FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
TABLE OF CONTENTS Statement of Financial Position 1 Income Statement 2 Statement of Changes in Member Benefits 3 Statement of Changes in Reserves 4 Statement of Cash Flows 5 1. Operation of the Scheme 6 2. Summary of significant accounting policies 6-14 3. Member benefits 14 4. Fair value of financial instruments 15-17 5. Receivables 17 6. Property, plant and equipment 17 7. Payables 18 8. Changes in fair value of investments 18 9. Funding arrangements 18 10. Reserves 19 11. Income tax 19-20 12. Operating expenses 20 13. Auditors' remuneration 21 14. Cash flow statement reconciliation 21 15. Related party disclosures 21-22 16. Financial risk management objectives and policies 22-28 17. Insurance 28 18. Commitments and contingent liabilities 29 19. Significant events after balance date 29 Trustee Statement Independent Report by the Approved Auditor to the Trustee Page
Statement of Financial Position As at 30 June 2017 Note 2017 2016 Assets Cash and cash equivalents 14 14,389,432 43,341,080 Receivables 5 26,268,347 27,767,807 Investments at fair value through profit or loss Cash and short term deposits 4 89,103,457 114,559,526 Interest bearing securities 4 284,531,173 259,906,058 Australian equities 4 591,623,960 512,551,456 International equities 4 560,500,207 495,336,436 Opportunities 4 489, 062, 461 406, 894, 659 Property 4 278,066,276 141,261,149 Property, plant and equipment 6 865,670 1,050,598 Total assets 2,334,410,983 2,002,668,769 Liabilities Payables 7 (4,300,001) (3,316,138) Cash in transit (3,340,319) (975,892) Income tax payable (2,986,852) (9,994,641) Deferred tax liabilities 11 (31,826,558) (19,468,550) Total liabilities excluding member benefits (42,453,730) (33,755,221) Net assets available for member benefits 2,291,957,253 1,968,913,548 Member benefits Allocated to members (2,273,740,596) (1,957,027,380) Unallocated to members (123,885) (674,307) Total member liabilities 3 (2,273,864,481) (1,957,701,687) Net assets 18,092,772 11,211,861 Equity Other reserves 10 (12,931,618) (6,181,422) Operational risk reserve 10 (5,161,154) (5,030,439) Total equity (18,092,772) (11,211,861) The above statement of financial position should be read in conjunction with the accompanying notes. 1
Income Statement Note 2017 2016 Superannuation activities Interest 2,765,343 2,547,997 Dividend revenue 22,859,952 21,023,527 Distributions from unit trusts 68,199,532 59,847,582 Changes in assets measured at fair value 8 185,006,851 (9,670,218) Other investment income 1,398,963 1,448,945 Other income 256,680 675,530 Total superannuation activities income 280,487,321 75,873,363 Investment expenses (8,355,339) (6,099,416) Administration expenses (6,618,935) (5,828,440) Operating expenses 12 (8,685,379) (8,162,958) Anti-detriment expenses (345,646) (216,478) Total expenses (24,005,299) (20,307,292) Net result from superannuation activities 256,482,022 55,566,071 Profit from operating activities 256,482,022 55,566,071 Less: Net benefits allocated to members' accounts (232,106,592) (56,711,074) Profitt(loss) before income tax 24,375,430 (1,145,003) Income tax expense/(benefit) 11 17,494,519 255,381 Profit after income tax 6,880,911 (1,400,384) The above income statement should be read in conjunction with the accompanying notes. 2
Statement of Changes in Member Benefits Note 2017 2016 Opening balance of member benefits 1,957,701,687 1,833,664,222 Contributions: Employer 166,722,084 149,016,317 Member 20,195,636 15,189,849 Transfer from other superannuation plans 91,668,453 67,318,252 Government co-contributions 371,501 416,022 Income tax on contributions (21,181,524) (18,725,149) Net after tax contributions 257,776,150 213,215,291 Benefits to members/beneficiaries (163,330,658) (138,196,300) Insurance premiums charged to members' accounts (25,494,390) (20,675,125) Death and disability insurance benefits credited to members' accounts 15,105,100 12,982,525 Benefits allocated to members' accounts, comprising: Net investment income 242,007,263 66,578,836 Administration fees (9,900,671) (9,867,762) Closing balance of member benefits 2,273,864,481 1,957,701,687 The above statement of changes in member benefits should be read in conjunction with the accompanying notes. 3
Statement of Changes in Reserves Other Operational reserves risk reserve Total equity Opening balance as at 1 July 2016 6,181,422 5,030,439 11,211,861 Net transfers to/from reserves (18,862) 18,862 Profit/(loss) 6,769,058 111,853 6,880,911 Closing balance as at 30 June 2017 12,931,618 5,161,154 18,092,772 Other Operational reserves risk reserve Total equity Opening balance as at 1 July 2015 8,996,311 3,615,934 12,612,245 Net transfers to/from reserves (1,323,933) 1,323,933 Profitt(loss) (1,490,956) 90,572 (1,400,384) Closing balance as at 30 June 2016 6,181,422 5,030,439 11,211,861 The above statement of changes in reserves should be read in conjunction with the accompanying notes. 4
