains an initial non-cancellable period of ten years, with annual rents indexed to consumer prices. Subsequent renewals are negotiated with the lessee and historically, the average renewal period is four years. No contingent rents are charged. AASB (e) AASB 13.93(b) (b) (i) Measurement of fair values Fair value hierarchy The fair value of investment property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Fund s investment property portfolio every six months. The fair value measurement for investment property has been categorised as a Level 3 fair value based on the inputs to the valuation technique used. Insights ᵃ Because AASB 140 Investment Property makes no reference to making disclosures on a class-by-class basis, it could be assumed that the minimum requirement is to make the disclosures on an aggregate basis for the whole investment property portfolio. If investment property represents a significant portion of the assets, then we prefer entities to disclose additional analysis e.g. portfolio by types of investment property. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 19

64 4. Investment property (continued) (b) (ii) Measurement of fair values (continued) Valuation technique and significant unobservable inputs AAS 13.93(d), (h), (is), 99 The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used. Valuation technique Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from the property, taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms. 5. Changes in fair values Significant unobservable inputs Expected market rental growth (2 3% (2015: 2-3%), weighted average 2.6% (2015: 2.6%)). Void periods (average 6 months after the end of each lease). Occupancy rate (90 95% (2015: 90 93%), weighted average (92.5% (2015: 91.5%)). Rent-free periods (1-year period on new leases). Risk-adjusted discount rates (5 6.3% (2015: 5 6.1%), weighted average 5.8% (2015: 5.55%)). Inter-relationship between key unobservable inputs and fair value measurement The estimated fair value would increase (decrease) if: expected market rental growth were higher (lower); void periods were shorter (longer); the occupancy rate were higher (lower); rent-free periods were shorter (longer); or the risk-adjusted discount rate were lower (higher). In thousands of dollars Investments held at the end of the financial year Shares in Australian listed companies (16,685) (17,601) Units in Australian shares trust (10,480) (7,885) Units in international shares trust 8,561 7,611 Units in property and infrastructure trust 9,641 (7,772) Units in fixed interest securities trust 30,067 12,093 Investment properties Derivative assets and liabilities (12,362) 23,040 8,942 9,682 In thousands of dollars Investments realised during the financial year Shares in Australian listed companies (7,523) (8,793) Units in Australian shares trust 3,844 2,913 Units in international shares trust 2,382 3,021 Units in property and infrastructure trust 3,214 2,321 Units in fixed interest securities trust 14,892 19,921 Investment properties - (124) Derivative assets and liabilities 12,983 9,982 29,797 29,241 Total 38,734 38,923 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 20

65 AASB Financial risk management The Fund s assets principally consist of financial instruments which comprise shares in listed companies, units in collective investment vehicles such as unlisted unit trusts and other unitised investments. The Trustee has determined that this type of investment is appropriate for the Fund and is in accordance with the Fund s published investment strategy. The Board of Directors of the Trustee has overall responsibility for the establishment and oversight of the Fund s risk management framework. The Trustee s risk management policies are established to identify and analyse the risks faced by the Fund, including those risks managed by the Fund s Investment Manager, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Fund s activities. The Trustee acknowledges that an integral part of its good governance practice is a sound and prudent risk management framework. The risk framework is documented in the Fund s Risk Management Framework and Investment Governance Framework which is subject to regular review both by management and the Board and an annual audit of compliance. The Board has established an Investment Committee, consisting of selected Board Members with appropriate Investment experience. The Investment Committee which is responsible for developing and monitoring the Fund s risk management policies related to investment activities. This includes oversight of the allocation of investments to fund managers, evaluating their performance and providing recommendations to the Board who has ultimate responsibility for the appointment of fund managers. The Investment Committee receives quarterly risk management reports from the Fund s Investment Manager and, in turn, reports quarterly to the Board of Directors of the Trustee on its activities. Divergence from target asset allocations and the composition of the portfolio is monitored by the Fund s Investment Manager on a daily basis. Reports from the Fund s Investment Manager include the following: details of the controls it has in place to monitor compliance with the Fund s investment strategy; current asset allocations against target positions; investment performance against benchmarks; and Fund Investment Manager Compliance reporting. Further, the Fund undertakes extensive due diligence to ensure Fund Managers have appropriate skills and expertise to manage the Fund s allocated investments prior to their appointment. The Investment Department tracks the Fund s investment value on a daily basis through appropriate monitoring of the market conditions and benchmark analysis. XYZ Investment Consultants provide expert advice regarding the management of the Fund s investment portfolio in accordance with the investment strategy. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 21

