FINANCIAL OMBUDSMAN SERVICE LIMITED ACN

Transcription

1 ACN GENERAL PURPOSE FINANCIAL REPORT For The Financial Year Ended 30 June 2011 Registered Office & Principal Place of Business: Level Bourke Street Docklands

2 (A Company Limited by Guarantee) 1 DIRECTORS REPORT The directors of Financial Ombudsman Service Limited ( the company ) submit herewith the annual financial report of the company for the period ended 30 June In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: INFORMATION ABOUT THE DIRECTORS The names and particulars of the directors during or since the end of the financial period are: Prof. The Hon. M Lavarch - LLB (QUT) Professor the Hon. M Lavarch was appointed a transition director on incorporation of the company for a term expiring on 31 May 2009 and when the new Board was formed on 1 June 2009, was appointed a director and the Independent Chair of the Board. He is currently the Executive Dean of the Faculty of Law at the Queensland University of Technology. He is a former Federal Attorney-General and a former Secretary-General of the Law Council of Australia. Professor Lavarch holds a number of Board positions and consulting roles including Director of the Australian Energy Market Operator (AEMO) and Chief Adjudicator of the Alcohol Beverages Advertising Code (ABAC). R Belleville - MBA Mr R Belleville was appointed an Industry Director on 25 February Mr Belleville was employed by AAMI for over 37 years, culminating in his appointment as Chief Executive Officer in 2002, and shortly thereafter added the position of Chief Executive of Promina s Direct Division, adding APIA, Shannons and Just Car Insurance to his responsibilities. Following the successful offer by Suncorp to take over Promina, Robert was appointed Group Executive, Personal Lines, which added GIO and Suncorp portfolios to his oversight. Despite retiring in December 2008, Robert stayed on with Suncorp as a part-time Consultant until September Currently, Robert is a member of the IMA Board, a joint venture between NRMA and RACV and is a member of two sub committees of the IMA Board. In addition, Robert is the Chair of the Advisory Board of The Innovation Group Pty Ltd. D Coorey - BA LLB (UNSW) Mr D Coorey was appointed a Consumers Director on 1 June He is currently a senior lawyer with the Consumer Law team of the Civil Litigation section of the Legal Aid Commission of NSW, which he joined in He previously worked with law firm Freehills for over three years, including a one year pro bono secondment to Kingsford Legal Centre. He has worked in a variety of areas of civil law, including insurance, credit, consumer and trade practices litigation as well as human rights and discrimination law. Since commencing with the Legal Aid Commission, he has been actively involved in policy work in consumer law, with particular interest in policy issues that affect consumers of insurance products.

3 (A Company Limited by Guarantee) 2 Dr B French - BA, PhD Dr B French was appointed an Industry Director on 1 June He is General Manager of Customer Relations for the Commonwealth Bank Group. For several years prior to this, he was Deputy Energy and Water Ombudsman NSW. He also currently lectures part time in the School of Law at the University of Western Sydney. Mr French has extensive experience as a practitioner, trainer and author in dispute resolution and was for some years a director in a leading consultancy firm assisting clients in the public, corporate and community sectors. He has also published widely to both general and academic audiences. He received his doctorate in the history of ideas from the University of Sydney and was awarded the Australian Postgraduate Award. He is also a director of the Society of Consumer Affairs Professionals. C E Lowe - LLB (Qld) Ms C E Lowe was appointed a Consumers Director on 1 June Ms C E Lowe is Co-Chief Executive Officer of the Consumer Action Law Centre and the current Chair of the Consumers Federation of Australia. Prior to joining Consumer Action, she was a Director in the Australian Competition and Consumer Commission s Policy & Liaison Branch. She was Deputy Director and the first Principal Solicitor of the legal practice at Consumer Law Centre Victoria and spent 5 years in private practice as a litigation lawyer. She has undertaken consumer advocacy on issues affecting Australian consumers across a range of markets including financial services, utilities, telecommunications and general consumer products and services. During the year she served as a member of the Board of the National Information Centre on Retirement Investment (NICRI) and is a member of the Motor Car Traders' Guarantee Fund Claims Committee. R A McKimm - Dip FP FSIA MSDIA FAICD ADA1 & 2 (ASX) Mr R A McKimm was appointed a transition director on incorporation of the company for a term expiring on 31 May 2009 and when the new Board was formed on 1 June 2009 was appointed an Industry director. He is currently an Adviser with Patersons Securities Ltd. Previous positions include Director with Shaw Stockbroking Ltd 2005 to 2007, Director Tolhurst Noall Ltd from 2001 to 2005 and Managing Director of Ord Minnett Ltd from 1988 to He holds a Diploma of Financial Planning from Deakin University and has studied at the Securities Institute of Australia where he was also a regular lecturer in their Certificate and Graduate Diploma courses before leaving Sydney. Russell is a past President of the Financial Planning Association (FPA) and a former Board member of the FPA Complaints Resolution scheme and is a current Panel member for ASX National Adjudicatory Tribunal and ASTC Disciplinary Tribunal.

