Our staff prepared the Financial Statements to meet the requirements of the Local Government Act 1989 and Australian Accounting Standards. We also use the Department of Environment, Land, Water and Planning’s model accounts to help with standardised financial reporting.

Our Financial Report contains two statements — the Financial Statements and the Performance Statement. The Victorian Auditor-General’s Office audits these statements and our Audit Committee reviews them, before recommending their adoption in-principle.

The Auditor-General’s office then offers independent opinions on the Financial Report and Performance Statement. Once we get approval from the Auditor-General’s office, we make our Annual Reports available to the public.

We are committed to accountability. We developed this section to help you understand and analyse the Financial Report.

Our Financial Report has two main sections — the Financial Statements and the accompanying explanatory notes. The Financial Statements comprise five main statements:

1. Comprehensive Income Statement
2. Balance Sheet
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Statement of Capital Works

Each Statement assists with the overall understanding of our financial position.

This Statement outlines our income sources for the financial year under headings such as general rates and garbage charges, and the day-to-day expenses incurred to run Council over the financial year. These expenses don’t include capital expenditure, but they do include depreciation and amortisation of assets. Expenses may include labour costs, materials and supplies, and utility and insurance costs.

We prepare the Statement on an ‘accrual’ basis. This means we recognise all income and expenses for the financial year, even though we may not have received or paid them yet. An example of income not yet received is interest on investments. An example of expenditure not yet paid is an invoice for materials or services that we’ve already used.

The key figure in this Statement is the result for the reporting period, which is the best measure of our financial performance. This figure equals total income minus total expenses, which indicates whether we’ve operated at a surplus or a deficit (a figure inside brackets is a deficit).

Other comprehensive income comprises income and expense items (including reclassification adjustments) that are not recognised in the surplus or deficit, as required or permitted by other Australian Accounting Standards. The components of other comprehensive income include changes in revaluation reserve.

The Balance Sheet is a snapshot of our financial position as at 30 June 2020. It outlines what we own (assets) and what we owe (liabilities). Our net worth (net assets or equity) equals total assets minus total liabilities — the larger the net equity, the stronger the financial position. Our financial position at 30 June 2020 is sound, reflecting our commitment to financial and infrastructure sustainability.

See the elements of the Balance Sheet below:

A current asset is expected to be used within a financial year, or can be easily converted to cash within 12 months. This includes items such as cash held, investments and money owed to us. Net current assets are more commonly known as working capital. The figure equals current assets minus current liabilities and it determines whether we can meet our short-term commitments.

A non-current asset is not expected to be used or turned into cash in an operating cycle. These include items such as roads, drains, buildings, artwork, furniture, fixtures and fittings, vehicles and equipment.

1. Trade and other payables are those to whom we owe money.
2. There are provisions for employee benefits, including annual leave, long-service leave and sick leave. There is also provision for environmental rehabilitation of the Clayton Regional Landfill.
3. Trust monies are funds that we hold in trust.
4. Interest-bearing liabilities include borrowings and leases.

This is the difference between the value of total assets and the value of total liabilities.

The value of total equity is equivalent to the value of net assets. It comprises the following:

• Asset revaluation reserve, which is the difference between the previously recorded value of our assets and their latest valuations
• Transfers from the asset replacement reserve during the financial year, reflecting funding for eligible open space capital works projects
• Accumulated surplus, which is the value of surpluses/profits accumulated over time.

The Statement of Changes in Equity summarises the change in our real worth throughout the financial year. It shows the changes for each of the amounts under the net assets section of the Balance Sheet. Our net worth can change due to a surplus or deficit as recorded in the Comprehensive Income Statement; or an increase in the net value of non-current assets resulting from their revaluation.

The Statement of Cash Flows shows all the cash we received and paid during the financial year. Figures without brackets are inflows (receipts) and figures inside brackets are outflows (payments). It shows how much cash we had at the start of the financial year, the inflows and outflows during the financial year and the cash balance at the end of the financial year.

We generate and use cash in three main areas of activity:

(1) Cash flows from operating activities — cash used or generated in our normal service delivery functions, and receipts of monies held in trust.

(2) Cash flows from investing activities — cash used or generated by enhancing or creating infrastructure and other assets. Activities also include the acquisition and sale of other assets, such as vehicles, property, equipment etc.

(3) Cash flows from financing activities — cash used or generated by financing our functions. This includes loans from financial institutions, advancing of repayable loans to other organisations, loan repayments, and leases.

This Statement sets out all capital expenditure related to non-current assets. It also shows how much capital works expenditure was for expanding, renewing or upgrading our asset base. This is important because each category has a different impact on our future costs. The distinction between expenditure on new assets, asset renewal, upgrade and expansion is as follows:

• Asset renewal expenditure — expenditure on an existing asset that returns the service potential or the asset’s life up to which it had originally. It is required periodically and is relatively large in material value, compared with the value of the components or sub-components of the asset. Because it reinstates existing service potential, it has no impact on revenue. However, it may reduce future operating and maintenance expenditure if it’s completed at the optimum time.
• Asset upgrade expenditure — expenditure that enhances an existing asset to provide higher service or expenditure, increasing the life of the asset beyond which it had originally. It is discretionary and often doesn’t result in additional revenue unless direct user charges apply. It will increase operating and maintenance expenditure in the future because of the increase in our asset base.
• Asset expansion expenditure — expenditure that extends an existing asset to a new user group, at the same standard enjoyed by residents. It is discretionary expenditure that increases future operating and maintenance costs because it increases our asset base. It may be associated with additional revenue from the new user group.
• Asset new expenditure — this results in creating or acquiring a new asset.

The notes to the Financial Report add meaning to the figures in the four main statements. You should read them in conjunction with the statements to get a clearer picture of our finances. The notes give the details behind the statements’ summary line items, showing what each accumulated amount consist of.

The notes outline the rules and assumptions used to prepare the Financial Statements. They advise of any changes to the Australian Accounting Standards, policy or legislation that may affect the preparation of statements and disclose information that cannot be incorporated into the statements.

Notes are particularly useful if there has been a significant change from the previous year’s comparative figure.

Other notes include:

— The breakdown of expenses, revenues, reserves and other assets.

— Contingent assets and liabilities.

— Transactions with persons related to us.

We must prepare and include a Performance Statement within the Annual Report. The Statement includes results of the prescribed sustainable capacity, service performance and financial performance indicators and measures. It also describes the municipal district and explains the material variations in the results. The Statement meets the requirements of the Local Government Act 1989 and Local Government (Planning and Reporting) Regulations 2014.

Each statement is certified by two Councillors. The Financial Report and Performance Statement are also certified by our Chief Executive Officer and Principal Accounting Officer (in our case, the Chief Financial Officer). The Councillors and the Chief Executive Officer must make certifications stating, in their opinion, that the statements are fair, correct and not misleading. The Principal Accounting Officer must make a separate certification stating, in their opinion, whether the statements met all statutory and professional reporting requirements.

The Auditor-General’s audit reports provide an external and independent opinion on the Financial Report and Performance Statement. They cover the statutory and professional requirements, and the fairness aspects of the statements. They also advise if there are any issues of concern. In this Annual Report, the Auditor-General has prepared separate audit reports for the Financial Report and the Performance Statement.