Statement of Cash Flows Note 2017 2016 Cash flows from operating activities Interest received 2,765,343 2,547,997 Dividends 22,859,952 21,023,527 Distributions from unit trusts 69,344,355 79,036,403 Insurance proceeds 15,399,772 13,731,307 Other general administration expenses (14,616,570) (14,404,501) Investment expenses (8,355,339) (6,099,416) Other investment income 1,371,967 1,442,638 Other income (598) (73,253) Insurance premiums (24,987,363) (20,803,521) Income tax paid (12,144,304) (7,042,128) Net cash inflows from operating activities 14 51,637,215 69,359,053 Cash flows from investing activities Purchase of investments (1,097,585,111) (953,117,808) Proceeds from sale of investment 922,578,142 817,330,366 Sale/(Purchase) of fixed assets (27,386) (415,756) Net cash outflows from investing activities (175,034,355) (136,203,198) Cash flows from financing activities Employer contributions 166,722,084 156,898,571 Member contributions 20,195,636 15,316,841 Transfers from other superannuation plans received 91,668,453 67,318,252 Government co-contributions received 371,501 416,022 Benefits paid to members (163,330,658) (142,699,879) Income tax paid on contributions received (21,181,524) (18,725,149) Net cash inflows from financing activities 94,445,492 78,524,658 Net increase/(decrease) in cash (28,951,648) 11,680,513 Cash at the beginning of the financial period 43,341,080 31,660,567 Cash at the end of the financial period 14 14,389,432 43,341,080 The above statement of cash flows should be read in conjunction with the accompanying notes. 5
1. Operation of the Fund Intrust Super is a defined contribution fund who's principal place of business is located at Level 10, 270 Adelaide Street, Brisbane. The Fund is incorporated in Australia. Under the terms of the Fund's Trust Deed, IS Industry Fund Pty Ltd (A.B.N. 45 010 814 623) is appointed trustee. The members' accounts are credited or debited each year with contributions and their proportionate share of the net investment income, expenses and income tax expense of the Fund. In accordance with the amendments to the Superannuation Industry (Superannuation) Act 1993 the Fund was registered with the Australian Prudential Regulation Authority on 31 March 2006 (Registration number R1004397). Administration of the Fund is conducted by Australian Administration Services Pty Ltd. 2. Summary of significant accounting policies (a) Basis of preparation The financial statements are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, and other authoritative pronouncements of the Australian Accounting Standards Board, the Superannuation Industry (Supervision) Act 1993 and regulations and the provisions of the Trust Deed. The Fund is considered to be a for-profit entity for the purpose of preparing financial statements. The financial statements were approved by the Board of Directors of the trustee, IS Industry Fund Pty Ltd (ABN 45 010 814 623) on September 2017. (b) Adoption of AASB 1056 AASB 1056 Superannuation Entities (AASB 1056) is applicable for annual reporting periods beginning on or after 1 July 2016. The adoption of AASB 1056 has resulted in: (i) Changes to the presentation format of the financial statements; (ii) Changes to the measurement of assets and liabilities from 'net market value' to 'fair value', excluding member liabilities, tax assets and liabilities and insurance assets and liabilities; (iii) Additional disclosure requirements for assets and liabilities held at fair value as required by AASB 13 Fair Value Measurement; (iv) Member benefits recognised as liabilities rather than equity; and (v) Contributions, rollovers and other inward transfers and benefits paid to members are not in the nature of income or expenses, and are presented in the statement of changes in member benefits. The Fund has applied the new accounting Standard retrospectively from the start of the comparative period. The adoption of AASB 1056 had the following impact on the statement of financial position at the transition date of 1 July 2016 for the year ended 30 June 2016: As previously reported as at 30 June 2016 Transition Adjustment Restated total as at 30 June 2016 Description $ $ $ Financial instruments (ii) Change in measurement from net market value to fair value: Australian equities 512,022,724 528,732 512,551,456 International equities 495,671,709 (335,273) 495,336,436 Other unlisted unit trusts 408,142,207 (1,247,548) 406,894,659 1,415,836,640 (1,054,089) 1,414,782,551 Receivables (v) Derecognition of contributions receivable 9,464,149 (9,464,149) Payables (v) Derecognition of benefits payable (3,827,229) 3,827,229 Member benefits (iv) Member benefits recognised as liabilities rather than equity: Member liabilities 1,957,701,687 1,957,701,687 Equity (iv) Member benefits recognised as liabilities rather than equity: Member liabilities 1,957,701,687 (1,957,701,687) 6