66 6. Financial risk management (continued) AASB 7.33 AASB 7.31 The Trustee s Audit and Compliance Committee oversees how management monitors compliance with the Fund and its controlled entities risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Fund. The Trustee s Audit and Compliance Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit and Compliance Committee. The Fund s investing activities expose it to the following risks from its use of financial instruments: credit risk liquidity risk market risk (a) Credit Risk AASB 7.33, 34 AASB 7.36 (a), (b), (c) Credit risk is the risk that a counterparty to a financial instrument will cause a financial loss for the Fund by failing to discharge an obligation. The Fund has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis by the Finance and Investment Departments. The credit policy provides guidelines as to the appropriate terms and conditions of transactions entered into and the escalation procedures to follow when the recovery of assets is considered doubtful. The carrying amounts of financial assets as shown on the statement of financial position, best represent the maximum credit risk exposure at the reporting date. No collateral is held as security or other credit enhancements exist for all financial assets held. No financial assets are considered past due as all payments are considered recoverable when contractually due. AASB 7.34(a), 36(a), (c) AASB 7.33(a)(b) AASB 7.33(a)(b) Substantially all of the cash held by the Fund is held by ABC Bank which are rated AA+ based on [Rating Agency Y] ratings. Bankruptcy or insolvency by ABC Bank may cause the Fund s rights with respect to the cash held by ABC Bank to be delayed or limited to the extent it is not covered by the Federal Deposit Guarantee. The Fund monitors its credit risk by monitoring the credit quality and financial positions of the bank through regular analysis of their financial reports. Credit risk associated with interest income and investment income receivables is considered low as there is usually a short settlement period. The Fund monitors the ageing of the receivables outstanding on a monthly basis to ensure all investment income and interest receivables do not exceed 30 days. Credit risk associated with employer sponsors receivable is considered low as the fund has a contractual agreement with the employer sponsors to meet the shortfall for the defined benefit member liabilities. Unsettled investment sales are transactions with investment managers that are awaiting settlement. The credit risk relating to unsettled transactions is considered small due to the short settlement period involved and the high credit quality of the brokers used. The Fund monitors the aging of unsettled trades on a monthly basis to ensure all receivables do not exceed 30 days. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 22

67 AASB 7.33(a)(b) 6. Financial risk management (continued) (a) Credit risk (continued) Credit risk arising on investments is mitigated by the extensive due diligence prior to the appointment of Fund Managers appropriate monitoring of the market conditions and benchmark analysis. Further XYZ Investment Consultants provide expert investment advice. Substantially all of the assets of the Fund are held by XYZ Custodian Pty Ltd. Bankruptcy or insolvency of the custodian may cause the Fund s rights with respect to securities held by the custodian to be delayed or limited. The Fund monitors its risk by monitoring the credit quality and financial positions of the custodian through regular analysis of their financial reports. Reinsurance arrangements is placed with ABC Insurer which is rated AA based on [Rating Agency Y] ratings. The Fund undertakes extensive due diligence and evaluation of the financial strength of the reinsurers, terms of coverage and price to mitigate credit risk arising from reinsurance arrangements. AASB 7.34(a), 36(a), (c) AASB 7.36(c) AASB 7.33 AASB 7.33(a), (b) 39(c) (b) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Fund s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Fund s reputation. The Fund s liquidity risk is managed on a daily basis by the Investment Department in accordance with policies and procedures in place and the Fund s Liquidity Management Plan. This includes the following: Monthly review of allocation of illiquid assets; Monthly cash flow forecasting of net inflows and outflows, including expected capital commitments due within the next 3 months; and Annual liquidity stress testing The Fund s Trust Deed and Product Disclosure Statement provides for the daily withdrawal of benefits and it is therefore exposed to the liquidity risk of meeting member s withdrawals at any time. The Fund s financial instruments include investments in unlisted investments, which are not traded in an organised public market and which generally may be illiquid. As a result, the Fund may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements. As the amount of these investments is monitored to comply within the asset allocation stipulated in the Fund s Investment Strategy which is not to exceed 40% of the Funds under management this risk is considered minimal. The Fund s investment in Shares in Australian listed companies are considered to be readily realisable as they are all listed on the Australian Stock Exchange. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 23

68 AASB 7.39(a)(b), B11 6. Financial risk management (continued) (b) Liquidity risk (continued) The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements. Contractual cash flows As at 30 June 2016 In thousands of dollars Carrying amount Total Less than 1 month 1-3 months 3-6 months Greater than 6 months Non-derivative financial liabilities Unsettled investment purchases 5,200 5,200 5, Sundry creditors 1,422 1,422-1, Insurance liabilities 3,802 3, ,802 Member liabilities 815, , , , , ,507 1,422-3,802 Derivative financial liabilities Gross settled forward foreign exchange contracts: - (Inflows) (788,819) (788,819) (788,819) Ouflows 626, , , , , , Contractual cash flows As at 30 June 2015 In thousands of dollars Carrying amount Total Less than 1 month 1-3 months 3-6 months Greater than 6 months Non-derivative financial liabilities Unsettled investment purchases 5,007 5,007 5, Sundry creditors 1,668 1,668-1, Insurance liabilities 3,694 3, ,694 Member liabilities 700, , , , ,803 05,441 1,668-3,694 Derivative financial liabilities Gross settled forward foreign exchange contracts: - (Inflows) (818,314) (818,314) (818,314) Ouflows 653, , , , , , International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 24

69 AASB (d), AG31 6. Financial risk management (continued) (b) Liquidity risk (continued) Member liabilities have been included in the less than one month column, as this is the amount that members could call upon as at year-end. This is the earliest date on which the Fund can be required to pay members liabilities however members may not necessarily call upon during this time. The Fund manages its liquidity risk associated with meeting member withdrawals and pension payments by performing a fortnightly cash flow forecasting of expected payments and monthly cash flow forecasting on net inflows and outflows. AASB 7.33(a) AASB 7.33(b) (c) Market risk Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect the Fund s income or the value of its holdings of financial assets. Market risk comprises of three types of risk: - Currency risk - Interest rate risk - Other price risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. To mitigate market risk, the Fund undertakes extensive due diligence prior to the appointment of Fund Managers to ensure that they have appropriate expertise and skill for monitoring of the market conditions and benchmark analysis. Further XYZ Investment Consultants provide expert investment advice. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 25