4 (A Company Limited by Guarantee) 3 J Mack - BA, MALP (Administrative Law) Ms J Mack was appointed a transition director on incorporation of the company for a term expiring on 31 May 2009 and when the new Board was formed on 1 June 2009 was appointed a Consumers Director. She is Chair of the consumer watchdog, Choice, and ASIC s Consumer Advisory Panel. She is a former executive director of the Consumers' Federation of Australia, the peak consumer body. She was the Deputy Legal Services Commissioner in NSW responsible for handling complaints about lawyers in the mid '90s and has represented the community on the NSW Judicial Commission (which amongst other things deals with complaints about judicial officers). She is an experienced director and sits on the boards of the Food Standards Authority and the Travel Compensation Fund. D Nelthorpe - B. Juris, LLB., AM Mr D Nelthorpe was appointed a Consumers Director on 1 June He is also working as manager of Footscray and Wyndham Legal Service and special projects lawyer with the West Heidelberg Community Legal Centre. He is a past president of the Consumers Federation of Australia and a past Chief Executive Officer of the Consumer Credit Legal Service and the Consumer Law Centre Victoria He was also the Director of the State Insurance Office Consumer Appeals Office in He was made a Member of the Order of Australia in the June 2011 Queen s Birthday Honours List. D W Squire - Dip AII, GMQ (UNSW), QPIB, AACI Mr D W Squire was appointed a transition director on incorporation of the company for a term expiring on 31 May 2009 and when the new Board was formed on 1 June 2009 was appointed as an Industry Director. His current roles include Research Development Manager at the Law and Justice Research Centre, Queensland University of Technology and as a consultant to financial industry trade associations. He has in excess of forty years experience in general banking, life and general insurance and financial planning in a variety of roles including compliance and regulatory policy. David has been actively involved in industry advocacy dating back to 1982 and is a past director of the National Insurance Brokers Association and the Australasian Compliance Institute as well as having been a member of the Investment and Financial Services Association (IFSA) Regulatory Affairs Board committee and a former chair of Financial Planning Association's Regulations Committee. He is a member of a number of active industry committees and a former member of Treasury's FSRA Implementation Consultative Committee. The above named Directors held office during and since the end of the year, except for Mr Squire who ceased as a Director of the company on 5 October 2011.

5 (A Company Limited by Guarantee) 4 COMPANY SECRETARY B L de Kock Mr B L de Kock was appointed Company Secretary on 16 May 2008 and retired on 23 September He qualified as a Chartered Accountant in South Africa in 1965 and achieved over 35 years experience in the insurance industry as a Chief Financial Officer and Company Secretary. N S Crowhurst - BA, LLB (Hons) Mr N S Crowhurst was appointed Company Secretary on 23 September 2010, after serving as Assistant Company Secretary under Mr. B L de Kock. He qualified as a Barrister in the United Kingdom in 2000 and has previously served as Legal Counsel to both the Financial Industry Complaints Service Limited and the company. He is a member of Treasury s Financial Services Disclosure Advisory Panel, the Australian Corporate Lawyers Association and is a Director of the Financial Services Compensation Scheme Pty Ltd. BOARD MEETING ATTENDANCE The number of directors meetings and number of meetings attended by each of the directors of the company during the financial year are:- DIRECTORS MEETINGS BOARD FINANCE AND RISK MANAGEMENT COMMITTEE ACTUAL ATTENDANCE ELIGIBLE TO ATTEND ACTUAL ATTENDANCE ELIGIBLE TO ATTEND M Lavarch R Belleville D Coorey B French C Lowe J Mack R A McKimm D Nelthorpe D W Squire

