Financial Viability Assessment Guide:
Voluntary Product Stewardship
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Contents
I.
Introduction and Background ………………………………………………………………………………………… 3
II.
Independent Assessor Eligibility Criteria ………………………………………………………………………….4
III.
Key Objectives ………………………………………………………………………………………………………………….5
IV.
Verification and Review Guidelines …………………………………………………………………………………7
V.
Risk Allocation Guidelines ….……………………………………………………………………………………………9
VI.
Assessment Guidelines ………………………………………………………………………………………………….13
VII.
Glossary ……………………..……………………………………………………………………………………..……………61
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I.
Introduction and Background
Financial Viability, Capacity and Sustainability – Assessment Guide
The Australian Government Department of Sustainability, Environment, Water, Population and
Communities (“the Department” or “SEWPaC”) develops and implements national policy, programs
and legislation to protect and conserve Australia's environment and heritage.
Product stewardship is an approach to managing the impacts of different products and materials. It
acknowledges that those involved in producing, selling, using and disposing of products have a
shared responsibility to ensure that those products or materials are managed in a way that reduces
their impact, throughout their lifecycle, on the environment and on human health and safety.
The Product Stewardship Act 2011 came into effect on 8 August 2011. This legislation provides the
framework to effectively manage the environmental, health and safety impacts of products, and in
particular those impacts associated with the disposal of products. The framework includes voluntary,
co-regulatory and mandatory product stewardship. The passage of the legislation delivers on a key
commitment by the Australian Government under the National Waste Policy which was agreed in
November 2009 and endorsed by the Council of Australian Governments in August 2010.
Voluntary accreditation of schemes encourages product stewardship without the need for specific
regulation and provides the community with confidence that accredited schemes have the capability
to achieve the desired outcomes. Product stewardship organisations that are accredited under the
legislation must meet specific requirements to ensure they carry out their activities in a transparent
and accountable manner.
An applicant for accreditation of a voluntary product stewardship arrangement will be required to
engage an independent third party to assess and prepare a report on the financial aspects of the
arrangement (including its administrator), and to provide the report to the Department with its
application. The independent third party (“independent assessor” or “assessor”) will review the
applicant’s submission in accordance with the Assessment Guide. The review process will be
conducted under conditions of strict confidence.
This document serves as a guide for the assessment and reporting of the financial viability,
sustainability and capacity of the proposed arrangement as detailed within the applicant’s
submission.
The applicant will be required to provide appropriate authorisations to facilitate the commercial and
financial viability assessment, including the provision of financial statements and related
documentation. The Department may subsequently seek clarification from, and enter into
discussions with, the assessors as to the findings of their assessment.
The Department may subsequently conduct further and more comprehensive assessments at a later
stage. Therefore, it should be noted that the applicant’s ability to meet the requirements of this
assessment should not necessarily be construed that it meets the final financial viability and capacity
requirements for the purposes of this or any other engagement.
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II.
Independent Assessor Eligibility Criteria
An independent third party (“assessor”) must meet the following minimum criteria in order to be
eligible for the purposes of conducting the assessment:

Qualifications and Experience: Assessors must be accounting qualified individuals with a
current professional membership to either the Institute of Chartered Accountants in
Australia (ICAA) or CPA Australia. Each individual involved in the assessment must have a
minimum of five (5) years’ experience in providing financial viability assessment services.

Professional Indemnity and Insurance: The assessor is to hold certificates of currency for
both Professional Indemnity Insurance (with a policy limit of liability not less than $20m) and
Business Insurance (with a policy limit of liability not less than $20m). By accepting the
engagement, the assessor agrees to hold this level of cover for a minimum period of threeyears following the date of the assessment report.

Professional Fees: The assessor is to hold a signed engagement letter pertaining to this
assessment, with all assessment services being provided on a fixed-fee arrangement. The
professional fees charged for this service are to be disclosed within the engagement letter,
and must be paid in advance (and in full) prior to the assessor commencing the engagement.

Conflicts of Interest: The assessor and assessment firm will not be eligible to conduct this
assessment where other commercial, financial, accounting or advisory services are provided
to the applicant and/or a related party of the applicant. By accepting the engagement, the
assessor confirms there is no current perceived, potential or actual conflicts-of-interest, and
agrees to immediately notify SEWPaC (in writing) of any such conflicts-of-interest that may
occur throughout the engagement, and for a period of six-months following the provision of
the assessment report.

Confidentiality: The assessor will only be eligible where appropriate operational procedures
are maintained to ensure the security of confidential information. By accepting the
engagement the assessor agrees to enter into appropriate confidentiality undertakings (as
required), and will restrict access to such information to authorised individuals only. The
assessor also confirms such information will be maintained in a secure document room
and/or locked cabinet as appropriate.

Assessors Declaration: The assessor will not be eligible where there is any known scope
limitation or information restriction at the commencement of the engagement. By accepting
the engagement, the assessor confirms they have reviewed and are prepared to sign the
assessors declaration contained within the “Investigation into the Application for
Accreditation as a Voluntary Product Stewardship Arrangement”, and agrees to disclose to
the Department whether the applicant provided their full participation and whether there
was any restriction or delay in being provided with the information requested throughout
the course of the review.
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III.
Key Objectives
The purpose of this process is to provide an assessment as to whether the application for
accreditation of a voluntary arrangement sufficiently demonstrates that the proposed Voluntary
Product Stewardship Arrangement (“the arrangement”) will have adequate financial arrangements
and funding to achieve the outcomes and requirements of the Product Stewardship Act 2011 (“the
Act”), the Product Stewardship (Voluntary Arrangements) Instrument 2012 (“the Instrument”) and the
Product Stewardship Regulation 2012 (“the Regulation”).
The Instrument requires that the Minister (or delegate) consider a number of criteria when deciding
whether to approve or refuse an arrangement. These include:

Whether or not the arrangement is likely to achieve its stated outcomes; and

Whether or not the arrangement deals adequately with certain matters, which include:
o
Governance and organisational matters, including procedures for decision-making
and dispute resolution;
o
Financial arrangements and funding to achieve the outcomes of the arrangement;
o
Assessing the adequacy of the environmental, health and safety policies and practices
in relation to the activities undertaken under the arrangement;
o
The use of the product stewardship logo in relation to the arrangement;
o
Monitoring and evaluating the performance of the arrangement in achieving the
outcomes of the arrangement; and
o
Procedures relating to membership of the arrangement;
o
Communicating information to the public about how its services can be accessed; and
o
Managing risk in relation to the operation of the arrangement.
The outcomes for the arrangement will need to be elaborated in its application. Further information
may be found on the department’s website at:
http://www.environment.gov.au/settlements/waste/product-stewardship/voluntaryarrangements/index.html.
To assist in this process, the applicant is required to engage an Independent Assessor to review the
applicant’s proposed arrangement, and to compile a report which is to include:
(a)
A statement of the independent assessor’s opinion as to whether, based on the application
and supporting documentation:
i.
ii.
iii.
the arrangement will have access to sufficient funding to ensure financial viability over time;
the key assumptions underlying the arrangement’s financial projections are reasonable;
the arrangement has in place adequate risk management, contingency planning and adaptive
management frameworks;
(b)
Key findings in relation to assumptions, uncertainties and risks;
(c)
Recommendations in relation to the ongoing financial management of the arrangement; and
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(d)
Detailed analysis supporting the opinion, findings and recommendations referred to above.
The assessor will be required to form an opinion as to whether or not the information provided in
the application sufficiently demonstrates that the arrangement will have adequate financial
arrangements and funding to achieve the outcomes and requirements in the Act, the Instrument and
the Regulation.
In providing this advice, the assessor will consider the information that has been submitted by the
applicant to the assessor directly, as well as other relevant information including other information
provided through the application process. The advice will be provided in a report that will include
consideration as to whether claims made by the applicant about its financial arrangements are
unreasonable or not supported by sufficient evidence to ascertain that they are reasonable; as well
as identifying any areas of significant, relevant uncertainty or risk; and providing sound rationale for
all conclusions drawn.
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IV.
Verification and Review Guidelines
The Verification and Review Guidelines should be used as important reference material in
undertaking the assessment and appropriately sourcing supporting evidence and references in order
to form an opinion as to the assessed level of risk in each respective risk category (refer V. Risk
Allocation Guidelines) of the Assessment Report.
In determining whether the applicant meets all the key objectives outlined in Section “III. Key
Objectives”, the assessor is required to undertake a process of review and verification in order to
substantiate all existing and/or proposed arrangements, assumptions and agreements.
Materiality
Throughout this review, the principle of materiality should be adopted by the assessor. Materiality is
defined by Australian Accounting Standards (AABS1031) as:
“information which if omitted, misstated or not disclosed has the potential to adversely affect…
decisions …made by users of [information] or the discharge of accountability by the management or
governing body of the entity”
Verification and Review Procedures
In undertaking the process of review and verification, the assessor is required to obtain sufficient
appropriate supporting evidence and references to be able to draw reasonable conclusions on which
to base the assessor's opinion as to the assessed level of risk for each respective risk category.
Procedures which may be employed in the assessor’s process of review and verification may include:
Procedure
Inspection
Inspection may consist of examining records or documents, as well
as physical examination of assets or operations.
Observation
Observation consists of looking at a process or procedure being
performed by others.
Enquiry
Enquiry consists of seeking information of knowledgeable persons,
both financial and non-financial, throughout the entity or outside
the entity. This includes external confirmation which would serve
as corroborative evidence.
Confirmation
Confirmation, which is a specific type of enquiry, is the process of
obtaining a representation of information or of an existing
condition directly from a third party.
Recalculation and Re-performance
Recalculation consists of checking the mathematical accuracy of
documents or records. While Re-performance involves the
independent execution of procedures or controls.
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Analytical procedures
Analytical procedures consist of evaluations of financial information
made by a study of plausible relationships among both financial
and non-financial data. Analytical procedures also encompass the
investigation of identified fluctuations and relationships that are
inconsistent with other relevant information or deviate significantly
from predicted amounts.
Professional Judgement
The following guidelines are intended to serve as a comprehensive guide to undertaking the
assessment, however it should be noted that the nature of each individual review will vary and as
such, the assessor is required to apply professional judgement in assessing each individual
circumstance. Although the guide is intended to provide a comprehensive source of reference, given
that the nature of each assessment is unique and will vary by case, the considerations within these
guidelines should in no way be taken as exhaustive.
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V.
Risk Allocation Guidelines
The Risk Allocation Guidelines should be used as important reference material in appropriately
classifying the assessed level of risk for each respective risk category, as well as in formulating the
assessors overall opinion as provided in the Executive Summary of the Assessment Report.
In determining whether the applicant meets the key objectives outlined in Section “III. Key
Objectives”, the assessor is required to review and assess the level of risk across a range of risk
categories outlined in the table below.
Risk Category
Funding and Capital
Applicant Viability
Underlying Assumptions
Arrangement Viability
Adaptability Management Framework
Risk Management and Governance
The assessor will consider a range of factors within each category to determine whether the
applicant’s proposed arrangement has demonstrated adequate financial arrangements and funding
in order to achieve the outcomes and requirements of the Act, the Regulation and the Instrument.
Risk Classification
The assessor is required to form an opinion as to the Risk Effect, Risk Likelihood and Overall Risk
Magnitude of each individual risk category, and these grades should be assigned in accordance with
the prescribed risk classification matrices outlined below.
Risk Likelihood and Risk Effect
Following a detailed review of each individual risk category, the assessor is required to form an
opinion as to the Risk Likelihood (probability) and the Risk Effect (consequence) of each individual
risk category in accordance with the following matrices:
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Risk Effect
Risk Effect
Description
Severe
No capability, capacity or experience and/or lack of understanding - would
result in the applicant not meeting the outcomes and requirements in the
Act, the Regulation and the Instrument.
High
Very limited capability, capacity or experience and/or lack of understanding
– substantial impact on the arrangement’s ability to meet the outcomes and
requirements in the Act, the Regulation and the Instrument.
Medium
Some capability, capacity or experience and/or lack of understanding –
material impact on the arrangement’s ability to meet the outcomes and
requirements in the Act, the Regulation and the Instrument.
Low
Satisfactory capability, capacity or experience and/or understanding –
minimal impact on the arrangement’s ability to meet the outcomes and
requirements in the Act, the Regulation and the Instrument.
Insignificant
Good capability, capacity or experience and/or understanding – negligible
impact on the arrangement’s ability to meet the outcomes and
requirements in the Act, the Regulation and the Instrument.
Risk Likelihood
Risk Likelihood
Description
High
Is expected to occur in the first 12 months of the arrangement
Medium
Likely to occur at some later date
Low
May occur at some later time
Rare
May occur but only in exceptional circumstances
Insignificant
Not likely to occur
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Overall Risk Magnitude
In accordance with the classifications assigned for the Risk Effect and Risk Likelihood, the
applicant’s Overall Risk Magnitude is to be derived from the following matrix:
Risk Magnitude
Risk Effect
Severe
High
Medium
Low
Insignificant
High
Medium
Risk Likelihood
Low
Rare
Very High
Very High
High
High
Medium
Very High
Very High
High
Medium
Low
High
High
Medium
Low
Very Low
Low
Low
Low
Very Low
Insignificant
Very Low
Very Low
Very Low
Insignificant
Insignificant
Insignificant
A traffic light reporting system should be employed to visually highlight the assessed Overall
Risk Magnitude for each individual risk category in accordance with the following colour
scheme:
Overall Risk Magnitude
Very High
High
Medium
Low
Very Low
Insignificant
Colour Scheme
Red
Red
Orange
Green
Green
Green
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Presentation in the Assessment Report
The assessed risk derived from the above risk classification and matrices is to be presented at the
end of each respective section in a standard table format outlined below:
Assessment of [Risk Category]
Risk Effect
Description
[Assessed Risk Effect
classification]
[Risk Effect Description that corresponds to the assessed Risk
Effect classification as per the Risk Effect table]
Risk Likelihood
Description
[Assessed Risk Likelihood
classification]
[Risk Likelihood Description that corresponds to the assessed
Risk Likelihood classification as per the Risk Likelihood table]
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
[Risk Category]
[Assessed Risk
Effect
classification]
[Assessed Risk
Likelihood
classification]
[Derived Overall Risk
Magnitude]
*To be colour coded as
per the defined traffic
light reporting system
The assessed risk from each respective risk category is then summarised in the Executive Summary
of the assessment report by the following table:
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Funding and Capital
[Assessed Risk
Effect
classification]
[Assessed Risk
Likelihood
classification]
*To be colour coded as
per the defined traffic
light reporting system
Applicant Viability
Underlying Assumptions
Arrangement Viability
Adaptive Management Framework
Risk Management and Governance
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VI.
Assessment Guidelines
Contents
1.
Executive Summary ................................................................................................................... 14
2.
Scope of Report......................................................................................................................... 18
3.
Background ............................................................................................................................... 20
4.
Funding and Capital .................................................................................................................. 22
5.
Applicant Viability ..................................................................................................................... 25
6.
Underlying Assumptions ........................................................................................................... 34
7.
Arrangement Viability ............................................................................................................... 39
8.
Adaptive management framework ........................................................................................... 47
9.
Risk Management and Corporate Governance......................................................................... 50
10. Information Sources and Supporting Documentation .............................................................. 58
11. Appendices ................................................................................................................................ 60
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1. Executive Summary
The assessor is to provide a few short paragraphs summarising the general overview and background
of the applicant and the arrangement that they are proposing. Reference should be made to the
following key information:






Background of the applicant including establishment date or years in business
Principal trading activities
Entity type and corporate structure
Arrangement the applicant is proposing / brief summary of the proposed business model
Any clear advantages or economies of scale the applicant may possess
Key assumptions that underpin projections
1.1 Key Findings and Considerations The assessor is to summarise the key findings of their
assessment highlighting the following factors which are to be determined from their detailed
review:







Basis of applicant’s revenue assumptions
Basis of applicant’s cost assumptions
Key risks to the proposed arrangement
Applicant viability
Arrangement funding, viability and break-even level
Adequacy of adaptive management framework
Adequacy of risk management and corporate governance frameworks
The assessor is also required to summarise the total cost assumption of the arrangement and
highlight any critical success factors which underpin the arrangement’s ability to realise the
assumptions:
The proposed arrangement includes an expected cost budget of [$xxx/metric unit] and the
realisation of this budget is dependent upon the following:
•
Achieving [xxx metric units] per annum
•
•
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1.2 Professional Opinion The assessor is to specify their opinion as to whether or not the
applicant’s application demonstrates that the proposed arrangement will have adequate
financial arrangements and funding to achieve the outcomes and requirements of the Act, the
Regulation and the Instrument.
In our professional opinion, [Applicant Name]’s application [appears / does not appear] to
demonstrate the proposed arrangement will have adequate financial arrangements and funding to
achieve the outcomes and requirements of the Act, the Regulation and the Instrument.
The assessor’s overall opinion should be consistent as well as reflective of the assessor’s
individual assessments of the various risk categories and other relevant matters, and should be
summarised by completing the following table:
Risk Category
Funding and Capital
Applicant Viability
Underlying Assumptions
Arrangement Viability
Adaptive Management Framework
Risk Management and Governance
Risk Effect
Risk Likelihood
Overall Risk Magnitude
[Colour Code]
[Colour Code]
[Colour Code]
[Colour Code]
[Colour Code]
[Colour Code]
The assessor is also required to separately state their professional opinion derived from the
individual assessments of funding and capital, applicant viability, underlying assumptions,
arrangement viability, adaptive management framework, and risk management and corporate
governance.
Funding and Capital
The applicant’s funding and capital was reviewed and in our opinion [the applicant has
demonstrated adequate funding and capital to achieve the outcomes and requirements of the Act,
the Regulation and the Instrument / the applicant does not appear to have demonstrated adequate
funding given that total funding facilities amount to [x] which are inadequate in meeting total
projected costs (less projected revenues) / although the applicant appears to have demonstrated an
appropriate level of funding, the ability to secure adequate funds is contingent upon the following
factors: ….. ]
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Applicant Viability
We have undertaken a qualitative and a quantitative review of [applicant name]’s financial viability
and in our opinion, the applicant will [be / not be / is likely to be] financially viable, [however is
dependent upon…]. On the basis of [management’s financial projections for the year ending 30 June
2013 / financial statements for the year ended 30 June 2012], in our opinion, the entity has an
[indicative conditional] rating of [x], with a credit quality classification of [x] and a [x] level of risk.
Underlying Assumptions
We have reviewed the underlying assumptions that underpin the financial projections provided and
from our assessment of the supporting evidence, references and rationale, [our opinion is that the
underlying assumptions appear reasonable / our opinion is that the underlying assumptions do not
appear reasonable / although some of the assumptions appear reasonable, we are unable to
determine the reasonableness of a number of underlying assumptions due to there being limited
evidence provided]. [Revenue and cost assumptions were all well supported with documentary
evidence / No evidence was provided as to support revenue and cost assumptions / Some but not all
evidence was provided to substantiate revenue and cost assumptions / Limited evidence was
provided to support many of these assumptions, the applicant’s experience is acknowledged].
Arrangement Viability
We have undertaken a qualitative commercial review of the arrangement and a quantitative review
of the financial projections provided, and [it would appear the arrangement will be viable / it would
appear that the arrangement will not be viable] on the basis of the assumptions provided by the
applicant [/ although the arrangement appears viable on the basis on underlying assumptions, there
are a number of contingencies with a high risk likelihood that would materially impair the overall
viability of the arrangement].
Adaptive Management Framework
We have reviewed the applicant’s Adaptive Management Framework and in our opinion the
arrangement [has in place adequate processes, procedures and plans to address and accommodate
for deviations from target levels and has addressed the issues of undersupply and oversupply / does
not appear to have adequate processes, procedures and plans to address and does not
accommodate for deviations from target levels and/or addressed the issues of undersupply and
oversupply / has in place some processes, procedures and plans to address and accommodate for
deviations from target levels and the issues of undersupply and oversupply, but has inadequate
processes, procedures and plans in the following areas… ].
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Risk Management and Corporate Governance
We have also undertaken a review of the applicant’s Risk Management and Corporate Governance
frameworks and from our review of the documentation submitted the applicant appears to [have
adequate risk management, contingency planning and corporate governance frameworks / does not
appear to have an established risk management framework and has not demonstrated the adoption
of any principles of good corporate governance / have basic frameworks in place with limited
processes and protocols to address a limited number of identified risks].
1.3 Recommendations The assessor is required to provide recommendations in relation to the
viability of the arrangement.
Recommendations may include (however are not limited to):






Request clarification of … [anomalies, discrepancies]
Request further details relating to …
Request letters of support from … [e.g. partners, directors etc.]
Counterparty risk assessments on …
Performance reference checks on ...
Ongoing monitoring of the financial viability of the arrangement
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2. Scope of Report
The scope of the report establishes the context of the assessment and the basis in which the
assessment is conducted and also requires the assessors’ compliance with the eligibility criteria. It
also provides the assessor with the opportunity to detail the applicant’s level of participation and
any actual, potential or perceived conflicts of interest which may have arisen at any stage
throughout the assessment.
Applicant Participation
The assessor is required to disclose whether the applicant undertook full participation for the
purposes of the assessment and to highlight whether there were any limitations imposed by the
applicant.
Sample:
Scope
Subject Participation
Full Participation, all documentation, interviews and site
visitations as requested, also completed the ‘Request for
Information’ form without limitation
Conflict of Interest
The assessor and members of the assessor’s team must declare to SEWPaC any actual, potential or
perceived conflict of interest prior to undertaking independent reviews of the application and any
conflicts which may have occurred throughout the course of the engagement. This will include any
material personal or financial interests in any applicant. For further details relating to conflicts of
interest, please refer to II. Independent Assessor Eligibility Criteria. Conflicts of interest which are
evident are to be summarised in the table below:
Sample:
Scope
Conflict of Interest

The applicant is a former client

A staff member taking part in the assessment of the
application has a close personal relationship with a
person that works for the organisation that is submitting
the application (the applicant)
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Financial Assessor’s Declaration
The assessor is to include a signed ‘Financial Assessor’s Declaration’ in accordance with
III. Independent Assessors Eligibility Criteria which is to be signed by an appropriate representative
within the assessor’s organisation.
Applicant’s Undertaking
The assessor is to include a signed ‘Applicant’s Undertaking’ which is to be signed by an appropriate
representative within the applicant’s organisation.
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3. Background
3.1 Overview The assessor is to complete the overview table pertaining to the applicant including
ABN, entity type, head office address, contact details, brief history and the profiles of the
directors.
Subject Name
[Applicant Name]
ABN
[XX XXX XXX XXX]
Type of Entity
[Public company / Private company / Not-for-profit entity / Unit trust /
Discretionary trust]
Head Office Address
[Entity address]
Contact Details
[Key contact]
Tel:
Fax:
Email:
History
[Applicant’s history]
Board of Directors
Director Name 1, Title, [Short paragraph outlining director profile]
Director Name 2, Title, [Short paragraph outlining director profile]
Director Name 3, Title, [Short paragraph outlining director profile]
Note. Where the applicant comprises a group of entities, the above table should be repeated
for each respective member of the consortium, partnership or alliance.
3.2 Proposed Arrangement The assessor is to provide an overview of the proposed arrangement,
identifying key objectives, stakeholders and metrics relating to the applicant’s proposal.
Supporting facts and evidence of prior experience may be highlighted in support of the
applicant’s capability.
3.3 Stakeholder Chart The assessor is to insert a relationship chart of all key stakeholders and
counterparties to the proposed arrangement.
3.4 Key Stakeholders and Counterparties The assessor is to complete the ‘Key Stakeholders and
Counterparties’ table which includes consideration of all arrangements in place with all key
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stakeholders and counterparties to the applicant’s overall arrangement. This will include a
qualitative and quantitative review of the proposed arrangements that are to be put in place,
key dependencies on any stakeholders and/or counterparties, as well as an assessment as to
likelihood and reasonableness of the rationale and references behind all proposed
arrangements.
Stakeholder
Arrangement
Status and references
The assessor is to
input the name of
the relevant
stakeholder /
counterparty.
The assessor is to include a
description of the proposed
arrangement and relationship which
is to take place.
The assessor is to include a
description of the current status of
the arrangement and relationship,
whether any heads of agreement,
memorandum of understanding,
etc. have been signed.
Supporting References:
The assessor is to state the
supporting evidence which had
been provided and sighted.
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4. Funding and Capital
In assessing the adequacy of the applicant’s proposed means of funding, this may include
detailed analysis of the following:

Review funding arrangements and funding plan


Review of funding facilities that will be made available
Review of ongoing funding to be derived from proposed operating model
4.1 Summary of Funding The assessor is to complete the ‘Summary of Funding’ table outlining the
applicant’s proposed key sources of funding the proposed arrangement. These sources may
include (but are not limited to) initial (seed) capital, external funding arrangement, related
party funding, committed equity investors, etc. This should be extracted over a forward looking
period of at least 3 years.
4.2 Funding Analysis The assessor is to complete the ‘Funding Analysis’ table commenting on all
sources of funding for the proposed arrangement. These sources may include initial funding,
external funding facilities, committed ongoing funding and conditional funding.
Funding Analysis
Initial Funding
External Funding Facilities
The assessor is provide commentary on the initial seed capital the
applicant is proposing to secure and/or has secured in capitalising
the business. Reference may be made to initial start-up costs and
expenditure commitments and the sufficiency of this level of initial
capitalisation.
The assessor is provide commentary on the applicant’s secured /
committed external funding facilities. This includes a review of
relevant limits, tenure and maturity dates, loan covenants,
whether amounts are deemed adequate and the review of any
additional conditions associated with these facilities. Reference
should be made to any supporting evidence which has been
provided in substantiating these facilities (e.g. bank letters).
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Committed Ongoing Funding
The assessor is to provide commentary on the applicant’s proposed
ongoing funding sources. This may include (but is not limited to)
related parties including director support, committed equity capital
and/or external finance facilities. The assessor is to consider the
reasonableness of the sources of ongoing funding, any attached
conditions to this committed funding and the likelihood of the
applicant continuing to access these proposed funds in the future.
Reference should be made to any supporting evidence which has
been provided in substantiating these sources of funding (e.g.
letters of support, memorandums of understanding, etc.).
Conditional Funding
The assessor is provide commentary on any means of funding
which is yet to have been committed and is conditional. This may
include (but is not limited to) related parties including director
support, committed equity capital and/or proposed strategies of
raising additional funding and/or external finance in the future.
The assessor is to consider the reasonableness and likelihood of
the applicant securing the proposed and conditional sources of
ongoing funding. Reference should be made to any supporting
evidence which has been provided in substantiating these sources
of funding (e.g. letters of support, memorandums of
understanding, etc.).
4.3 Key Issues and Considerations The assessor is to highlight in point form all key issues and
considerations identified that are deemed material together with the likely consequence of any
events arising as a result.
4.4 Assessment of Funding and Capital The assessor is to form an overall opinion on the adequacy
of the applicant’s proposed means of funding and its overall assessed level of risk. The Risk
Effect, Risk Likelihood and Overall Risk Magnitude should be assigned in accordance with the
classification matrices outlined within the Risk Allocation Guidelines (refer V. Risk Allocation
Guidelines).
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Sample:
Assessment of Funding and Capital
Risk Effect
Description
High
Very limited capability, capacity or experience and/or lack of
understanding – substantial impact on the arrangement’s ability
to meet the outcomes and requirements in the Act, the
Regulation and the Instrument.
Risk Likelihood
Description
High
Is expected to occur in the first 12 months of the arrangement
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Funding and Capital
High
High
Very High
The assessor is also required to separately state their professional opinion from their overall
assessment of funding and capital. The following paragraph should be used as a guide in stating the
assessor’s opinion which should be consistent as well as reflective of the assessor’s assessed Overall
Risk Magnitude. For the assessor’s ease of reference, the paragraph below has been colour coded to
correspond with the traffic light reporting system defined in section ‘V. Risk Allocation Guidelines’.
The applicant’s funding and capital was reviewed and in our opinion [the applicant has
demonstrated adequate funding and capital to achieve the outcomes and requirements of the Act,
the Regulations and the Instrument / the applicant does not appear to have demonstrated adequate
funding given that total funding facilities amount to [x] which are inadequate in meeting total
projected costs (less projected revenues) / although the applicant appears to have demonstrated an
appropriate level of funding, the ability to secure adequate funds is contingent upon the following
factors: ….. ]
Recommendations:
The assessor is required to provide any key recommendations regarding funding and capital.
Page 24 of 64
5. Applicant Viability
The assessor is to undertake a review of the applicant’s financial viability which includes a
qualitative and quantitative review, as well as an assessment of the entity’s overall credit quality
and ability to operate as a going concern.
5.1 Applicant Viability The assessor is to complete the ‘Applicant Viability’ table which includes a
qualitative review of the applicant’s history, management capabilities, financial and
management policies, operational dependencies, quality and reliability of financial statements
as well as a quantitative review of the applicant’s key financial metrics, trading performance,
capitalisation, liquidity and future outlook.
The assessor’s commentary should be presented in the table in point form. In assessing the
adequacy of the applicant’s viability the assessor may include consideration of the following:
Applicant Viability
Applicant History
Management Capabilities
The assessor is to summarise the applicant’s history and previous
experience. Consideration should be given to the following:

[Applicant] was incorporated in XXXX

Principal trading activities include …

Whether the applicant forms part of a well established
group, including…

Whether the applicant has previous experience in
operating comparable arrangements or regimes,
including…
The assessor is to comment on management’s capabilities and
previous experience. Consideration should be given to the
following:

Whether management’s board of directors and
management team have appropriate qualifications and
prior experience in the operation of a similar or
comparable arrangement.

Whether the applicant appears to have demonstrated a
rigorous management framework supported by their
governance framework, project plans / project
implementation strategy and monitoring and control
activities (project monitoring and evaluation)

Managerial competency covering each of the primary
management disciplines including…
Page 25 of 64
Financial
Policies
&
Management The assessor is to comment the applicant’s financial and
management policies. Consideration should be given to the
following:
Operational Dependencies

Financial risk management practices

Corporate governance policy, compliance policies,
committees, responsibilities, and related governance
procedures

Board membership, voting quorum, meeting minutes,
meeting attendees and frequency
The assessor is to provide commentary on any operational
dependencies the applicant may have. Consideration should be
given to the following:



Financial Statements
Whether the applicant is reliant upon any key stakeholders
and other counterparties including directors for either
funding or support
Whether the applicant is dependent upon a specific skill
set of stakeholder, asset or license / rights of use, etc.
Whether the applicant is reliant upon any contextual
factors which may include
social, economic,
legal/regulatory, technological, or environmental factors.
The assessor is to summarise the historical financial information
submitted and highlight the quality of the accounts:

[Applicant]
provided
[management/statutory/audited]
(including notes to the accounts)

[Applicant] provided [#] years prospective financial
information including…

Audit letter prepared by [Auditor name] and [did not list or
contain any qualifications / was qualified on the basis of ...]
[#]
financial
years
statements
Page 26 of 64
Trading Performance
Capitalisation
The assessor is to provide commentary and key metrics regarding
the applicant’s historical trading performance:

For the year ended XXXXXX, the applicant reported:
a. Sales revenue and gross profit of $[x] which
represented [growth / a contraction] of [x]%
b. Other revenue was reported at $[x] ([x]%
government funded)
c. Net profit before tax of $[x]
d. Non-recurring gains / losses and/or losses from
asset divesture of $[x]
e. Comprehensive income of $[x]
f. Net operating cash-flow of $[x]
Note. For every category, please reference key trends
across relevant metrics outlined in section 5.2 Key Metrics
of the report.

The applicant has shown an [improvement / deterioration
/ stable] in margins

Applicant recorded impairment of $[x] in 20XX

Trading performance was [positively / negative] impacted
in the 20XX year as a result of…
The assessor is to provide commentary and key metrics regarding
the applicant’s capitalisation:

For the year ended XXXXXX, the applicant reported:
a. Total assets of $[x]
b. Total intangibles represent [x]% of total assets and
included…
c. Shareholder’s Equity of $[x]
d. Net tangible worth of $[x]
e. Net tangible worth to sales of [x]%
f. Reinvestment ratio of [x]%
g. Gearing of [x]%
h. Debt to capital of [x]%
Note. For every category, please reference key trends
across relevant metrics outlined in section 5.2 Key Metrics
of the report.

The applicant appears to be [adequately / inadequately]
capitalised

Consideration should be given to whether the applicant’s
level of capitalisation is heavily dependent upon any
underlying factors [e.g. the recoverability of related party
loans, the realisable value of [x] assets, etc.]
Page 27 of 64
Capitalisation
(continued)
Liquidity
Financial Structure

Commentary on initial seed capital where appropriate

Commentary on off balance sheet items such as operating
leases and capital commitments
The assessor is to provide commentary and key metrics regarding
the applicant’s liquidity:

For the year ended XXXX, the applicant reported:
a. Cash and Equivalents of $[x] (cash ratio of [x]% of
CL)
b. Working capital of $x (being [x]% of total revenues)
c. Encumbered cash represented [x]% of cash
reserves and [x]% of working capital
d. Current ratio of [x] times (CA/CL)
e. Quick ratio [x] times ((CA – Inventory)) / CL)
f. Cash-flow coverage of [x]% (of CL)
Note. For every category, please reference key trends
across relevant metrics outlined in section 5.2 Key Metrics
of the report.

It would appear the applicant [has / has not] demonstrated
adequate liquidity and capability to service its short-term
commitments

Consideration should be given to whether the applicant’s
working capital, liquidity and ability to meet short-term
commitments is heavily dependent upon any underlying
factors [e.g. the recoverability of current related party
loans receivable, the turnover of inventory, etc.]