2. Summary of significant accounting policies (continued) (b) Adoption of AAS13 1056 (continued) The adoption of AASB 1056 had the following impact on the income statement at the transition date of 1 July 2016 for the year ended 30 June 2016: As previously at 30 June 2016 Transition Adjustment Restated total as at 30 June 2016 Description INVESTMENT REVENUE (ii) Changes in net market value (8,616,127) (1,054,091) (9,670,218) CONTRIBUTIONS REVENUE (v) Employer contributions 158,019,232 (158,019,232) (v) Members contributions 15,651,083 (15,651,083) (v) Transfers from other superannuation funds 67,318,252 (67,318,252) (v) Government co-contributions 416,022 (416,022) 241,404,589 (241,404,589) OTHER REVENUE Proceeds from group life policies 12,982,525 (12,982,525) No TFN contributions tax 360,056 (360,056) Other income - 675,530 675,530 TOTAL REVENUE 330,999,094 (255,125,729) 75,873,365 GROUP LIFE INSURANCE EXPENSES (20,435,271) 20,435,271 GENERAL ADMINISTRATION EXPENSES Operating expenses (8,236,331) 73,373 (8,162,958) Anti-detriment expenses (216,478) (216,478) TOTAL EXPENSES (40,599,460) 20,292,166 (8,379,436) Profit from operating activities 290,399,634 (234,833,563) 55,566,071 Less: Net benefits allocated to members' accounts - (56,711,074) (56,711,074) Profit/(loss) before income tax 290,399,634 (291,544,637) (1,145,003) INCOME TAX EXPENSE (20,614,558) 20,359,177 (255,381) Profit after income tax 269,785,076 (271,185,460) (1,400,384) There are two new statements that resulted from the implementation of AASB 1056, namely: Statement of Changes in Members' Benefits and Statement of Changes in Reserves. (c) New accounting standards and interpretations The Fund applied for the first time certain standards and amendments which are effective for annual periods beginning on or after 1 July 2016. The nature of each standard and/or amendment is described below. Apart from AASB 1056, the adoption of these standards and amendments has not had any significant financial impact on the financial statements. 7
2. Summary of significant accounting policies (continued) (c) New accounting standards and interpretations (continued) Accounting Standards and Interpretations issued but not yet effective Certain Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Fund for the annual reporting period ended 30 June 2016. The impact of these standards and interpretations has been assessed and to the extent applicable to the Scheme are outlined in the table below. Standards and interpretations that are not expected to have a material impact on the Scheme have not been included. Application Application Date of Date for Accounting Standard and Nature Standard Fund AASB 9/IFRS 9 Financial Instruments 01-Jan-18 01-Jul-18 On 24 July 2014 the IASB issued the final version of IFRS 9 which replaces IAS 39 and includes a logical model for classification and measurement, a single, forward-looking 'expected loss' impairment model and a substantially-reformed approach to hedge accounting. The final version of IFRS 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. The AASB is yet to issue the final version of AASB 9. A revised version of AASB 9 (AASB 2013-9) was issued in December 2013 which included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. AASB 9 includes requirements for a simplified approach for classification and measurement of financial assets compared with the requirements of AASB 139. At 30 June 2017, the Fund continues to evaluate the recognition and disclosure requirements of this standard but does not anticipate it will have a material financial impact as the carrying values of its investments approximate fair value and the Fund does not apply hedge accounting. AASB 15 Revenue Recognition The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer-so the notion of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption. Under this approach entities will recognise transitional adjustments in retained earnings on the date of initial application (eg 1 July 2018), without restating the comparative period. They will only need to apply the new rules to contracts that are not completed as of the initial application. At 30 June 2017, the Fund does not anticipate there will be any material change to the timing or manner of recognition for revenue. 01-Jan-17 01-Jul-18 Other Significant Accounting Policies (d) Consolidation The Fund is an investment entity and, as such, does not consolidate the entities it controls. (e) Financial assets and liabilities (a) Classification The Fund classifies its financial assets and financial liabilities into the categories below in accordance with AASB 139. 8
2. Summary of significant accounting policies (continued) (e) Financial assets and liabilities (continued) Financial assets and liabilities held for trading These assets are acquired principally for the purpose of generating a profit from short-term fluctuation in price. All derivatives are classified as held for trading. Derivative financial instruments entered into by the Fund do not meet the hedge accounting criteria as defined by AASB 139. Consequently hedge accounting is not applied by the Fund. Financial instruments designated at fair value through profit or loss upon initial recognition These financial assets are designated on the basis that they are part of a group of financial assets which are managed and have their performance evaluated on a fair value basis in accordance with risk management and investment strategies of the Fund. Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Fund includes in this category short term receivables. Other financial liabilities This category includes all financial liabilities, other than those classified at fair value through profit or loss. Other financial liabilities are measured at their nominal amounts. Amounts are generally settled within 30 days of being recognised as other financial liabilities. Given the short-term nature of other financial liabilities, the nominal amount approximates fair value. (b) Recognition The Fund recognises a financial asset or financial liability when, and only when, it becomes a parry to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, ie., the date that the Fund commits to purchase or sell the asset. (c) Derecognition A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: L The rights to receive cash flows from the asset have expired; or ii. The Fund has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and iii. Either (a) the Fund has transferred substantially all the risks and rewards of the asset, or (b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. The Fund derecognises a financial liability when the obligation under the liability is discharged, cancelled or expires. (d) Initial measurement Financial assets and financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. All transaction costs for such instruments are recognised directly in income statement. Receivables and financial liabilities (other than those classified at fair value through profit or loss) are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue. For financial assets and liabilities where the fair value at initial recognition does not equal the transaction price, the Fund recognises the difference in the income statement, unless specified otherwise. (e) Subsequent measurement After initial measurement, the Fund measures investments and derivatives at fair value through profit or loss. Subsequent changes in the fair value of those investments are recorded as 'changes in assets measured at fair value' through the income statement. Interest earned is recorded in 'Interest revenue' according to the terms of the contract. Dividend revenue is recorded in 'dividend revenue'. 9
2. Summary of significant accounting policies (continued) (f) 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: - In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to by the Fund. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measure or disclosed in the financial statements are categorised within the fair value hierarchy. Refer to Note 4. (g) Investment properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions, at the reporting date. Fair value is determined based on annual evaluation performed by an accredited external independent valuer, applying a valuation model recommended by the International Valuation Standards Committee. Gains or losses arising from changes in the fair value of investment properties are recognised in the income statement in the period which they arise. Investment properties are derecognised when they have been disposed of or when they are permanently withdrawn from use and no further economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition. (h) Cash and cash equivalents Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above. (i) Receivables and payables Receivables are carried at nominal amounts due which approximate fair value. Receivables are normally settled within 30 days. An allowance for uncollectible amounts is only made where there is objective evidence that the debt will not be collected. Objective evidence may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Payables are carried at nominal amounts which approximate fair value. They represent liabilities for goods and services provided to the Fund prior to the end of the financial year that are unpaid when the Fund becomes obliged to make future payments in respect of the purchase of these goods or services. Payables are normally settled on 30 day terms. 10
2. Summary of significant accounting policies (continued) (j) Property, plant and equipment Property, plant and equipment are stated at fair value. (k) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below must also be met before revenue is recognised: Changes in fair value Changes in the fair value of investments and derivatives are calculated as the difference between the fair value at sale, or at balance date, and the fair value at the previous valuation point. All changes are recognised in the income statement. Interest Interest revenue on cash and other financial assets carried at fair value is recorded according to the terms of the contract and is recognised in the income statement. Dividends and distributions Dividend and distribution revenue is recognised when the Fund's right to receive payment is established. Revenue is presented gross of any non-recoverable withholding taxes, which are disclosed separately as tax expense in the income statement. Rental income Rental income from investment properties is accounted for on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Lease incentives granted are recognised as an integral part of total rental income, over the term of the lease. Group Life Insurance Proceeds Insurance claim amounts are recognised where the insurer has agreed to pay the claim lodged and has transferred the claim amount to the Fund. (1) Income tax The Fund is a complying superannuation fund for the purposes of the provisions of the Income Tax Assessment Act 1997. Accordingly, the concessional tax rate of 15% has been applied to the Fund's taxable income. Income tax in the income statement for the year comprises current and deferred tax. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences except: - Where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. - When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 11
2. Summary of significant accounting policies (continued) (1) Income tax (continued) Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except: - Where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss. - In respect of deductible temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (m) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except: - When the GST incurred on a sale or purchase of assets or services is not payable to or recoverable from the taxation authority, in which case the GST is recognised as part of the revenue or the expense item or as part of the cost of acquisition of the asset, as applicable; or - When receivables and payables are stated with the amount of GST included. The net amounts of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing activities, which is recoverable from, or payable to the taxation authority are classified as operating cash flows. (n) Superannuation contribution surcharge The Superannuation Laws Amendment (Abolition of Surcharge) Act 2005 abolishes both the superannuation contributions surcharge and the termination payments surcharge in respect of superannuation contributions and certain termination payments made or received on or after 1 July 2005. Assessments for surcharge in respect of contributions and payments for the year ended 30 June 2005 and prior years will continue to be issued and remain payable. Superannuation Contribution Surcharge is levied on surchargeable contributions for a relevant year on the basis of the individual member's adjusted taxable income for that year. The liability for the Superannuation Contribution Surcharge is recognised when the assessment is received, as the Trustee considers this is when it can be reliably measured. The superannuation surcharge liability recognised by the Fund has been charged to the relevant members' accounts. 12
2. Summary of significant accounting policies (continued) (o) Foreign currency The functional and presentation currency of the Fund is Australian Dollars, which is the currency of the primary economic environment in which it operates. The Fund's performance is evaluated and its liquidity managed in Australian Dollars. Therefore, the Australian Dollar is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Transactions in foreign currencies are initially recorded at the functional currency spot rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in a previous financial report, are recognised in the income statement in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. (p) Member liabilities Member liabilities are measured at the amount of accrued benefits. Defined contribution member liabilities are measured as the amount of member account balances as at the reporting date. Contributions, Transfers from Other Funds and Group Life Recoveries Contributions, transfers from other funds and group life recoveries are recognised when control of the asset has been attained and are recorded, gross of any tax, in the period to which they relate. Benefits Benefits are valued at net market value which comprises the entitlements of members who claimed or ceased employment prior to the year end. (q) Reserves The Fund maintains an Operational Risk Reserve, in accordance with the requirements established by the Australian Prudential Regulatory Authority under Prudential Standard SPS 114 Operational Risk Financial Requirement, and also holds a small operating reserve. The purpose of the Operational Risk Reserve is to provide protection to the Fund in the event that a loss is incurred from an operational risk event occurring. The use of the Operational Risk Reserve is governed by the requirements of SPS 114, which is applicable to all APRA-regulated funds. The purpose of the operating reserve is to act as a "buffer" that enables the Fund to issue Annual Member Statements and an Annual report as soon as possible after year end. The reserve is surplus and invested according to the Fund's overall investment strategy (as per the Balanced Option). The Fund aims to keep the reserve at a level less than 0.5% of the Fund's assets. The Trustee maintains an Administration Reserve for administration and operational funding purposes only. The Trustee maintains a Tax Reserve which is accrued by estimating tax obligations that arise from operating and investing activities and is used to fund tax liabilities as they arise. (r) Significant accounting judgements and estimates and assumptions The preparation of the Fund's financial statements requires management to make judgements, estimates and assumptions that affect the amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. The significant accounting policies have been consistently applied in the current financial year and the comparative period, unless otherwise stated. Where necessary, comparative information has been re-presented to be consistent with current period disclosures. 13