70 AASB 7.33(b) AASB 7.34(a) AASB Financial risk management (continued) (c) Market risk (continued) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund invests in financial instruments and enters into transactions that are denominated in currencies other than its functional currency, primarily US dollars, sterling (GBP) and euro (EUR). Consequently, the Fund is exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a manner that has an adverse effect on the value of that portion of the Fund s investments denominated in currencies other than the Australian Dollar. The Fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency within the conditions of the investment strategy. The Fund s strategy on the management of currency risk is driven by the Fund s investment objective and strategy. The Fund s investment strategy specifies that the value of investments denominated in foreign currencies may not exceed XX% of the total funds under management. The Fund s currency risk is managed on a daily basis by the Investment Manager in accordance with the asset allocations as outlined in the Fund s product disclosure statement and investment strategy. This includes monitoring the investment s performance against identified benchmarks. The Fund s total net exposure to fluctuations in foreign currency exchange rates at the balance sheet date is shown in the table below. Sensitivity Analysis A reasonably possible strengthening / (weakening) of the USD, GBP or EUR against all other currencies as at 30 June would have affected the measurement of financial instruments denominated in a foreign currency by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2015 and is not guaranteed. Change for the year in net assets available for member benefits Change for the year in the income statement Carrying In thousands of dollars amount +10% -10% +10% -10% 30 June 2016 USD 21,450 (1,673) 2,045 (1,673) 2,045 GBP 6,327 (575) 703 (575) 703 EUR 9,981 (907) 1,109 (907) 1,109 37,758 (3,156) 3,857 (3,156) 3, June 2015 USD 20,387 (1,853) 2,265 (1,853) 2,265 GBP 5,821 (529) 647 (529) 647 EUR 8,725 (793) 969 (793) ,924 (3,176) 3,881 (3,176) 3,881 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 26

71 AASB 7.33(b) AASB 7.34(a) AASB Financial risk management (continued) (c) Market risk (continued) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Fund s financial instruments are non-interest-bearing with only cash and cash equivalents being directly subject to interest rate risk. Any excess cash and cash equivalents above immediate working capital requirements are invested in short-term deposits which are available at call to optimise returns. As a result, the Fund is subject to limited exposure to interest rate risk due to fluctuations in the prevailing levels of market interest rates. At the reporting date, the interest rate profile of the Fund s interest-bearing financial instruments is shown in the table below. Sensitivity Analysis An increase / (decrease) of 50 basis points in interest rates at the reporting date would have increased / (decreased) the interest income and the net assets available to pay benefits by the amounts shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. Change for the year in net assets available for member benefits Change for the year in the income statement Carrying In thousands of dollars amount +50bps -50bps +50bps -50bps 30 June 2016 Cash and cash equivalents 3, (17) 17 (17) 3, (17) 17 (17) 30 June 2015 Cash and cash equivalents 9, (47) 47 (47) 9, (47) 47 (47) Other market price risk AASB 7.33(b) Other market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. Other market price risk is mitigated by constructing a diversified portfolio of instruments which are traded on various markets. All investment managers are subject to extensive due diligence prior to being appointed with the recommendation for their appointment and removal made by the Investment Committee to the Board for final approval. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 27

72 AASB 7.33(b) AASB Financial risk management (continued) (c) Market risk (continued) Other market price risk (continued) The Investment Department receive monthly reports from all investment managers which are reviewed in detail and assessed against relevant benchmarks and expected returns. Investment manager performance is reported to the Investment Committee and Board on a quarterly basis. Further, the Investment Department tracks the Fund s investment value on a daily basis through appropriate monitoring of the market conditions. XYZ Investment Consultants provide expert advice regarding the management of the Fund s investment portfolio in accordance with the current investment strategy. Sensitivity Analysis The Fund s Investment Department considers the following movements in other market price risk are reasonably possible for the 2015/2016 reporting period: Shares in Australian listed companies: 8% Units in unlisted unit trusts: 10% The increase / (decrease) in the market price against the investments of the Fund at 30 June would have increased / (decreased) the change for the year in net assets available for member benefits and the income statement by the amounts shown below. This analysis assumes that all other variables, in particular, interest rates and foreign exchange rates, remain constant. The analysis is performed on the same basis for 2015 and is not guaranteed. Change for the year in net assets available for member benefits Change for the year in the income statement In thousands of dollars Carrying amount Increase Decrease Increase Decrease 30 June 2016 Shares in Australian listed companies 145,234 11,619 (11,619) 11,619 (11,619) Units in unlisted unit trusts 845,623 84,562 (84,562) 84,562 (84,562) 990,857 96,181 (96,181) 96,181 (96,181) 30 June 2015 Shares in Australian listed companies 100,931 8,074 (8,074) 8,074 (8,074) Units in unlisted unit trusts 776,828 77,683 (77,683) 77,683 (77,683) 877,759 85,757 (85,757) 85,757 (85,757) International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 28