6 (A Company Limited by Guarantee) 5 BOARD SELECTION COMMITTEE (CHIEF OMBUDSMAN) BOARD SELECTION COMMITTEE (CONSUMER AND INDUSTRY DIRECTORS) BOARD SELECTION COMMITTEE (PANEL CHAIR, REFEREE AND ADJUDICATOR) ACTUAL ATTENDANCE ELIGIBLE TO ATTEND ACTUAL ATTENDANCE ELIGIBLE TO ATTEND ACTUAL ATTENDANCE ELIGIBLE TO ATTEND M Lavarch R Belleville D Coorey B French C Lowe J Mack R A McKimm D Nelthorpe D W Squire BOARD ADVISORY COMMITTEES (MEETINGS HELD AND ATTENDED) BANKING & FINANCE AND MUTUALS FINANCIAL PLANNING GENERAL INSURANCE & INSURANCE BROKING INVESTMENTS, LIFE INSURANCE & SUPERANNUATION R Belleville of 2 - D Coorey of 1 - J Mack 1 of R A McKimm - 2 of D Nelthorpe of 1 - D Squire of 1 BOARD COMMITTEES The Board Committees continue to play an important role to assist the Board in its decisionmaking processes. The Board Committees are as follows: Standing Committees Board Finance and Risk Management Committee Board Banking and Finance Advisory Committee Board General Insurance Advisory Committee Board Investments, Life Insurance & Superannuation Advisory Committee Board Financial Planning Advisory Committee Board Insurance Broking Advisory Committee Board Mutuals Advisory Committee

7 (A Company Limited by Guarantee) 6 Ad-hoc Committees Board Committee (Terms of Reference Project) Board Nominations Committee (Appointment Independent Chair) Board Selection Committee (Appointment Consumer Directors) Board Selection Committee (Appointment Industry Directors) Board Selection Committee (Appointment of Panel Chair, Referee and Adjudicator) Board Selection Committee (Appointment of Consumer Representatives to the Panel) Board Selection Committee (Appointment of Industry Representatives to the Panel) Board Selection Committee (Membership of Advisory Committees) Board Selection Committee (Appointment of Chief Ombudsman) COMPANY OBJECTIVES Vision To be the external dispute resolution scheme of choice for the financial services industry Mission To serve the community by resolving disputes between consumers and financial services providers in a way people can trust Long Term Resolve disputes in a timely manner Provide processes that are easy to understand and flexible Be trusted by consumers, financial services providers and other stakeholders Make decisions that are fair, clear and consistent Be accessible to consumers who are underrepresented, disadvantaged and/or vulnerable Be professional in all its dealings with stakeholders Provide information that is clear and consistent Short Term To implement a single Terms of Reference in order to provide more efficient and effective external disputes resolution for the financial services industry. To enable FOS to deliver its long-term objectives, it has devised a number of short-term objectives, including: Building trust and credibility of FOS through effective relationship management with stakeholders Increasing awareness of FOS with particular emphasis on disadvantaged, vulnerable and/or underrepresented Increasing dispute handling efficiency Reducing investigation time frames Protect corporate knowledge