2. Summary of significant accounting policies (continued) (r) Significant accounting judgements and estimates and assumptions (continued) Fair Value of Investments When the fair values of the investments recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow model (DCF model). The inputs in these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required to establish fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of these investments. Assessment as investment entity Entities that meet the definition of an investment entity within AASB 10 are required to measure their subsidiaries at fair value through profit or loss rather than consolidate them. The criteria which define an investment entity are, as follows: - An entity that obtains funds from one or more investors for the purpose of providing those investors with investment services; - An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and - An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis. The Fund's product disclosure statement details its objective of providing services to members which includes investing in equities, fixed income securities and private equity for the purpose of returns in the form of investment income and capital appreciation. The Fund reports to its members via an annual report, and to its management, via internal management reports, on a fair value basis. All investments are reported at fair value to the extent allowed by AASB 1056 in the Fund's annual report. The Fund has a clearly documented exit strategy for all of its investments. The Trustee has also concluded that the Fund meets the additional characteristics of an investment entity, in that it has more than one investment; the investments are predominantly in the form of equities and similar securities; it has more than one investor and its investors are not related parties. The Trustee has therefore concluded that the Fund meets the definition of an investment entity. These conclusions will be reassessed on an annual basis, if any of these criteria or characteristics changes. Assessment of insurance arrangements As part of the transition to AASB 1056, the Trustee had to determine whether Intrust Super is acting as a principal or agent in relation to members' insurance benefits. As Intrust Super is acting as an agent, insurance premiums are no longer recognised as an expense but are instead presented in the Statement of Changes in Member Benefits. 3. Member liabilities Member account balances are determined by unit prices that are determined based on the underlying investment movements. Members bear the investment risk relating to the underlying assets and unit prices used to measure the member liabilities. Unit prices are updated weekly. At 30 June 2017 $674,307 (2016: $2,248,314) have not been allocated to members' at balance date. The amount not yet allocated to members' accounts consists of contributions received by the Fund that have not been able to be allocated to members' as at balance date. Refer to Note 17 for the Fund's management of the investment risks. Member liabilities vest 100% to members. 2017 2016 Members liability at end of the financial year 2,273,864,481 1,957,701,687 As compared to net assets available to pay benefits 2,291,957,253 1,968,913,548 14
4. Fair value of financial instruments (a) Classification of financial instruments under the fair value hierarchy AASB 13 requires disclosures relating to fair value measurements using a three-level fair value hierarchy. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. The following table shows financial instruments recognised at fair value, categorised between those whose fair value is based on: - Level 1 : Quoted (unadjusted) market prices in active markets for identical assets or liabilities - Level 2 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable - Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable The level in which instruments are classified in the hierarchy is based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of an input requires judgement after considering factors specific to the instrument. Level 1 30 June 2017 Level 2 Level 3 Total Cash and short term deposits 42,350,770 46,752,688 89,103,457 Interest bearing securities Directly managed portfolio 82,532,903 82,532,903 Held via unit trusts 201,998,270 201,998,270 82,532,903 201,998,270 284,531,173 Australian equities Directly managed portfolio 483,629,545 1,102,343 484,731,888 Held via unit trusts 106,892,072 106,892,072 590,521,617 1,102,343 591,623,960 International equities Directly managed portfolio 272,697,260 272,697,260 Held via unit trusts 287,802,947-287,802,947 560,500,207-560,500,207 Opportunities Directly managed portfolio - - Held via unit trusts 489,062,461 489,062,461 489,062,461 489,062,461 Property Directly managed portfolio - 4,200,000 4,200,000 Held via unit trusts 273,866,276 273,866,276 273,866,276 4,200,000 278,066,276 Total investments 1,275,905,496 1,012,782,038 4,200,000 2,292,887,535 15