73 AASB 12.19A AASB 12.19B 7. Involvement with unconsolidated subsidiaries and structured entities (a) Subsidiaries Subsidiaries are investees controlled by the Fund. The Fund controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Fund is an investment entity and measures investments in its subsidiaries at fair value through profit or loss. The table below describes the type of structured entities that the Fund does not consolidate but in which it holds an interest. Name Example Investment Fund A Example Investment Fund B Principal place of business 1 Queen Street, Melbourne 3000, Australia 1 King Street, Melbourne 3000, Australia Interest held by the Fund 2016: 100% 2015: 100% 2016: 100% 2015: 100% Fair value as at 30 June 2016: 125, : 120, : 89, : 80,209 AASB 12.19D(a) AASB 12.19D(b) AASB 12.19E,F,G As at 30 June 2016, there are no significant restrictions (e.g. borrowing arrangements, regulatory requirements or contractual arrangements) on the ability of an unconsolidated subsidiary to transfer funds to the Fund in the form of dividends or to repay loans or advances made to the unconsolidated subsidiary by the Fund. As at 30 June 2016, the Fund does not have any current commitments or intentions to provide financial or other support to the unconsolidated subsidiary, including commitments or intentions to assist the subsidiary in obtaining financial support. The Fund did not provide financial or other support to the unconsolidated subsidiaries. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 29

74 AASB Involvement with unconsolidated subsidiaries and structured entities (continued) (b) Structured entitiesᵃ The table below describes the type of structured entity that the Fund does not consolidate but in which it holds an interest. Name Nature and purpose Interest held by the Fund AASB Example Investment Fund X To manage assets on behalf of the investors. The vehicle is financed through the issue of units to investors Investments in unit trust issued by the Fund AASB 12.29(c) AASB 12.29(a), (b), (d) The table below sets out interests held by the Fund in the unconsolidated structured entity. The maximum exposure to loss is the carrying amount of the financial assets held. Investment strategy Fair value as at 30 June 2016 Fair value as at 30 June 2015 Exposure at 30 June 2016 Exposure at 30 June 2015 Financial statement caption Property 65,090 61,820 74% 74% Units in property and infrastructure trusts Infrastructure 23,250 21,420 26% 26% Units in property and infrastructure trusts 88,340 83, % 100% The Fund did not provide financial or other support to the unconsolidated structured entity and has no intention of providing financial or other support. The Fund can redeem units in the above investment fund once a month on a specified date. AASB 12.B21 ᵃ A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 30

75 AASB Member liabilities and funding arrangements (a) Defined contribution member liabilities AASB AASB AASB 1056.AG31 Obligations relating to member entitlements are recognised as member liabilities. Defined contribution member liabilities are measured as the amount of member account balances as at the reporting date. Defined contribution members bear the investment risk relating to the underlying assets of the Fund. Unit prices are updated on a daily basis for movements in investment markets. (b) Defined benefit member liabilities AASB Defined benefit member liabilities are measured as the amount of a portfolio of investments that would be needed as at the reporting date to yield future net cash inflows that would be sufficient to meet accrued benefits as at the date when they are expected to fall due. The amount of accrued benefits has been determined on the basis of the present value of expected future payments which arise from membership of the Fund up to the measurement date. The figure reported has been determined by reference to expected future salary levels and by application of a market-based, risk-adjusted discount rate and relevant actuarial assumptions. The valuation of the defined benefit member liabilities was undertaken by the Fund s appointed Actuary on an annual basis for each of its defined benefit sub plans. The Fund has 2 sub plans being XYZ Superannuation Plan and KLM Superannuation Plan. The actuarial value of the defined benefit member liability reflects an actuarial assessment of benefits accrued up to the date of calculation and payable to members on resignation, retirement, death and disablement. This assessment may result in an employer being required to make additional contributions to the sub plan. Each sub plan is quarantined from the others and the other assets of the Fund. In the event that the assets of a particular sub-plan is not adequate to meet the member s liabilities and that there are insufficient employer contributions, the defined benefit member liabilities are limited to the assets of the particular sub plan. AASB (a)(i),(ii) The main assumptions used to determine the values of the accrued benefits for each of the Fund s sub plans were: - Future rate of investment return of investments forecasted at 7% per annum (2015: 10%) - Future rate of salary increase forecasted at 3% per annum (2015: 3.5%) The Fund s Actuary considers the following movements in the main assumptions used to determine the values of the accrued benefits are reasonably possible for the 2015/2016 reporting period: - Future rate of investment return: ± 2% (2015: ± 2%) - Future rate of salary increase: ± 0.5% (2015: ± 0.5%) AASB (a)(iii) The impact of the reasonably possible changes in these key assumptions are shown below: Increase / (decrease) in DB member liabilities Reasonable possible change in key assumptions $ 000 Increase / decrease in future rate of investment returns by ± 2% and no change in future rate of salary increase 2016: 550 / (550) 2015: 508 /(508) Increase / decrease in future rate of salary increase by ±0.5% and no change in future rate of investment returns Increase / decrease in future rate of investment returns by ± 2% and increase / decrease in future rate of salary increase by ±0.5% 2016: 180 / (180) 2015: 175 / (175) 2016: 730 / (730) 2015: 683 / (683) International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 31