8 (A Company Limited by Guarantee) 7 BOARD ACHIEVEMENTS The Board and senior management focussed their attention on four major areas during the year in review. First, the Board oversaw the move to new accommodation. The move, undertaken in mid- September 2010, provided the company with a more environmentally friendly and open-plan premises which has benefited all the company employees, contractors and visitors. Secondly, the Board has been focused on the task of finding a successor for the outgoing Chief Ombudsman, Mr. Colin Neave AM. The Board has approved a Budget for that will bring savings to many Members of the Company. While the minimum and maximum base levy amounts remain the same, Members with a base levy between the two levels will see a reduction. This is subject to their business size being the same as the previous year. In addition, the total amount required to be funded by user charges has been reduced. Members with two or more disputes closed past the Acceptance stage of the FOS dispute resolution process for the year ending 31 March 2011, may also see a reduction in the user charge compared to the previous year. This will depend on how many disputes a Member has had for the year and at what stage they were resolved compared to the previous year. Further, case fees have been frozen at the same level as they were for the last financial year. Other Developments The Board has also recognised that the last twelve months of its operations has coincided with a turbulent period within financial markets. This has resulted in the continuation of a high number of disputes being referred to the company for resolution. Those disputes have arisen for a variety of reasons, including the fact that some consumers have found themselves in financial difficulty or hardship. In some cases that difficulty has arisen out of the various natural disasters that have occurred in Australia. Others have questioned whether the financial advice they have received at the time of making investments was appropriate for their circumstances. The company continues to focus on promoting resolution of disputes by financial services providers with their customers in the expectation that as few as possible of their customers need to become our customers. Early resolution without the breakdown of a relationship is the most effective way to create customer satisfaction and customer attention for financial services providers. The provision of information about the availability of the services of the company in the community will continue in a focussed and targeted manner. The Board recognises that accessibility is a cornerstone of effective external dispute resolution. ASIC Regulatory Guide 139 ASIC approved the TOR for the company, in the context of the content of Regulatory Guide 139, on 18 December PRINCIPAL ACTIVITIES The company is a not for profit organisation and has been established as a company limited by guarantee for the common purpose of acting as an external dispute resolution body of the financial services industry. Its principal activity is to act as the external disputes resolution body of the financial services industry in Australia.

9 (A Company Limited by Guarantee) 8 REVIEW OF OPERATIONS The company was incorporated on 16 th May 2008 with the objective of bringing together the operations of the Banking and Financial Services Ombudsman Limited ( BFSO ), the Insurance Ombudsman Service Limited ( IOS ) and the Financial Industry Complaints Service Limited ( FICS ). The operations of the company started on 1 st July Subsequently the operations of the Credit Union Dispute Resolution Centre Pty Ltd ( CUDRC ) and Insurance Brokers Disputes Ltd ( IBD ) were amalgamated with the company. The goal of the company is to be the external dispute resolution service of choice and to set the benchmarks for excellence. The company now provides dispute resolution services for over 80% of all disputes which arise in relation to the provision of financial services in Australia. The company seeks to provide Members and Consumers with a high level of service in relation to disputes. There were 5,665 Financial Service Provider and 7,886 Authorised Credit Representative members registered as at 30 June The net surplus for the year is $5,810,261 (2010 $143,620) and total accumulated funds amount to $13,621,828 (2010 $7,809,518). SUBSEQUENT EVENTS Since the end of the financial year to the date of this report, there has not arisen any item, transaction or event of a material and unusual nature that, in the opinion of the directors of the company would significantly affect the operations of the company, the results of those operations or the state of affairs of the company in future financial years. INDEMNIFICATION AND INSURANCE OF OFFICERS The company has agreed to indemnify the current and former directors and secretaries of the company, against all liabilities to another person (other than the company) that may arise from their position as directors or secretaries of the company, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the company will meet the full amount of any such liabilities, including costs and expenses. Under the terms of the agreements entered into, the company has agreed to indemnify the Adjudicators, Panel Members and Ombudsmen for all liabilities to another person (other than the Company) that may arise from their position in the company except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the company will meet the full amount of any such liabilities, including legal fees. The company has paid insurance premiums in respect of the Directors and Officers Liability and Legal Expenses Insurance contracts for officers of the company. The insurance premiums relate to:- costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome; and other liabilities that may arise from their position, with the exception of conduct involving wilful breach of duty or improper use of information or position to gain a personal advantage. The insurance policies outlined above do not contain details of premiums paid in respect of individual officers of the company.

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15 (A Company Limited by Guarantee) 14 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011 Notes $ $ Revenue 4 38,672,809 26,730,492 Employee benefits expense (25,736,441) (20,275,977) Office expenses (869,872) (900,624) Communication/Stakeholder relations expenses (1,090,220) (847,877) Occupancy expenses (2,214,472) (2,024,001) Loss on sale of assets (87,772) - Board expenses (383,340) (402,332) Provision for doubtful debts (303,859) (59,043) Bad Debts (103,355) (41,865) Insurance expenses (155,347) (149,000) Professional assistance expenses (554,870) (1,028,947) Depreciation expense (546,703) (466,634) Technology expenses (761,786) (337,890) Other expenses (54,511) (52,682) Surplus before tax 5,810, ,620 Income tax expense - - Surplus for the period 5,810, ,620 Other comprehensive income - - Total Comprehensive income 5,810, ,620 == Notes to and forming part of the financial statements are included on pages 18 to 32.