4. Fair value of financial instruments (continued) (a) Classification of financial instruments under the fair value hierarchy (continued) Level 1 30 June 2016 Level 2 Level 3 Total Cash and short term deposits 35,832,320 78,727,206 114,559,526 Interest bearing securities Directly managed portfolio 91,218,713-91,218,713 Held via unit trusts - 168,687,345 168,687,345 91,218,713 168,687,345 259,906,058 Australian equities Directly managed portfolio 379,387,814 979,713 380,367,527 Held via unit trusts 132,183,929 132,183,929 511,571,743 979,713 512,551,456 International equities Directly managed portfolio 240,926,467 240,926,467 Held via unit trusts 254,409,969-254,409,969 495,336,436 495,336,436 Opportunities Directly managed portfolio Held via unit trusts 406,894,659 406,894,659 406,894,659 406,894,659 Property Directly managed portfolio 3,900,000 3,900,000 Held via unit trusts 137,361,149-137, 361,149 137,361,149 3,900,000 141,261,149 Total investments 1,133,959,212 792,650,072 3,900,000 1,930,509,284 The table below sets out information about significant unobservable inputs used at 30 June 2017 in measuring financial instruments categorised as Level 3 in the fair value hierarchy. 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. Asset / Fair value Valuation approach Key unobservable input Range of estimates High/Low/Avg Relationship between unobservable inputs and fair value Property / $4,200,000 Refer to Footnote 1 Discount rate 7% to 8% The higher the Expected vacancy rate Rental growth rate 14% to 16% 3% to 4% discount rate, terminal yield and expected vacancy rate, the lower the fair value. The higher the rental growth, the higher the fair value. 1. Income approach based on estimated rental value of the property. Discount rates, terminal yields, expected vacancy rates and rental growth rates are estimated by an external valuer or management based on comparable transactions and industry data. 16
4. Fair value of financial instruments (continued) (a) Classification of financial instruments under the fair value hierarchy (continued) Valuation techniques The Fund has an established control framework and valuation policy to determine the fair value of investments. Investments with underlying securities quoted and transacted in an active market that are objective, observable and unadjusted are classified as Level 1 and include semi-government bonds, listed equities, certain fixed interest securities and certain unit trust investments. Investments classified in Level 2 are those instruments whose values are based on inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly. These include unlisted unit trusts, certain fixed interest securities and certain unit trust investments. Fair value is determined by reference to published bid prices at the close of business on the reporting date, being the redemption price as established by the underlying scheme's Responsible Entity. Investments classified as level 3 include unlisted equity investments where the valuation is determined using management's financial forecasts, investments in property, private equity or infrastructure type funds where the fund is closed, equities that are subject to long term suspension, in liquidation or receivership and units in unlisted unit trusts which have not had a redemption withdrawal during the financial year. Investments in unlisted unit trusts where restrictions have been placed on redemptions or investments directly in property. Such investments are valued using unobservable inputs and may not be corroborated by observable market data. (b) Transfers Between Hierarchy Levels There have been no significant transfers between Level 1 and Level 2, nor between Level 2 and Level 3 of the fair value hierarchy during the financial year. 5. Receivables 2017 2016 Recoverable within 12 months Investment income receivable 26,195,627 27,340,450 GST receivable 39,416 421,050 Sundry receivables 13,796 6,307 Prepayments 19,508-26,268,347 27,767,807 Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Information regarding credit risk exposure is set out in Note 17. 6. Property, plant and equipment 2017 2016 At Directors' valuation 865,670 1,050,598 Net written down value 865,670 1,050,598 17