76 AASB (b) AASB , Member liabilities and funding arrangements (continued) (b) Defined benefit member liabilities (continued) The Fund s appointed actuary reports to Management on a monthly basis on the status of the defined benefit sub plans. Where a sub plan is in, or is likely to enter into, an unsatisfactory financial position, the report sets out remedial actions and rectification programs with the respective employers. On a quarterly basis, the status of the defined benefit sub-plans are reported to the Audit Committee and Trustee Board Committee. The amount of vested benefits attributable to defined benefit members as at 30 June 2016 is $134,687 thousand (2015: $128,252 thousand). The following defined benefit sub plans were under funded during the year: In thousands of dollars XYZ Superannuation Plan KLM Superannuation Plan Total under funding 892 1,022 The deficiency in XYZ Superannuation Plan and KLM Superannuation plan arose due to the difference in the actual rate of investment return of investments and actual salary increase rate compared to the actuarial assumptions used. The employer sponsors of both Fund has agreed to make an additional top-up contributions to address the deficiencies. AASB (c) (c) Funding arrangements (i) Defined contribution member liabilities Employer provided contributions with respect to defined contribution members at a rate of 9.5% (2015: 9.5%) of the gross salaries of the employees. Members contributions were made in accordance with the requirements of the Trust Deed pursuant to applications contained in the Product Disclosure Statements and Supplements on issue by the Trustee during the year. (ii) Defined benefit member liabilities On the advice made by the Fund s Actuary, the following contribution rates were made during the year with respect to each sub plans: - XYZ Superannuation Plan: 9.5% of the gross salaries for the year ended 30 June 2016 (2015: 8.8%) plus additional top-up contributions of $XX thousands. - KLM Superannuation Plan: 9.5% of the gross salaries for the year ended 30 June 2016 (2015: 9.5%) plus additional top up contributions of $XX thousands. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 32

77 9. Reserves The Trustee maintains the an Operational Risk Financial Requirement (ORFR) reserve and an investment reserve. AASB (b) AASB (b) AASB (b) An ORFR reserve is required under Australian Prudential Regulation Authority Standards to maintain adequate financial resources to address potential losses arising from operational risks. The Trustee has assessed a reserve of approximately 0.25% of funds under management as being appropriate for the Fund. The insurance reserve is used to cover the timing differences between the charging of insurance premiums to member accounts and premiums that are due to the insurer under the insurance contracts. The insurance reserve is also used to meet the costs of the claims liabilities which are not covered by the external insurer. The investment reserve comprises the difference between the cumulative amount of investment income (net of investment expenses) allocated to members accounts compared to the cumulative investment income (net of investment expense earned). Reserves are made up of the following balances: In thousands of dollars ORFR reserve 2,557 1,631 Insurance reserve 3,019 2,962 Investment reserve ,283 5,231 AASB AASB (a) 10. Contribution receivables The contribution receivables represents a contractual arrangement in place between the employer-sponsor to meet the shortfall / under funded defined benefit section of the Fund. AASB (b) In thousands of dollars XYZ Superannuation Plan KLM Superannuation Plan ,007 1,482 AASB (c) The contribution receivable are non-interest bearing and will be settled within 12 months. The balance has not been discounted because the effect of the time value of money is not material. The carrying amount of the receivables is a reasonable approximation of the fair value of the assets because of its short term nature. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 33

78 11. Insurance (a) Net result from insurance activities The table below outlines the net results from the Fund s insurance activities: In thousands of dollars Insurance contract revenue 1, Less: outward reinsurance premiums (401) (389) Reinsurance recoveries revenue Insurance contract claims expense (1,076) (929) Movement in insurance liabilities (108) (101) Movement in insurance assets Net gain / (loss) from insurance activities AASB , 36(a)(b)(c) (b) Judgements, estimates and assumptions on insurance liabilities and reinsurance assets The valuation of insurance liabilities are performed by the Fund s appointed Actuary. The estimation of the outstanding claims liability is based on a variety of actuarial techniques that analyses experience, trends and other relevant factors. The expected future payments include those in relation to claims reported but not yet paid, claims incurred but not reported (IBNR) and the anticipated direct and indirect claims handling costs. The estimation process involves using the Fund s specific data, relevant industry data and more general economic data. These factors may include the risks to which the Fund is exposed at a point in time, claim frequencies and average claim sizes. Projected future claims payments, both gross and net of reinsurance and other recoveries and associated claims handling costs are discounted to a present value using appropriate risk free discount rates. The following ranges of key actuarial assumptions were used in the measurement of outstanding claims liabilities: Inflation rate 0.5% - 5% 0.5% - 5% Discount rate 1% - 2.5% 1% - 2.5% Claims handling costs ratio 2% 2% Superimposed inflation rate 0.5% - 5.5% 0.5% - 5.5% The impact on the net insurance claims liabilities before income tax to changes in key actuarial assumptions is summarised below. Each change has been calculated in isolation of the other changes and without regard to other balance sheet changes that may simultaneously occur. Changes are stated net of reinsurance recoveries. The movements are stated in absolute terms where the base assumption is a percentage, for example, if the base inflation rate assumption was 2.5%, a 1% increase would mean assuming a 3.5% inflation rate. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 34

