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Overview

Objectives of Defence Service Homes Insurance Scheme

The Defence Service Homes Insurance Scheme (the Scheme) forms part of the operations of the Health and Community Services Division of the Department of Veterans' Affairs (the Department). The objective of the Scheme is to provide domestic building insurance in accordance with the Defence Service Homes Act 1918 and Regulations.

The Scheme operates under the control of the Secretary of the Department of Veterans' Affairs.

The continued existence of the Scheme in its present form is dependent on Government policy.

Basis of preparation of the Financial Statements

The financial statements are required by Section 50B of the Defence Service Homes Act 1918. The financial statements are general purpose financial statements.

The statements have been prepared in accordance with:

  • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
  • Australian Accounting Standards and Interpretations — Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.

Unless an alternative treatment is specifically required by an accounting standard or the PGPA Rule, assets and liabilities are recognised in the statement of financial position when and only when it is probable that future economic benefits will flow to the Scheme or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an accounting standard.

Unless alternative treatment is specifically required by an accounting standard, revenues and expenses are recognised in the statement of comprehensive income, when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

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Significant accounting judgements and estimates

In the process of applying the accounting policies listed in this note, the Scheme has made the following judgements that have the most significant impact on the amounts recorded in the financial statements:

  • The value of outstanding claims and estimated future claims on unexpired premiums has been estimated by an independent actuary. The actuary has used the methods and assumptions detailed in Note 3.1B.

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

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New Australian accounting standards

All new accounting standards, revised standards, amending standards and/or interpretations that were issued prior to the signing of the statements by the Secretary and General Manager, and are applicable to the current reporting period did not have a material effect on the Scheme's financial statements.

Future Australian accounting standards

The following new standards will have a disclosure impact only in future reporting periods, the impact has not yet been quantified:

  • AASB 2014–5 incorporates consequential amendments to a number of the Australian Accounting Standards and Interpretations arising from the issuance of AASB 15 Revenue from Contracts with Customers.
  • AASB 2014–7 incorporates consequential amendments to a number of the Australian Accounting Standards and Interpretations arising from the issuance of AASB 9 Financial Instruments.
  • AASB 1058 Income of Not-for-Profit Entities

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Taxation

The Defence Service Homes Insurance Scheme is exempt from all forms of taxation except fringe benefits tax and the goods and services tax (GST).

Revenues, expenses, liabilities and assets are recognised net of GST:

  • except where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
  • except for receivables and payables.

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Events after the reporting period

There were no events occurring after balance date that had a material impact on the financial statements.

Deferred acquisition costs

A portion of acquisition costs relating to unearned premium revenue can be deferred in recognition that it represents future benefits to the Scheme. Deferred acquisition assets must have a probability of future economic benefit and be able to be reliably measured. The Scheme does not have the data or reporting to reliably measure the value of this asset, therefore it does not take up a deferred acquisition asset.

The Scheme has chosen not to recognise deferred acquisition costs or assets due to the complexity involved and the amounts being immaterial.

Investments cash flow movements

In 2017–18, DSHIS has used “gross-up” figures to account for movements in its Investment accounts as reported in its Cash Flow Statement and Note Disclosure on Special Accounts. The prior year comparatives have been adjusted to conform to the changes in presentation for the current financial year. Comparatives are adjusted to account for the gross movement in investment accounts and are treated as an investment realised and an investment purchased when it flows through the DSHIS Special Account.

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Correction of prior period errors — fire services levy

A fire services levy is charged by the NSW Government on insurers who issue insurance policies. Insurers are allowed to pass on this cost to policyholders. The levy is used to fund the metropolitan and rural fire services in NSW. The amount of levy charged to an insurer is based on the amount of premium written in a financial year. The levy is paid in quarterly instalments in advance.

In 2018 it was identified that the levy collected from policyholders was being incorrectly recognised on the inception of the policy rather than over the life of the policy on a similar basis to premium revenue. As this change in treatment impacted the prior year’s results, DSHIS adjusted the fire services levy revenue which resulted in an increase in revenue of $0.965m which represents unearned revenue which was recorded as revenue in 2015–16.

The fire services levy expense was also not being fully recognised in accordance with the obligation to NSW Government. The expense was being recognised as a prepayment with an asset representing the prepaid portion of the fire services levy which had not been earned yet. DSHIS adjusted the fire services levy expense to recognise the full cost in 2016–17 which resulted in a decrease in expenses of $0.304m which represents the unwinding of prepaid expenses in 2015–16. The prepaid asset was also removed which resulted in a $0.344m reduction in other non-financial assets.

This was an error in accounting treatment only and did not impact on DSHIS’s obligations to NSW Government or the amount of fire services levy collected from policyholders.

The below table shows the affected line items of the financial statements:

  Actual
in 2017
Correction
of Error
Restated
Actual 2017
  $'000 $'000 $'000
Statement of Comprehensive Income      
Premium revenue      
Insurance premium revenue 43,272 965 44,237
Net premium revenue 36,327 965 37,292
       
Operating expense      
Fire brigade and emergency services contributions 1,764 (304) 1,460
Total operating expenses 9,354 (304) 9,050
       
Underwriting result (5,259) 1,269 (3,990)
       
Surplus/(Deficit) attributable to the Australian Government (780) 1,269 489
       
Statement of Financial Position      
       
ASSETS      
Financial assets      
Other non-financial assets 392 (344) 48
Total non-financial assets 697 (344) 353
       
Total assets 81,802 (344) 81,458
       
Net assets 34,244 (344) 33,900
       
EQUITY      
Retained surplus 34,244 (344) 33,900
Total equity 34,244 (344) 33,900

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