16 (A Company Limited by Guarantee) 15 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011 Notes $ $ Current Assets Cash and cash equivalents 2,536,727 2,443,915 Trade and other receivables 5 7,601,734 3,762,321 Other financial assets 6 9,500,000 6,000,000 Total Current Assets 19,638,461 12,206,236 Non-Current Assets Property, plant and equipment 7 4,074, ,766 Total Non-Current Assets 4,074, ,766 Total Assets 23,712,507 13,168,002 Current Liabilities Trade and other payables 8 2,302,935 1,971,760 Provisions 9 1,541,294 1,908,697 Fit-out incentive 389,000 - Total Current Liabilities 4,233,229 3,880,457 Non-Current Liabilities Provisions 9 2,622,976 1,478,027 Fit-out incentive 3,234,474 - Total Non-Current Liabilities 5,280,764 1,478,027 Total Liabilities 10,090,679 5,358,484 NET ASSETS 13,621,828 7,809,518 ACCUMULATED FUNDS 10 13,621,828 7,809,518 Total Accumulated Funds 13,621,828 7,809,518 Notes to and forming part of the financial statements are included on pages 18 to 32.

17 (A Company Limited by Guarantee) 16 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2011 Notes $ $ Accumulated Funds Opening Balance 7,809,518 7,157,962 Add: Accumulated funds received from other schemes 19 2, ,936 Add: Surplus for the period 5,810, ,620 Closing Balance 13,621,828 7,809,518 Notes to and forming part of the financial statements are included on pages 18 to 32.

18 (A Company Limited by Guarantee) 17 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2011 Cash Flows from operating activities Notes $ $ Receipts from members and others 33,728,284 23,452,133 Interest received 697, ,011 Payments to suppliers and employees (30,980,916) (24,421,946) Net cash (used in)/provided by operating activities16 (ii) 3,445,266 (631,802) Cash Flow from investing activities Payment for property plant and equipment (3,747,003) (539,230) Proceeds from sale of property plant and equipment Proceeds from/payment for investment in term deposits (3,500,000) 2,000,000 Proceeds from Fit-out Incentive received 3,892,250 - Net cash (used in) investing activities (3,354,503) 1,460,970 Cash Flow from financing activities Proceeds from liquidation of other schemes 19 2, ,936 Net cash provided by financing activities 2, ,936 Net increase in cash and cash equivalents 92,812 1,337,104 Cash and cash equivalents at the beginning of the financial year 2,443,915 1,106,811 Cash and cash equivalents at the end of the financial year 16 (i) 2,536,727 2,443,915 Notes to and forming part of the financial statements are included on pages 18 to 32.

19 (A Company Limited by Guarantee) 18 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE General Information Financial Ombudsman Service Limited (the company) is a company limited by guarantee, incorporated and operating in Australia. Financial Ombudsman Service Limited s registered office and its principal place of business is: 12 th Floor 717 Bourke Street DOCKLANDS VIC 3008 The company was incorporated on 16 th May 2008 with the objective of bringing together the operations of the Banking and Financial Services Ombudsman Limited (BFSO), the Insurance Ombudsman Service Limited (IOS) and the Financial Industry Complaints Service Limited (FICS). Subsequently the operations of the Credit Union Dispute Resolution Centre Pty Ltd (CUDRC) and Insurance Brokers Disputes Ltd (IBD) were amalgamated with the company by January Transactions of the company with the entities mentioned above are detailed in note Significant accounting policies Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards ( A-IFRS ). Compliance with A-IFRS ensures that the financial statements and notes of the company comply with International Financial Reporting Standards ( IFRS ). The financial statements were authorised for issue by the directors on 5 th October Basis of Preparation The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars. Critical accounting judgements and key sources of estimation uncertainty In the application of the company s accounting policies, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