79 AASB ,36(a), (b), (c) 11. Insurance (continued) (b) Judgements, estimates and assumptions on insurance liabilities and reinsurance assets (continued) Assumption Movement in variable Impact on net insurance claims liabilities $ 000 $ 000 Inflation rate and superimposed inflation rate ± 1% ± 10 ± 8 Discount rate ± 1% ± 5 ± 4 Claims handling costs ratio ± 1% ± 0.5 ± 0.4 The Fund has fully reinsured all of its direct insurance risks with ABC Reinsurance. The Trustee has entered into reinsurance arrangements to limit the exposure of the Fund to the financial impacts arising from large insured risks (exposure on an individual life) and events which may impact multiple risks (exposure on multiple lives such as pandemic or catastrophe). The measurement of reinsurance and other recoveries on outstanding claims is an inherently uncertain process involving estimates. The amounts are calculated using actuarial assumptions and methods similar used for the insurance claims liabilities. The effect of changes in assumptions on the net outstanding claims liability, which incorporates the reinsurance recoveries on outstanding claims and other recoveries receivable, is disclosed above. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 35

80 12. Income tax (a) Recognised in the income statement AASB112.80(a) AASB (b) In thousands of dollars Current tax expense Current year 7,393 9,367 Adjustment for prior period (2,120) (2,003) 5,273 7,364 AASB (c) Deferred tax expense Movement in temporary differences (3,781) (4,262) Total income tax expense 1,492 3,102 AASB (c) (b) Numerical reconciliation between tax expense and profit before income tax In thousands of dollars Profit / (loss) from operating activities 116, ,941 Tax at the complying superannuation fund tax rate of 15% 17,417 17,391 Non-deductible administration expense Non-assessable investment income (7,701) (7,882) Net imputation credit and foreign tax credits (5,859) (4,571) Under / (over) provision in previous year (2,120) (2,003) Other (1,127) (492) Income tax expense 1,492 3,102 (c) Deferred tax assets and liabilities AASB (g) In thousands of dollars Deferred tax asset Accrued expense 1,982 2,641 Unrealised foreign exchange losses ,195 2,891 Deferred tax liabilities Accrued income 1,713 1,258 Unrealised foreign exchange gains Unrealised gains in investments subject to tax 26,534 27,127 Total 28,934 29,284 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 36

81 12. Income tax (continued) (d) Recognised in the statement of changes in member benefits In thousands of dollars Contributions and transfers in recognised in the statement of changes in member benefits 141, ,161 Tax at the complying superannuation fund rate of 15% 21,210 21,774 Non assessable contributions (2,809) (7,813) No-TFN contributions tax (185) (179) Non-deductible contributions surcharge tax Total 18,264 13,903 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 37

82 AASB Expenses (a) Investment expenses AASB1056.AG29 (e) In thousands of dollars Investment manager fees 4,892 3,151 Custodian fees Investment consultancy fees ,983 3,987 AASB1056.AG29 (d) (b) General administration expenses AASB1056.AG29 (f), (g), (j) In thousands of dollars Actuarial fees Administration fees 4,681 3,257 APRA fees Audit fees Legal fees Tax agent fees Trustee fees ,822 4, Auditors remunerationᵃ AASB (a) AASB (b), 11 AASB (b), 11 In thousands of dollars Audit services Audit and review of financial statements Other regulatory audit services ᵇ 10 5 Other services ᶜ Taxation services AASB , 11 ᶜ ᵃ ᵇ Disclosures are required regardless whether the entity or a related entity make the payments. Where fees are paid on behalf of the entity by a related party, disclosure as a related party transaction is required. Other regulatory audit services would include for example, compliance audit, risk management framework audit and APRA return audit. The amounts could alternatively be disclosed as other services below. An entity must describe the nature of other services provided. There is no requirement to provide an amount for each non-audit services. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 38

83 15. Capital commitments The commitments of the Fund as at 30 June are detailed below: In thousands of dollars Due within one year 9,679 7,548 Due after one year 27,982 26,201 37,661 33, Cash flows reconciliation AASB (a) Reconciliation of cash and cash equivalents In thousands of dollars Cash at bank 3,338 9,458 AASB (b) Reconciliation of cash flows from operating activities In thousands of dollars Profit / loss after income tax 1,182 1,050 Adjustments for: (Increase) / decrease in assets measured at fair value (38,734) (38,923) (Increase) / decrease in foreign exchange gains and losses (2,099) (1,919) (Increase) / decrease in receivable (3,103) 10,205 (Increase) / decrease in reinsurance assets (233) (128) Increase / (decrease) in payables (246) (683) Increase / (decrease) in income tax payable 268 (310) Increase / (decrease) in insurance liabilities Allocation to member s accounts 113, ,789 Insurance contract claims expense 1, ,661 81,951 International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 39

84 AASB Related parties (a) Trustee Example Trustee Company Limited (ACN , RSE Licensee ) was appointed as Trustee of the Fund from 1 July The following people were key management personnel of the Fund during the financial year: AASB (f) Directors - Mr. S Hill (Independent chair) - Mr. I Tracey - Ms. A Kiriella - Mr. S McKee - Ms. Y Mailoa (appointed 21 September 2015) - Mr. M Smith (resigned 20 September 2015) Executives - Ms. J Pham - Mr. Z Calabro - Mr. A Hulston (b) Key management personnel compensation The compensation paid to key management personnel in relation to services to the Fund is as follows: AASB (a) AASB (c) AASB (b) In thousands of dollars Short-term employee benefits Other long-term employee benefits Post-employment benefit Apart from those details disclosed in this note, no key management personnel have entered into a contract for services with the Fund since the end of the previous financial year and there were no contracts involving key management personnel subsisting at year end. (c) Other related party transaction AASB Certain key management personnel are members of the Fund. Their membership terms and conditions are the same as those available to other members of the Fund. All Trustee transactions with related parties are conducted on normal commercial terms and conditions, or pursuant to normal membership terms and conditions. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 40

