Provisions - Procedures

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1. Purpose and Objectives

The purpose of these procedures is to ensure that appropriate recognition criteria and measurement bases are applied to provisions.

2. Definitions, Terms, Acronyms

Liability - an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

Provision - liability of uncertain timing or amount.

WorkCover - a scheme which provides compensation for workers who are injured in the course of their employment.

3. Procedures Scope/Coverage

These procedures apply to all University staff responsible for the accounting for provisions.

4. Procedures Statement

AASB137 Provisions, Contingent Liabilities and Contingent Assets, defines a provision as a liability of uncertain timing or amount.

Provisions are a sub-category of liabilities. Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure.

A provision may progress to become a liability. For example, if at year end, a decision in a lawsuit has gone against the University, but the amount to be paid or the time by which the amount has to be paid, is uncertain, then the University must recognise a provision. When these uncertainties become certainties, a liability will exist.

Other related information - AASB 119 Employee Benefits.

5. Recognition and Measurement of Provisions

As per AASB137 Provisions, Contingent Liabilities and Contingent Assets, a provision shall be recognised when:

(a) an entity has a present obligation (legal or constructive) as a result of a past event;

(b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

(c) a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the amount that an entity would rationally pay to settle the obligation at the reporting date or to transfer it to a third party.

6. Provisions for Employee Entitlements

The University is bound by legislation and industrial awards to provide its employees with various entitlements accumulated as a result of the rendering of their services to the University. Liabilities arising from the accumulation of employee entitlements in respect of long service leave and annual leave are recognised in the financial statements.

6.1 Wages and Salaries and Annual Leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date, are recognised in provisions in respect of employees services up to the reporting date, and are measured at the amounts expected to be paid when the liabilities are settled. Regardless of the expected timing of settlements, provisions made in respect of employee benefits are classified as a current liability, unless there is an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date, in which case it would be classified as a non-current liability.

6.2 Long Service Leave

The amount of long service leave provision liability is actuarially determined at each financial year end by discounting projected expected long service leave payments using the prevailing yields on bonds of appropriate duration for the first ten years and the prevailing yield on ten year Commonwealth Government bonds thereafter.

In calculating the projected expected long service leave payments, consideration is given to expected future wage and salary increases, employee departures, period of service and on-costs for payroll tax, superannuation and worker’s compensation.

7. Provisions for Workers' Compensation

The University is responsible for payments of workers' compensation and is registered with WorkCover as an exempt employer. The University self-insures and administers workers' compensation arrangements on behalf of the entire University. The provision for workers' compensation liability is actuarially valued, at each year end, by using the claims paid development method where all past claims are brought to current values with an allowance for late claims reporting and administration costs.