20 (A Company Limited by Guarantee) Significant accounting policies (cont d) The 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 if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Refer to note 3 for a discussion of critical judgements in applying the entity s accounting policies, and key sources of estimation uncertainty. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (b) Revenue Revenue is measured at fair value of the consideration received or receivable. Membership Levies Annual membership fee is recorded as revenue in the financial year it relates to. Cash received from members for membership levy relating to the following financial year is treated as deferred income liability. Dispute Resolution Fees Revenue from dispute resolution fees is recorded on the basis of the stage of completion of the case to the extent revenue can be reliably measured. Membership Application Fees The membership application fee is a one-off contribution which is applicable to all new members. It is recorded as revenue in the financial year in which a new member applies to join the company. Interest Income Interest income is accrued on a time basis. (c) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: (i) where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO), it is recognised as part of the cost of acquisition of the asset or as part of an item of expense; or (ii) for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financial activities which is recoverable from, or payable to, the ATO is classified as operating cash flows. (d) Financial Assets Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss which are initially measured at fair value.

21 (A Company Limited by Guarantee) Significant accounting policies (cont d) Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets, and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments other than those financial assets at fair value through profit or loss. Held-to-maturity investments Bills of exchange and debentures with fixed or determinable payments and fixed maturity dates where the company has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest income is recognised by applying the effective interest rate. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the company s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount of the financial assets is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

22 (A Company Limited by Guarantee) Significant accounting policies (cont d) (e) Operating Lease Payments Operating lease payments are recognised as an expense on a straight line basis over the term of the lease. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (f) Accounts Payable Accounts payables are recognised when the company becomes obliged to make future payments resulting from the purchase of goods and services. (g) Income Tax The company has determined that it is an exempt entity under section of the Income Tax Assessment Act 1997 and therefore exempt from income tax. (h) Property, Plant and Equipment and Depreciation Plant and equipment and leasehold improvements are stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the item. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. The Company reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. During the prior period, the directors determined that the useful lives of certain items of fixture and fittings should be shortened to 15 months, due to the company relocating to new premises. The financial effect of this reassessment was to increase the depreciation expense in the prior financial year by $231,286. The following estimated useful lives are used in the calculation of depreciation: - Furniture and Fittings 10 years - Computer Hardware and Software 3-5 years - Office Equipment 2-5 years The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. (i) Provisions Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that the company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

23 (A Company Limited by Guarantee) Significant accounting policies (cont d) (j) Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave, when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of employee benefits not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the company in respect of services provided by employees up to the reporting date. Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. (k) Accumulated Funds As per section 2.3 of the company s constitution, upon winding up or dissolution of the company, any excess funds shall not be paid to members but shall be given or transferred to some institution having objectives similar to that of the company. Distributions received from liquidation of similar schemes is recognised in equity as accumulated funds unless it relates to any service provided by the company during the year in which case it is recognised as a revenue earned during that year. (l) Adoption of new and revised Accounting Standards In the current period, the company has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has not resulted in any change to the company s accounting policies. At the date of authorisation of the financial report, the following Standards and Interpretations were in issue but not yet effective: AASB 124 Related Party Disclosures (revised December 2009) AASB Annual Improvements AASB 9 Financial Instruments AASB 1053 and AASB Reduced Disclosure Regime Effective for annual reporting periods beginning on or after 1 January Expected to be initially applied in financial year ending 30 June Effective for annual reporting periods beginning on or after 1 January Expected to be initially applied in financial year ending 30 June Effective for annual reporting periods beginning on or after 1 January Expected to be initially applied in financial year ending 30 June Effective for annual reporting periods beginning on or after 1 January Expected to be initially applied in financial year ending 30 June The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the company.