85 AASB AASB AASB , (AG53 AG56) AASB , 25 AASB AASB , 46, 55(a) AASB Significant accounting policies Except for the changes explained in Note 2(d), the Fund has consistently applied the following accounting policies to all periods presented in the financial statements. (a) Financial assets and financial liabilities The Fund classifies non-derivative financial assets and financial liabilities at fair value through profit or loss. The Fund initially recognises financial assets and liabilities on the trade date when the entity becomes a party to the contractual provisions of the instrument. The Fund derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. The Fund derecognises a financial liability when its contractual obligations are discharged or cancelled, or expired. A financial asset and financial liability is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in the income statement as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest, dividend income or distribution income, are recognised in the income statement. Financial liabilities at fair value through profit or loss are measured at fair value and changes therein, including any interest expense, are recognised in the income statement. Financial assets and financials liabilities are offset, and the net amount presented in the statement of financial position when and only when, the Fund currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.ᵃ AASB (i) Derivative financial instruments The Fund holds forward foreign exchange contracts to hedge its foreign currency exposures. Derivatives are initially measured at fair value. Any directly attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised in the income statement. AASB 13.9, 24, 42 (ii) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Fund has access at that date. The fair value of a liability reflects its non-performance risk. ᵃ Example Hybrid Superannuation Fund has not offset any assets or liabilities and does not have any master netting agreements in place. Thus no additional disclosures have been reflected in the financial statements. Refer to Example Public Company Limited illustrative disclosures for offsetting disclosures International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 41

86 AASB 13.79A 18. Significant accounting policies (continued) (a) (ii) Financial assets and financial liabilities (continued) Fair value measurement (continued) Fair values have been determined as follows: Market quoted investments When available, the Fund measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Fund measures instruments quoted in an active market at a mid-price, because this price provides a reasonable approximation of the exit price. AASB Non-market quoted investments If there is no quoted price in an active market, then the Fund uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. Investments for which market quotations are not available are stated at estimated fair value determined by the Trustee as follows: Unlisted securities recorded with reference to recent arm s length transactions, current market value of another instrument substantially the same or discounted cash flows. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate used is a market rate at the balance sheet date applicable for an instrument with similar terms and conditions. Private equity valued according to the most recent valuation obtained from the underlying manager at net market value adjusted for subsequent new investments, redemptions and significant changes in underlying market conditions through to balance date. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Units in unlisted unit trusts and unlisted managed investment schemes Units in unlisted unit trusts and unlisted managed investment schemes are valued at the redemption price at reporting date quoted by the investment managers which are based on the net asset value (NAV) of the underlying investments. Unit values denominated in foreign currency are then translated to Australian dollars at the current exchange rates. Investment properties AASB AASB AASB (a), (e) Investment properties comprise investment interests in land and buildings (including integral plant and equipment). Investment properties are initially recorded at cost of acquisition, including transaction costs, at the date of acquisition. Subsequent to initial recognition, the carrying amount of an investment property is the fair value of the property which is determined using the capitalisation of net rental income and the discounted cash flow methods and also having regard to recent market transactions for similar properties in the same location as the Fund s investment property. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 42

87 AASB AASB , Significant accounting policies (continued) (a) Financial assets and financial liabilities (continued) (ii) Fair value measurement (continued) Investment properties Generally, the net market value is determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Fund s investment property every six months. Gain or loss arising from a change in the fair value of the investment property is recognised in the income statement for the period in which it arises. Investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Gain or loss arising from the disposal of investment property is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in the income statement in the period of disposal. AASB 107.6, 7 (b) Cash and cash equivalents Cash and cash equivalents comprise deposits with banks and highly liquid financial assets with maturities of three months or less from the date of acquisition that are subject to an insignificant risk of changes in their fair value and are used by the Fund in the management of short-term commitments. AASB 1056.AG48, AG49 AASB AG49 AASB AG28 (c) Receivables and payables Receivables and payables (excluding reinsurance assets and insurance liabilities) are carried at nominal amounts which approximate fair value. Receivables and payables are normally settled within 30 days. Reinsurance assets are measured as the present value of the expected future receipts calculated on the same basis as the insurance contract liabilities. Reinsurance assets are presented net of any provision for impairment based on objective evidence and an impairment expense is recognised in the income statement. Insurance contract liabilities are measured as the present value of the expected future payments relating to claims incurred at the reporting date with an additional risk margin to allow for inherent uncertainty in the estimate. The liability is measured based on the advice of / valuations performed by the Fund s appointed Actuary. The expected future payments include those in relation to claims reported but not yet paid, claims incurred but not reported (IBNR) and the anticipated direct and indirect claims handling costs. The liability is discounted to present value using the risk free rate. Employer sponsor receivables are measured consistently with the measurement of defined benefit member liabilities less the relevant amount of the other recognised assets held to meet those liabilities. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 43