7. Payables 2017 2016 Due within 12 months Insurance premiums payable 2,344,638 1,800,216 Audit fees payable 87,450 89,374 Operating expenses payable 2,770 37,465 Administration expenses payable 625,282 470,592 Provision for employee benefits 819,399 669,538 Sundry Creditors 420,462 248,953 Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in Note 17. 4,300,001 3,316,138 8. Changes in fair value of investments 2017 2016 Investments held at balance date Cash and short term deposits 512,032 134,983 Interest bearing securities (1,592,956) 396,825 Australian equities 42,941,534 6,617,419 International equities 68,501,166 (11,493,539) Opportunities 11,351,080 7,332,267 Property 36,907,602 4,737,930 Total unrealised gains/(losses) 158,620,458 7,725,885 Investments realised during the year Cash and short term deposits (176,397) (139,682) Interest bearing securities (16,429) (5,947) Australian equities 7,861,320 685,022 International equities 17,082,770 (18,828,349) Opportunities 2,643,638 (1,992,450) Property (1,008,509) 2,885,303 Total realised gains/(losses) 26,386,393 (17,396,103) Change in fair value of investments 185,006,851 (9,670,218) The amounts recorded as 'realised gains/(losses)' above is the difference between the fair value at sale and the carrying amount at the beginning of the reporting period or when acquired, if acquired during the year. 9. Funding arrangements During the year ended 30 June 2017, the employers contributed to the Fund on behalf of members as part of the Trust Deed, Award and Superannuation Guarantee Charge of 9.50%, (2016: 9.50%). Member and additional employer contributions are paid to the Fund at a rate determined by the member and/or employer. 18
10. Reserves 2017 2016 Investment and taxation reserve 9,318,683 4,979,084 Administration reserve 3,612,935 1,202,338 Operational risk reserve 5,161,154 5,030,439 18,092,772 11,211,861 The purpose of the Operational Risk Reserve is to provide protection to the Fund in the event that a loss is incurred from an operational risk event occurring. The use of the Operational Risk Reserve is governed by the requirements of SPS 114, which is applicable to all APRA-regulated funds. The purpose of the operating reserve is to act as a "buffer" that enables the Fund to issue Annual Member Statements and an Annual report as soon as possible after year end. The reserve is surplus and invested according to the Fund's overall investment strategy (as per the Balanced Option). The Fund aims to keep the reserve at a level less than 0.5% of the Fund's assets. Transfers in and out of the reserves are made only at the authorisation of the Trustee and in accordance with the Fund's Reserve Policy 11. Income tax 2017 2016 (a) Major components of income tax expenses for the years ended 30 June 2017 and 2016: Income statement Current tax expense Current tax charge 6,446,813 7,756,264 Adjustments in respect of current income tax of previous years (1,310,302) (1,020,561) Deferred tax Relating to origination and reversal of temporary differences 12,358,008 (6,480,322) Total tax expense as reported in the income statement 17,494,519 255,381 (b) Reconciliation between income tax expenses and the accounting profit before income tax Profitt(loss) before income tax 24,375,430 (1,145,003) Income tax at 15% 3,656,315 (171,750) Derecognition of temporary differences (2,997) 253,596 Non assessable investment income (4,503,098) Net benefit allocated to member accounts 34,815,989 8,506,661 Anti-detriment deduction (307,499) (205,956) Capital gains/(losses) not assessable/(deductible) (5,632,114) 165,078 Exempt pension income (556,118) (106,776) Net imputation and foreign tax credits (8,665,657) (7,164,911) Under/(over) provision in the previous year (1,310,302) (1,020,561) 17,494,519 255,381 19
11. Income tax (continued) (c) Deferred Tax Opening Balance 2017 (Charged) / Credited to income Closing Balance Deferred tax assets Fund expenses accrued but not incurred 283,439 354,150 637,589 Unrealised FFX losses on investments 7,855 (7,855) 291,294 346,295 637,589 Deferred tax liabilities Income receivable (730,296) 41,574 (688,722) Prepayments (2,926) (2,926) Unrealised FFX losses on investments (413,177) (413,177) Unrealised (losses) / gains on investments (19,029,548) (12,329,774). (31,359,322) (19,759,844) (12,704,303) (32,464,147) Net deferred tax (liability) / asset (19,468,550) (12,358,008) (31,826,558) 2016 (c) Deferred Tax (continued) Opening (Charged) / Credited Closing Balance to income Balance Deferred tax assets Fund expenses accrued but not incurred 301,514 (18,075) 283,439 Unrealised FFX losses on investments - 7,855 7,855 301,514 (10,220) 291,294 Deferred tax liabilities Income receivable (591,533) (138,763) (730,296) Unrealised (losses) / gains on investments (25,658,853) 6,629,305 (19,029,548) (26,250,386) 6,490,542 (19,759,844) Net deferred tax (liability) / asset (25,948,872) 6,480,322 (19,468,550) The Fund offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets. 12. Operating expenses 2017 2016 APRA & ASIC fees $ $ 205,161 220,636 Audit and taxation services 119,274 84,364 Professional fees 373,020 423,986 Marketing, advertising & sponsorship 1,863,728 1,696,622 Premises costs 662,473 556,728 Preparation & printing 279,441 254,307 Salaries and on costs 4,164,587 3,885,959 Sundry expenses 481,421 547,898 Travel, accommodation & meals 340,168 291,175 Trustee expenses 196,106 201,283 8,685,379 8,162,958 20