24 (A Company Limited by Guarantee) Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the entity s accounting policies The following are the critical judgements (apart from those involving estimations, which are dealt with below), that management has made in the process of applying the company s accounting policies and that have the most significant effect on the amounts recognised in the financial statements: Employee entitlements Management judgement is applied in determining the following key assumptions used in the calculation of long service leave at balance date: future increases in wages and salaries; future on cost rates; and experience of employee departures and period of service. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Useful lives of property, plant and equipment As described in note 2(h), the company reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. The useful life of certain assets were adjusted during the prior period. Change in lease period As described in note 2(e), the company recognises operating lease payments as an expense on a straight line basis over the term of the lease. The term of some the operating leases were adjusted during the prior period. 4. Revenue Surplus for the period includes the following items of revenue: REVENUE $ $ Membership levies 9,771,001 9,255,420 Dispute resolution fees 27,671,044 16,434,007 Interest income 657, ,551 Membership application fees 277, ,532 Member Conference 222,507 1,609 Other income 73, ,373 Total Revenue from Continuing Operations 38,672,809 26,730,492

25 (A Company Limited by Guarantee) $ $ 5. Trade and other receivables - current Trade receivables (i) 3,570,634 1,769,740 Allowance for doubtful debts (ii) (363,352) (59,493) 3,207,282 1,710,247 Accrued income 3,728,942 1,060,232 Prepayments 650, ,045 Other receivables 14,801 38,797 7,601,734 3,762,321 (i) The credit period for services rendered is 30 days. No interest is charged on overdue trade receivables. The company has provided fully for all receivables over 120 days because historical experience is such that receivables that are past due beyond 120 days are generally not recoverable. Trade receivables between 30 days and 120 days are provided for based on estimated irrecoverable amounts from services rendered, determined by reference to past default experience. Included in the company s trade receivable balance are debtors with a carrying amount of $ 315,832 which are past due at the reporting date for which the company has not provided as there has not been a significant change in credit quality and the company believes that the amounts are still considered recoverable. The company does not hold any collateral over these balances. (ii) Included in the allowance for doubtful debts are specific trade receivables with a balance of $ 182,106 for the company which have been, or are about to be placed into liquidation. The impairment recognised represents the difference between the carrying amount of the specific trade receivable and the present value of the expected liquidation proceeds. Year Ended Year Ended 30/06/11 30/06/10 Movement in the allowance for doubtful debts Balance at beginning of the year 59,493 25,361 Impairment losses recognised on receivables 324,157 59,043 Amounts written off during the year as uncollectable (12,373) (17,023) Amounts recovered during the year (7,925) (7,888) Impairment losses reversed - - Balance at end of the year 363,352 59, $ $ Ageing of impaired trade receivables Current 30 days 99,135 8, days days 44,340 18, days 219,877 32,436 Total 363,352 59,493

26 (A Company Limited by Guarantee) Other Financial Assets $ $ Term Deposits recognised as held to maturity financial assets 9,500,000 6,000, Property, plant and equipment Furniture and Fittings Computer Hardware and Software Office Equipment Leasehold Improvements $ $ $ $ Gross carrying amount Balance as 30 June , ,699 87,255-1,000,384 Additions 19, ,773 17, , ,230 Disposals (222) (222) Balance at 30 June , , , ,359 1,539,392 Additions 33, , ,727 3,458,522 3,747,003 Disposals (376,923) - (87,046) - (463,969) Balance at 30 June , , ,899 3,752,881 4,822,426 Accumulated depreciation Balance as 30 June 2009 (31,750) (52,884) (26,380) - (111,014) Disposals Depreciation expense (269,414) (160,754) (36,466) - (466,634) Balance at 30 June 2010 (301,142) (213,638) (62,846) - (577,626) Disposals 311,543-64, ,949 Depreciation expense (11,759) (225,678) (38,362) (270,904) (546,703) Balance at 30 June 2011 (1,358) (439,316) (36,802) (270,904) (748,380) Net book value As at 30 June , ,836 89,097 3,481,977 4,074, Payables - current Total $ $ Trade payables and accruals 1,400,943 1,028,558 Amounts due to Australian Taxation Office (Goods & Services Tax & Pay As You Go) 901, ,202 2,302,935 1,971,760 Trade payables mainly comprise of amounts owing for services rendered which have an average credit period of 14 days. No interest is charged on the trade payables for the first 60 days. The company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.