88 AASB AASB , 23(a), (b), (c), Significant accounting policies (continued) (d) Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. AASB (b)(iii) AASB (c) (e) (i) Revenue recognition Interest income Interest income is recognised in the income statement as it accrues using the effective interest rate method at the acquisition or origination date. Interest income includes the amortisation of any discount or premium, transaction costs or other differences between the initial carry amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis. (ii) Dividend income Dividend income is recognised in the income statement on the date the shares are quoted exdividend. For unquoted equity securities, this is usually the date on which the shareholders approve the payment of a dividend. If not received at reporting date, this is reflected in the statement of financial position as a receivable at fair value. (iii) Distribution income Distributions from managed investment schemes and units in unit trusts are recognised in the income statement as at the date the unit value is quoted ex-distribution. If not received at reporting date, this is reflected in the statement of financial position as a receivable at fair value. AASB (iv) Property rental income Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognised as other income. (v) Changes in fair values Changes in fair value of investments (including investment property) are recognised as income and are determined as the difference between the fair value at year end or consideration received (if sold during the year) and the fair value as at the prior year end or cost (if the investment was acquired during the period). (f) Contributions revenue and transfers in Contributions revenue and transfers in are recognised in the statement of changes in member benefits when the control and the benefits from the revenue have transferred to the Fund and is recognised gross of any taxes. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 44

89 AASB AASB 1056.AG15 AASB AASB , 24, 47 AASB , 51C AASB , 56 AASB Significant accounting policies (continued) (g) Income tax Income tax on for the year comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in members funds in which case it is recognised directly in statement of changes in member benefits. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the statement of financial position date and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit, and differences relating to investments in controlled entities to the extent that it is not probable they will reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation of the asset or settlement of the liability, using tax rates enacted or substantively enacted at reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Fund expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For investment property that is measured at net market value, there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be realised. Further, the Fund applies a deferred tax asset cap in line with its current deferred tax asset capping policy, whereby any deferred tax asset is capped at XX% of the Fund s net assets. Deferred tax assets and deferred tax liabilities are offset and the net amount presented in the statement of financial position when and only when, the Fund currently has a legally enforceable right to offset the amounts and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority or either the same taxable entity or different taxable entities that intends either to settle them on a net basis. Income tax has been provided in the current year at the rate of 15% as it is the expectation of the Trustee that the Fund will be treated as a complying superannuation fund. If the Fund is subsequently deemed to be a non-complying fund for the current year, then income tax will be payable at a rate of 45% on the Fund s taxable income. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 45

90 AASB , New standards and interpretations not yet adopted ᵃ A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2015, and have not been applied in preparing the financial statements. Those which may be relevant to the Fund are set out below. The Fund does not plan to adopt these standards early. (a) AASB 9 Financial Instruments AASB 9, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The adoption of AASB 9 is expected to have an impact on the Fund s financial assets, but no impact on the Fund s financial liabilities. (b) AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Fund is assessing the potential impact on its financial statements resulting from the application of AASB 15. (c) AASB 16 Leases AASB 16 removes the lease classification test for lessees and requires all leases (including operating leases) to be brought onto the balance sheet. The definition of a lease is also amended and is now the new on/off balance sheet test for lessees. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted where AASB 15 Revenue from Contracts with Customers is adopted at the same time. The Fund is assessing the potential impact on its financial statements resulting from the application of AASB Subsequent events There has been no significant events that have occurred since the end of the financial year to the date of this report which would impact on the operations the financial position of the Fund disclosed in the statement of financial position as at 30 June 2016 or on the results of the operations and the cash flows for the year ended 30 June ᵃ Refer to KPMG publication Standards on Issue for the most up to date listing of standards and interpretations on issue. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 46

91 Trustee s declaration to the members In the opinion of the Trustee of Example Hybrid Superannuation Fund: i. The accompanying financial statements of Example Hybrid Superannuation Fund are drawn up so as to present fairly the financial position of the Fund as at 30 June 2016 and the results of its operations and cash flows for the year ended on that date in accordance with Australian Accounting Standards and the provisions of the Trust Deed dated [date]; and ii. The operations of Example Defined Contribution Superannuation Fund has been carried out in accordance with its Trust deed dated [date], as amended and in compliance with the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations, applicable sections of the Corporations Act 2001 and Regulations and the requirements under Section 13 of the Financial Sector (Collection of Data) Act Signed in accordance with a resolution of the Trustee directors: Dated at [city]. day of [Director_name] Director [Director_name] Director International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 47

92 Appendix Example de-cluttered financial report Example Hybrid Superannuation Fund

93 Appendix Example de-cluttered financial report Cutting the Clutter in Financial Reports A new era in corporate reporting has emerged one where de-cluttered financial and other reports are commonplace. De-cluttered Annual Financial Reports provide more concise, clear and informative financial information to users. Encouraging this move, both the Australian Corporate Regulator (ASIC) and Standard Setter (AASB) publicly support organisations looking to de-clutter their financial reports. With significantly more organisations now de-cluttering their reports, organisations who are yet to consider it should consider the benefits they may be missing, and discuss opportunities with their advisors. It is clear that organisations that are intending on sticking with the status quo and not undertaking reporting de-cluttering run the risk of being compared unfavourably to comparator organisations that have de-cluttered their Annual Financial Report. The following appendices provide examples of how KPMG s Example Hybrid Superannuation Fund Annual Financial Report can be reduced and reconfigured in a de-cluttered Annual Financial Report: Appendix 1 - Refer to page 2 for an example table of contents, demonstrating the use of sections to help guide readers through the financial report. Appendix 2 - Refer to pages 7 12 for an example financial risk management note which demonstrates the use of section introductions, call out boxes and tables to provide insight to readers on how the Fund manages its risks. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 2