27 (A Company Limited by Guarantee) Provisions - current $ $ Employee benefits 1,541,294 1,267,216 Make good provision - 288,450 Lease liability - 353,031 Balance at end of financial year 1,541,294 1,908,697 Provisions non-current Employee benefits 1,657,290 1,478,027 Make good provision 77,792 - Lease liability 887,894 - Balance at end of financial year 2,622,976 1,478, Accumulated Funds Balance at beginning of financial year 7,809,518 7,157,962 Proceeds from liquidation of other schemes 2, ,936 Net surplus for the year 5,810, ,620 Balance at end of financial year 13,621,828 7,809, Remuneration of auditors (a) Auditing the Financial Report 39,396 37,522 (b) Other non audit services 10,500-49,896 37,522 The auditor of the Financial Ombudsman Service Limited is Deloitte Touche Tohmatsu.

28 (A Company Limited by Guarantee) Commitments for expenditure Non-cancellable operating lease commitments The company has two operating leases relating to premises occupied which expire on 30/09/2020. The company does not have an option to purchase the leased asset at the expiry of the lease period. Year Ended Year Ended 30/06/11 30/06/10 Payments recognised as an expense Minimum lease payments 2,227,339 1,616, $ $ Non-cancellable operating lease commitments Future operating lease rentals and rentals not provided for in the financial statements: Not longer than one year 1,935,388 1,783,991 Longer than one year but not longer than five years 10,410,550 6,847,357 Longer than five years 7,828,575 10,472,056-20,174,514 19,103,405 = 13. Contingent Assets Court proceedings The company is pursuing in the Magistrates court a claim for $78,981 against an ex member in relation to unpaid dispute fees. A defence has been lodged by them so it is not possible to quantify if any of the claim will be received in the future. 14. Contingent Liabilities There are no contingent liabilities as at 30 June Members guarantee The company is a public company limited by guarantee incorporated in Australia. If the company is wound up, the Constitution states that each member is required to contribute a maximum of $100 each towards meeting any outstanding obligations of the company.

29 (A Company Limited by Guarantee) Notes to the cash flow statement (i) Reconciliation of cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents includes cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items shown in the balance sheet as follows: $ $ Cash at bank 2,536,727 2,443,915 Total cash and cash equivalents 2,536,727 2,443,915 There were no non-cash financing or investing activities during the year. (ii) Reconciliation of profit for the period to net cash flows from operating activities Profit for the period 5,810, ,620 Depreciation of non-current assets 546, ,634 Amortisation of Fit-out incentive received (268,778) - Provision for doubtful Debts 303,859 34,132 Loss on sale of non-current assets 87,772 - Changes in net assets and liabilities: (Increase)/decrease in assets: Trade debtors (1,800,894) (955,329) Other debtors and prepayments (2,342,378) (1,918,242) Increase/(decrease) in liabilities: Trade creditors 264,391 80,932 Other accruals and prepayments 66, ,485 Provisions 777,546 1,041,966 Net cash from operating activities 3,445,266 (631,802)

30 (A Company Limited by Guarantee) Financial instruments disclosure (a) Capital risk management The capital structure of the company consists of cash, and cash equivalents and accumulated funds. The company s board finance and risk management committee reviews the capital structure on a quarterly basis to ensure that the company s reserves are maintained at a minimum level of 3 months of expenses cover. (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in note 2 to the financial statements. (c) Categories of financial instruments $ $ Financial assets Loans and receivables (including cash and cash equivalents) 10,138,461 6,206,236 Held to maturity 9,500,000 6,000,000 Financial liabilities Amortised cost 2,302,935 1,971,760 (d) Financial risk management objectives The company s finance department provides services to the business, co-ordinates access to domestic financial markets, monitors and manages financial risks relating to the operations of the company. These risks include interest rate risk, credit risk and liquidity risk. The finance department reports quarterly to the company s board finance and risk management committee. (e) Market risk The company s activities expose it to the financial risks of changes in interest rates (refer note 17(g)). There has been no change to the company s exposure to market risks or the manner in which it manages and measures the risk. (f) Foreign currency risk management The company does not undertake foreign currency transactions. (g) Interest rate risk management The company does not borrow funds. The company s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate sensitivity The sensitivity analysis below have been determined based on the exposure to interest rates for cash deposits at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the possible change in interest rates. At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the company s net profit would increase/(decrease) by $52,753. This is mainly attributable to the company s exposure to interest rates on its cash deposits.