Consideration should be given to whether the applicant’s
cash flow and cash position is inflated by increased
revenue in advance, increased creditor days and decreased
working capital days.
The assessor is to provide commentary and key metrics regarding
the applicant’s financial structure, funding and debt serviceability:

For the year ended XXXX, the applicant reported:
a. Net tangible worth position of $[x]
b. Interest-bearing debt of $[x]
c. Interest free loans of $[x]
d. Net cash-flow from financing activity of $[x]
e. Interest cover of [x] times (EBIT / IE)
f. Financial leverage of [x] times (Total Debt* /
EBITDA)
*Total Debt should be included as a gross amount and
Page 28 of 64
Financial Structure
(continued)
Future Outlook
is not net of cash on hand
Note. For every category, please reference key trends
across relevant metrics outlined in section 5.2 Key Metrics
of the report.

Consideration of contingent liabilities and the ability to
service these liabilities should they materialise

It [would / does not] appear that the applicant has
demonstrated adequate funding and debt serviceability

The applicant [would / does not] appear to have adequate
head room within lending covenants to raise additional
external finance if required
The assessor is to provide commentary and any corresponding
metrics on the applicant’s future outlook:




The applicant is forecasting sales revenue of [x], net profit
of [x] for the year ending 20XX.
Comment on whether there is a projected deterioration /
Improvement in [financial metrics]
Applicant’s financial statements and whether they appear
to demonstrate a financially stable and viable operation
Consideration as to any challenges or headwinds which are
currently or potentially encountered by the sector /
industry
Assessed Credit Quality and From the detailed analysis of the above sections, the assessor is to
Credit rating
form an opinion and to make an overall assessment as to the
applicant’s credit quality and financial viability and capacity to
honor contractual commitments.
In order to provide a uniform and consistent assessment, the
assessor should assign the applicant with a credit rating which is
reflective of the assessor’s opinion of the applicant’s overall
assessed credit quality.
Example:
The applicant’s financial viability was reviewed and based on
[management’s financial projections for the year ending 30 June
2013 / financial statements for the year ended 30 June 2012], in
our opinion the entity has an [indicative conditional] rating of [x],
with a credit quality classification of [x] and a [x] level of risk.
Note. Where the applicant comprises a group of entities, the above table should be repeated
for each respective member of the consortium, partnership or alliance.
Page 29 of 64
Risk Dependencies
In assessing the above areas in determining the applicant’s overall viability, there can be many
different types of risk dependencies and/or exposures that can impact the overall financial risk
assessment of an applicant. In assessing the applicant’s viability, the assessor should consider
the various risks and is required to highlight these risks where a material dependency or
exposure is evident. A general outline of some critical risks and primary measures to identify
these risks are detailed in the table below.
Key Risks
Area for investigation
Key Metric References
Counterparty risk (being the risk
of default by another entity
within the group)
Credit quality of the
consolidated group position
and/or critical counterparties
 Credit quality
Dependency risk (where the
entity’s reported position is
based on intergroup trading)
Reliance and implications of
intergroup trading activity
 Intergroup transaction / sales
Liquidity risk (where the entity’s
working capital is supported by
short-term loans)
Reliance and implications of
solvency support
 Current related party
receivables / working capital
 Non-current related party
payables / working capital
Refinance risk (where the entity
is reliant on continued funding
and support for operations)
Reliance and implications of
continued group funding
 Total related party
receivables / net worth
Funding risk (where the entity
requires additional capital and or
funding for growth)
Reliance on additional finance
to fund future growth
 Growth rate
Asset risk (where the entity or
guarantor has insufficient
collateral or security available)
Capital adequacy and
available collateral
 Sustainable Growth
 (Net worth – total related
party receivables) / sales
 Net worth / maximum
expected loss
Note. There are a multitude of other risk factors that should be considered within the scope of this
review which may include interest rate risk, foreign currency risk, market risk and operating risk.
5.2 Key Financial Metrics The assessor is to provide a summary financial metrics schedule
summarising a range of financial indicators which have been reviewed and utilised in assessing
the applicant’s overall financial viability.
Page 30 of 64
Sample:
Financial Metrics
Jun 2011
'000
Jun 2012
'000
Sep 2012
'000
Profitability
Gross Profit Margin
%
Net Profit Margin
%
Profitability
%
Reinvestment
%
Return on Assets
%
Return on Equity
%
Liquidity
Working Capital
$ ,000
Working Capital to Sales
%
Cash Flow Coverage
%
Cash Ratio
%
Current Ratio
X
Quick Ratio
X
Capital Adequacy
%
Gearing
Net Tangible Worth
$ ,000
Net Asset Backing
%
Gearing
%
Debt to Equity
X
Interest Coverage
X
Repayment Capability
%
Financial Leverage
X
Short Ratio
%
Operating
Operating Leverage
X
Creditor Exposure
%
Creditor Days
days
Inventory Days
days
Debtor Days
days
Cash Conversion Cycle
days
Page 31 of 64
Other Indicators
Sales (Annualised)
$ ,000
Activity
X
Sales Growth
%
Sustainable Growth
%
Dividend Payout
%
Related Party Loans Receivable
%
Related Party Loans Payable
%
Related Party Loans Dependency
%
Quick Asset Composition
%
Current Asset Composition
%
Current Liability Composition
%
Z-Score Risk Measure
5.3 Key Issues and Considerations The assessor is to highlight in point form all key issues and
considerations identified that are deemed material together with the likely consequence of any
events arising as a result.
5.4 Applicant Viability Assessment The assessor is to form an overall opinion on the viability of
applicant and its overall assessed level of risk. The Risk Effect, Risk Likelihood and Overall Risk
Magnitude should be assigned in accordance with the classification matrices outlined within the
Risk Allocation Guidelines (refer V. Risk Allocation Guidelines).
Sample:
Assessment of Applicant Viability
Risk Effect
Description
Severe
No capability, capacity or experience and/or lack of understanding
- would result in the applicant not meeting the outcomes and
requirements in the Act, the Regulation and the Instrument.
Risk Likelihood
Description
Medium
Likely to occur at some later date
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Applicant Viability
Severe
Medium
Very High
Page 32 of 64
The assessor is also required to separately state their professional opinion from their overall
assessment of the viability of the applicant. The following paragraph should be used as a guide in
stating the assessor’s opinion which should be consistent as well as reflective of the assessor’s
assessed Overall Risk Magnitude. For the assessor’s ease of reference, the paragraph below has
been colour coded to correspond with the traffic light reporting system defined in section ‘V. Risk
Allocation Guidelines’.
We have undertaken a qualitative and a quantitative review of [applicant name]’s financial viability
and in our opinion, the applicant will [be / not be / is likely to be] financially viable, [however is
dependent upon…]. On the basis of [management’s financial projections for the year ending 30 June
2013 / financial statements for the year ended 30 June 2012], in our opinion, the entity has an
[indicative conditional] rating of [x], with a credit quality classification of [x] and a [x] level of risk.
Recommendations:
The assessor is required to provide any key recommendations regarding the applicant’s viability.
Page 33 of 64
6. Underlying Assumptions
The assessor is to undertake a review of the applicant’s underlying assumptions which underpin
financial projections and estimates and which will include the consideration of revenues, total
cost and other expenditure commitments of the arrangement. This review is to include:



Identification of key assumptions including revenue and cost assumptions
Analysis of the derivation of these assumptions and approach
Seek supporting evidence and/or references to underlying assumptions regarding key
revenue and costing elements
Examples of Verification Procedures which may be adopted:




Vouch underlying assumptions regarding key revenue and costing elements to supporting
evidence and/or references
Tests of reasonableness to ensure the adequacy of projections
Recalculation and re-performance of revenue and cost derivations
Consideration as to the completeness of all cost items included in financial projections
6.1 Overview of Key Assumptions The assessor is to complete the ‘Overview of Key Assumptions’
table which includes consideration of revenues, total cost and other expenditure commitments
of the arrangement.
Revenue The assessor is to complete the Revenue Assumptions section of the ‘Overview of Key
Assumptions’ table which includes:




Identification of key revenue assumptions
Analysis of the derivation of these assumptions and how revenue is derived
Analysis of the underlying rationale and approach utilised by the applicant
All assumptions should be verified by supporting evidence that is to be provided in
substantiating these underlying assumptions
Key Assumption
Description / Approach
Supporting Evidence and/or
References Provided
Revenue Assumptions
(i) [Revenue source]
The assessor is to input the source of
revenue.
[$xx/ unit metric]
Calculated by:
The assessor is to show the calculation
by which revenue is derived.
Description of approach and E.g.
rationale including whether
 Signed contracts
arrangement is to be on a
 Memorandums of
fixed fee, cost-plus etc. basis.
Understanding
 Invoices or other
evidence of arm’s length
transaction
Page 34 of 64
Costs A summary of all cost items is to be prepared by the assessor, together with the
corresponding stated cost as included in the applicant’s projections and estimates. The assessor
should apply professional judgement in identifying the key cost drivers behind the stated cost
assumptions and in making an assessment as to the reasonableness of the stated costs in the
applicant’s projections and estimates. The assessor is to complete the Cost Assumptions section
of the ‘Overview of Key Assumptions’ table which includes:



Identification all cost assumptions including a summary of all cost items is to be prepared by
the assessor, together with the corresponding stated cost as included in the applicant’s
projections and estimates.
Analysis of the derivation of these assumptions including underlying rationale and approach
utilised by the applicant. The assessor should apply professional judgement in identifying
the key cost drivers behind the stated cost assumptions and in making an assessment to the
reasonableness of the stated costs in the applicant’s projections and estimates.
All assumptions should be verified by supporting evidence and/or references that are to be
provided in substantiating these underlying assumptions.
Key Assumption
Description / Approach
Supporting Evidence
and/or References
Provided
Description of approach and rationale
including the identification of key cost
drivers.
E.g.
The assessor is to provide a detailed
listing of all overheads / operating
expenses.
E.g.
Cost Assumptions
(i) [Cost Item]
The assessor is to input the
identified cost item.
[$xx/ unit metric]
The assessor is to input
assumed dollar value of the
cost per metric unit
(ii) Overheads / operating
expenses
 Fee quotations
 Memorandums of
Understanding
 Invoices or other
evidence of arm’s
length transaction
 Fee quotations
 Memorandums of
Understanding
 Invoices or other
evidence of arm’s
length transaction
Page 35 of 64
Supporting Evidence
and/or References
Provided
Key Assumption
Description / Approach
(ii)
Detailed listing example*:
Overheads / operating
expenses
(continued)
000’s
Advisor / Consultant Fees
$
Audit sites/Recyclers
$
Branding/Marketing
$
Board expenses
$
Data/CRM
$
Funding for programs
$
Finance Leases
$
Insurance
$
Premises & utilities
$
Print/Stationery/office supplies $
Staff, salary, recruitment
$
Travel /entertainment
$
Technology
$
Telecommunications
$
Miscellaneous
$
Total
$
*Note. These are indicative overhead categories only, and it is the assessors’ responsibility to ensure
the completeness of these respective categories based on the nature of the assessed business
Commentary on Underlying Assumptions
The assessor should provide any additional and/or supplementary commentary on the
applicant’s underlying assumptions, including consideration as to the feasibility of the
assumptions, whether there are any key dependencies in achieving the assumptions and any
other material factors associated with their realisation.
Page 36 of 64
6.2 Additional Costs and Contingencies The assessor is to complete the ‘Additional Costs and
Contingencies’ table which includes consideration of additional / unaccounted costs and
contingencies.
Description / Approach
Item
(i)
Additional / unaccounted
costs
Identification of any additional cost that were not incorporated
into the applicant’s key assumptions.
The assessor is to include a brief description of the rationale
behind the additional / unaccounted costs and the reason(s) as to
why these costs may have been excluded.
(ii)
Contingencies
Identification of any contingencies that may potentially arise which
may result in costs that were not incorporated into the applicant’s
key assumptions.
The assessor is to include a brief description of the rationale
behind the potential contingency and an assessment to the
likelihood of this event materialising.
Commentary on Additional Costs
The assessor should consider the completeness of cost items stated in the applicant’s
projections and whether any additional cost items may exist. Any additional costs and/or
contingencies that are not incorporated into the applicant’s projections and estimates, however
which could potentially arise should be reviewed and analysed in this section. The assessor
should consider the likelihood and consequence of such costs arising and the potential impact
of such costs on the viability of the arrangement.
6.3 Key Issues and Considerations The assessor is to highlight in point form all key issues and
considerations identified that are deemed material together with the likely consequence of any
events arising as a result.
Consideration should be given to the following:



Key considerations and any limitations which are deemed material are required to be
highlighted together with the likely consequence of any events arising as a result.
The assessor is to highlight and summarise any identified gaps and discrepancies in the
assumptions and prospective information submitted.
Reasonableness of the assumptions adopted by the applicant in preparing financial
projections and estimates
Page 37 of 64
6.4 Assessment of Underlying Assumptions The assessor is to form an overall opinion on the
Underlying Assumptions and their overall assessed level of risk. The Risk Effect, Risk Likelihood
and Overall Risk Magnitude should be assigned in accordance with the classification matrices
outlined within the Risk Allocation Guidelines (refer V. Risk Allocation Guidelines).
Sample:
Assessment of Underlying Assumptions
Risk Effect
Description
Medium
Some capability, capacity or experience and/or lack of
understanding – material impact on the arrangement’s ability to
meet the outcomes and requirements in the Act, the Regulation
and the Instrument.
Risk Likelihood
Description
Low
May occur at some later time
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Underlying Assumptions
Medium
Low
Medium
The assessor is also required to separately state their professional opinion from their overall
assessment of the underlying assumptions. The following paragraph should be used as a guide in
stating the assessor’s opinion which should be consistent as well as reflective of the assessor’s
assessed Overall Risk Magnitude. For the assessor’s ease of reference, the paragraph below has
been colour coded to correspond with the traffic light reporting system defined in section ‘V. Risk
Allocation Guidelines’.
We have reviewed the underlying assumptions that underpin the financial projections provided and
from our assessment of the supporting evidence, references and rationale, [our opinion is that the
underlying assumptions appear reasonable / our opinion is that the underlying assumptions do not
appear reasonable / although some of the assumptions appear reasonable, we are unable to
determine the reasonableness of a number of underlying assumptions due to there being limited
evidence provided]. [Revenue and cost assumptions were all well supported with documentary
evidence / No evidence was provided as to support revenue and cost assumptions / Some but not all
evidence was provided to substantiate revenue and cost assumptions / Limited evidence was
provided to support many of these assumptions, the applicant’s experience is acknowledged].
Recommendations:
The assessor is required to provide any key recommendations regarding the applicant’s underlying
assumptions.
Page 38 of 64
7. Arrangement Viability
The assessor is to undertake a review of the overall viability of the proposed arrangement. This
includes a qualitative review of the arrangement’s operations, as well as a quantitative review of the
total cost and other expenditure commitments of the arrangement, and whether the proposed
means of funding is considered adequate in meeting these costs.
This will include an assessment as to the applicant’s capacity to meet obligations, as well as an
assessment as to the appropriateness and reasonableness of the underlying drivers which underpin
the key assumptions which were adopted in deriving financial projections and estimates. This review
will include:

Review of projected membership

Scenario analysis and review of estimated activity levels

Break-even analysis on cost, volume and price
Examples of Verification Procedures which may be adopted:



Vouch to supporting evidence and/or references to underlying assumptions regarding key
costing elements
Tests of reasonableness to ensure the adequacy of projections
Recalculation and re-performance of revenue and cost derivations
7.1 Commercial Review The assessor is to complete the ‘Operational Review’ table which
includes a qualitative review of the arrangement’s capability and competency, key
contractual arrangements and other documentation as well as performance requirements,
milestones, service level agreements, termination clauses and liquidated damages. The
assessor’s commentary should be presented in the table in point form.
Commercial Review
Capability and Competency
The assessor is to review and provide commentary as to whether
the applicant has adequately demonstrated that they are informed
of the industry and market dynamics and whether the applicant
has proven experience in managing such arrangements.
Key Contractual Arrangements The assessor is to review and provide commentary on any key
and Documentation
contractual arrangements and/or other documentation which may
be in place with any key stakeholders or counterparties to the
arrangement.
Page 39 of 64
Performance Requirements, The assessor is to review and highlight any performance
Milestones and Service Level requirements, milestones and Service Level Agreements which may
be in place with any key stakeholders.
Agreements
Termination
Clauses
Liquidated Damages
and The assessor is to review and highlight any termination clauses
which may in place and any associated liquidated damages which
may arise as a result.
Legal
Factors
Contingencies
and The assessor is to review and provide commentary as whether
there are any legal considerations and contingencies which may
have a material impact on the arrangement.
7.2 Projected Membership The assessor is to complete the ‘Projected Membership’ table providing
specific company details as to the potential members which are expected be signed up to the
arrangement should the applicant be successful in obtaining accreditation. Entity names,
registered business numbers and volume estimates should summarised.
Member Name
ABN
Product Type
Volume
Estimates
Sign-up Status
Name of member
ABN number
of the
member
Product Type
in which the
proposed
member is to
sign for
Volume
estimates in
relevant
metrics units
incorporated
in the
applicant’s
financial
projections
Current status of
membership sign-up
programs, the
current status of any
negotiations,
whether any heads of
agreement have been
signed
Supporting Evidence
and/or references:
E.g. Signed contracts,
heads of agreement,
etc.
Commentary on Projected Membership
Commentary should be provided as to the current status of membership sign-up programs, the
current status of any negotiations, whether any heads of agreement have been signed and the
likelihood of the applicant achieving its projected membership base.
Page 40 of 64
7.3 Cash Flow Analysis The assessor is to review cash flow projections to determine whether the
arrangement is expected to have a positive operating cash flow position. Cash flow projections
should be summarised in the table below and should be for at least 5 years forward looking.
Cash Flow Analysis
2013
2014
2015
2016
2017
Total
Cash Revenues
Revenue Source #1
Revenue Source #2
Cash Disbursements
Cost item #1
Cost item #2
Cost item #3
Cost item #4
Cost item #5
Cost item #6
Cost item #7
Cost item #8
Cost item #9
Cost item #10
Overheads
Net Operating Cash flow
Net Investing Cash flow
Net Financing Cash flow
Op Cash bal.
Cl. Cash bal
Page 41 of 64
Commentary on Cash Flow Analysis
Commentary should be provided as to the overall reasonableness of cash flow projections and
whether cash flow projections indicate a financially viable arrangement.
Consideration may be given to the following where appropriate:




Where a negative cash flow forecast position exists, how is the shortfall to be funded and
when is the arrangement expected to turn cash-positive?
Is the assessor’s analysis of funding and capital in section 3.1 considered adequate to
account for any cash flow shortfall?
Are there any cash outflows which appear to have been clearly omitted?
Are there any contingencies which may deplete projected cash positions and if so, are there
adequate funding arrangements in place to support the arrangement in the event that these
contingencies materialise?
7.4 Scenario Analysis The assessor is to review the estimated activity levels that underpin financial
projections including an overview of the various scenarios presented by the applicant. The
scenarios presented should be summarised in the ‘Scenario Analysis’ table provided:
Scenario
Assumptions /
Penetration
Type
Volume
Scenario 1
[Key assumption(s)]
e.g.
[xxx metric unit]
Basis for reporting
Scenario 2
[Key assumption(s)]
e.g.
[xxx metric unit]
Worst case
Scenario 3
[Key assumption(s)]
e.g.
[xxx metric unit]
Realistic case
Scenario 4
[Key assumption(s)]
e.g.
[xxx metric unit]
High end case
The assessor is also required to assess the impact of different revenue and cost sensitivities in
order to evaluate the potential overall financial impact. The assessor should summarise the
financial impact across the different scenarios modelled. The financial impact should be
presented and summarised in a ‘Financial Impact of Modelled Scenarios’ table:
Page 42 of 64
Sample:
Financial Impact of Modelled Scenarios
Type
Assumption
2013 (f)
2013 (f)
2013 (f)
2013 (f)
Scenario 1
Scenario 2
Scenario 3
Scenario 4
X% Segment A
X% Segment B
X% Segment A
X% Segment B
X% Segment A
X% Segment B
X% Segment A
X% Segment B
Revenue Assumptions
Revenue from
recycling
Cost plus mark-up
$xx/metric unit
$xx/metric unit
$xx/metric unit
$xx/metric unit
Subscription Fees
Fixed subscription
$Xm p.a.
$Xm p.a.
$Xm p.a.
$Xm p.a.
$Xm
$Xm
$Xm
$Xm
Total Revenue
Cost Assumptions
Channel Cost
(Collection)
$X/metric unit
$Xm
$Xm
$Xm
$Xm
Logistics -
$X/ metric unit
$Xm
$Xm
$Xm
$Xm
Recycling Costs
$X/metric unit
(Segment A)
$X/metric unit
(Segment B)
$Xm
$Xm
$Xm
$Xm
Program
Management Fee
$X per annum
$Xm
$Xm
$Xm
$Xm
Overheads
$Xm for year one
and escalated at
5% thereafter
$Xm
$Xm
$Xm
$Xm
Total Cost
$Xm
$Xm
$Xm
$Xm
Cost/metric unit
$X
$X
$X
$X
Operating Profit
$Xm
-$Xm
-$Xm
$Xm
(Transportation)
(f): Forecast
Note. The above table is to be repeated for each forward looking year of the applicant’s
financial projections.
Page 43 of 64
Commentary on Scenario Analysis
The assessor should consider the completeness of the various scenarios considered by the
applicant and whether there are any distinct scenarios and/or contingencies that have not been
considered by the applicant. The assessor should consider the overall impact and consequence
of such scenarios on the individual costs identified in section 6.1 Overview of Key Assumptions
and any potential impact of such costs on the applicant’s overall viability and capacity.
Consideration may be given to the following where appropriate:

Whether the applicant has provided sufficient coverage of various scenarios which could
potentially arise and an assessment as to whether the various scenarios modelled are
realistic.
7.5 Break-Even Analysis The assessor is to identify, determine and form an opinion as to what the
break-even level of cost, volume, price and penetration is expected to be required to enable the
arrangement to be financial viable. Essentially, this is the assessor’s determination of the level
of volume/penetration which will underpin revenue and cost drivers that will enable total
revenue to be equivalent to total expenditure. The assessor should apply professional
judgement in assessing the feasibility and overall reasonableness of the arrangement achieving
the break-even level based on the applicant’s projections and estimates. The determined breakeven level should be summarised in the table below:
Break-Even Cost
Determined Break-Even Level
Break-Even Volume
Break-Even Price
Commentary on Break-Even Analysis
The assessor is to provide commentary to support the assessed break-even level. Consideration
may be given to the following where appropriate:




Break-even level of volume and penetration and an assessment as to whether this level is
achievable and how this compares to the projected base or realistic case scenario
Is the assessor’s analysis of funding and capital in section 3.1 considered adequate to
account for any shortfall?
Are there any costs which appear to have clearly been omitted?
Are there any contingencies which may have a material impact on the arrangement’s
viability, and if so are the funding arrangements outlined in section 3.1 of this report
considered adequate to support the arrangement in the event that these contingencies
materialise?
Page 44 of 64
7.6 Key Issues and Considerations The assessor is to highlight in point form all key issues and
considerations identified that are deemed material together with the likely consequence of any
events arising as a result.
Consideration may be given to the following where appropriate:


Key considerations and any recommendations required to be highlighted together with the
likely consequence of any events which may arise as a result.
The assessor is to highlight and summarise any identified gaps and discrepancies in the
prospective information submitted.
7.7 Arrangement Viability Assessment The assessor is to form an overall opinion on the viability of
the arrangement and its overall assessed level of risk. The Risk Effect, Risk Likelihood and
Overall Risk Magnitude should be assigned in accordance with the classification matrices
outlined within the Risk Allocation Guidelines (refer V. Risk Allocation Guidelines).
Sample:
Assessment of Arrangement Viability
Risk Effect
Description
Low
Satisfactory capability, capacity or experience and/or
understanding – minimal impact on the arrangement’s ability to
meet the outcomes and requirements in the Act, the Regulation
and the Instrument.
Risk Likelihood
Description
Low
May occur at some later time
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Arrangement Viability
Low
Low
Low
The assessor is also required to separately state their professional opinion from their overall
assessment of the viability of the arrangement. The following paragraph should be used as a guide in
stating the assessor’s opinion which should be consistent as well as reflective of the assessor’s
assessed Overall Risk Magnitude. For the assessor’s ease of reference, the paragraph below has
been colour coded to correspond with the traffic light reporting system defined in section ‘V. Risk
Allocation Guidelines’.
Page 45 of 64
We have undertaken a qualitative commercial review of the arrangement and a quantitative review
of the financial projections provided, and [it would appear the arrangement will be viable / it would
appear that the arrangement will not be viable] on the basis of the assumptions provided by the
applicant [/ although the arrangement appears viable on the basis on underlying assumptions, there
are a number of contingencies with a high risk likelihood that would materially impair the overall
viability of the arrangement].
Recommendations:
The assessor is required to provide any key recommendations regarding the viability of the
arrangement.
Page 46 of 64
8. Adaptive management framework
The assessor is to review the information which was provided in the applicant’s application to
determine how the arrangement will address and accommodate for deviations from target levels
including situations where memberships or targets change.
8.1 Adaptive Management Framework The assessor is to complete the ‘Adaptive Management
Framework’ table, conducting their review on the applicant’s Demand Management, Exit
Protocols and Contingency Planning as per the below table:
Adaptive Management Framework
Demand Management
The assessor is provide commentary and identify the key
mechanisms in which the applicant is equipped to address and
accommodate for deviations from target levels including situations
where memberships or targets change. The assessor is to apply
professional judgement in considering the reasonableness of the
proposed mechanisms and whether on an aggregated basis the
mechanisms address the potential for fluctuations in demand
management.
Contingency Planning
The assessor is to provide commentary and identify the key
strategies which the applicant has in place to address and
accommodate for situations which may arise other than the
scenarios which have otherwise already been considered within
the applicant’s application. The assessor is to apply professional
judgement in considering the reasonableness of the proposed
mechanisms and whether the proposed strategies address and
accommodate for situations which may arise other than the
scenarios which have otherwise been considered within the
applicant’s application.
Exit Protocols
The assessor is to provide commentary and identify the strategies
which the applicant has in place to address and accommodate for
the situation whereby the applicant may be required to exit the
arrangement. This situation may include (but is not limited to) the
scenario where the applicant elects to sell the business or is
acquired by another entity; where the applicant is to encounter
adverse trading conditions which may result in the arrangement
being wound up; or where the applicant is simply chooses to end
the arrangement. The assessor is to apply professional judgement
in considering the reasonableness and completeness of the
proposed strategies and whether they address the various
situations which would require the applicant to exit the
arrangement.
Page 47 of 64
8.2 Key Issues and Considerations The assessor is to highlight in point form all key issues and
considerations identified that are deemed material together with the likely consequence of
any events arising as a result.
8.3 Assessment of Adaptive Management Framework The assessor is to form an overall
opinion on the applicant’s Adaptive Management Framework and its overall assessed level
of risk. The Risk Effect, Risk Likelihood and Risk Magnitude should be assigned in accordance
with the classification matrices outlined within the Risk Allocation Guidelines (refer V. Risk
Allocation Guidelines).
Sample:
Assessment of Adaptive Management Framework
Risk Effect
Description
Medium
Some capability, capacity or experience and/or lack of
understanding – material impact on the arrangement’s ability to
meet the outcomes and requirements in the Act, the Regulation
and the Instrument.
Risk Likelihood
Description
Low
May occur at some later time
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Adaptive Management
Framework
Medium
Low
Medium
The assessor is also required to separately state their professional opinion from their overall
assessment of the adaptive management framework. The following paragraph should be used as a
guide in stating the assessor’s opinion which should be consistent as well as reflective of the
assessor’s assessed Overall Risk Magnitude. For the assessor’s ease of reference, the paragraph
below has been colour coded to correspond with the traffic light reporting system defined in section
‘V. Risk Allocation Guidelines’.
Page 48 of 64
We have reviewed the applicant’s Adaptive Management Framework and in our opinion the
arrangement [has in place adequate processes, procedures and plans to address and accommodate
for deviations from target levels and has addressed the issues of undersupply and oversupply / does
not appear to have adequate processes, procedures and plans to address and does not
accommodate for deviations from target levels and/or addressed the issues of undersupply and
oversupply / has in place some processes, procedures and plans to address and accommodate for
deviations from target levels and the issues of undersupply and oversupply, but has inadequate
processes, procedures and plans in the following areas… ].
Recommendations:
The assessor is required to provide any key recommendations regarding the applicant’s adaptive
management framework.
Page 49 of 64
9. Risk Management and Corporate Governance
The assessor is to review the information which was provided in the applicant’s application to form
an opinion as to whether the arrangement has in place adequate risk management, contingency
planning and corporate governance frameworks.
9.1 Applicant Risk Management The assessor is to complete the ‘Risk Management’ table,
conducting their review on the applicant’s risk management plan and associated
information.
In assessing the adequacy of the applicant’s risk management framework, the assessor may
include consideration of the following:
Applicant Risk Management
Risk Management Framework



Risk Management Plan





Processes



The risk management framework [does not / appears] to
be easily understood
The risk management plan [identifies / does not identify]
key stakeholders
The plan [does not / appears] to consider various
contextual factors which may include social, economic,
legal, regulatory, technological, or environmental factors.
The applicant appears to have provided a [high level /
comprehensive] risk management plan
The risk management plan [does not / identifies]
accountabilities and appears workable
More specifically, responsibilities for updating, monitoring
and review [are / not] clearly defined
The risk management plan [does / not] appear to consider
combinations of multiple risks and appropriate actions
The risk management plan [does not / appears] to be
developed in accordance with AS/NZS ISO31000:2009
The risk management process [does / does not] address
communication and consultation
The risk management process [does / does not] address
monitoring and review activities
The risk management plan [does not / outlines] a process
that includes periodic revision
Page 50 of 64
Risk Matrices


Risk Register


Internal Controls








Risk Management Strategies



The plan [does / does not] detail the assessment criteria to
determine the classification of likelihood and consequence
The plan [does / does not] detail the risk rating (severity)
matrix classifications and issue escalation protocols
The risk register identifies risks across [a few / many
different] categories including business continuity,
information, physical, personal, etc.
The risk register [does / does not] detail risk management
strategies to control, treat & mitigate identified risks
The risk management plan [specifies / does not specify]
how the risk management skills of managers and staff will
be developed and maintained.
There [does not appear / appears] to be internal controls
in place which record details of risks, controls and
priorities and show any changes in them;
There [does not appear / appears] to be internal controls
in place which record risk treatments and associated
resource requirements;
There [does not appear / appears] to be internal controls
in place which record details of incidents and loss events
and the lessons learned;
There [does not appear / appears] to be internal controls
in place which track accountability for risks, controls and
treatments;
There [does not appear / appears] to be internal controls
in place which track progress and record the completion of
risk treatment actions;
There [does not appear / appears] to be internal controls
in place which allow progress against the risk management
plan to be measured; and
There [does not appear / appears] to be internal controls
in place which trigger monitoring and assurance activity.
There [does not appear / appears] to be clearly defined
goals and objectives
There [does not appear / appears] to be clearly defined
strategies in place in achieving the defined goals and
objectives
The proposed strategies [do not appear / appear] to be
appropriate in achieving the defined goals and objectives
Page 51 of 64
9.2 Arrangement Risk Management The assessor is to complete the ‘Risk Management’ table,
conducting their review on the applicant’s risk management framework and associated
information which is specific to the proposed arrangement.
In assessing the adequacy of the applicant’s risk management framework which has been
developed specifically for the proposed arrangement, the assessor may include
consideration of the following:
Arrangement Risk Management
Risk Management Framework



Risk Management Plan





Processes



Risk Matrices


The risk management framework [does not / appears] to
be easily understood
The risk management plan [identifies / does not identify]
key stakeholders
The plan [does not / appears] to consider various
contextual factors which may include social, economic,
legal, regulatory, technological, or environmental factors.
The arrangement appears to have provided a [high level /
comprehensive] risk management plan
The risk management plan [does not / identifies]
accountabilities and appears workable
More specifically, responsibilities for updating, monitoring
and review [are / not] clearly defined
The risk management plan [does / not] appear to consider
combinations of multiple risks and appropriate actions
The risk management plan [does not / appears] to be
developed in accordance with AS/NZS ISO31000:2009
The risk management process [does / does not] address
communication and consultation
The risk management process [does / does not] address
monitoring and review activities
The risk management plan [does not / outlines] a process
that includes periodic revision
The plan [does / does not] detail the assessment criteria to
determine the classification of likelihood and consequence
The plan [does / does not] detail the risk rating (severity)
matrix classifications and issue escalation protocols
Page 52 of 64
Risk Register


Internal Controls








Risk Management Strategies



The risk register identifies risks across [a few / many
different] categories including business continuity,
information, physical, personal, etc.
The risk register [does / does not] detail risk management
strategies to control, treat & mitigate identified risks
The risk management plan [specifies / does not specify]
how the risk management skills of managers and staff will
be developed and maintained.
There [does not appear / appears] to be internal controls
in place which record details of risks, controls and
priorities and show any changes in them;
There [does not appear / appears] to be internal controls
in place which record risk treatments and associated
resource requirements;
There [does not appear / appears] to be internal controls
in place which record details of incidents and loss events
and the lessons learned;
There [does not appear / appears] to be internal controls
in place which track accountability for risks, controls and
treatments;
There [does not appear / appears] to be internal controls
in place which track progress and record the completion of
risk treatment actions;
There [does not appear / appears] to be internal controls
in place which allow progress against the risk management
plan to be measured; and
There [does not appear / appears] to be internal controls
in place which trigger monitoring and assurance activity.
There [does not appear / appears] to be clearly defined
goals and objectives
There [does not appear / appears] to be clearly defined
strategies in place in achieving the defined goals and
objectives
The proposed strategies [do not appear / appear] to be
appropriate in achieving the defined goals and objectives
Page 53 of 64
9.3 Summary of Key Risk Management Items The assessor is to complete the ‘Summary of Key
Risk Management Items’ table, conducting their review on the arrangement’s risk
management plan / risk register with a particular focus on financial risk and the overall
financial viability of the arrangement. Key risk management items listed in the applicant’s
submission deemed the most relevant to the overall financial viability of the arrangement
should be summarised in the table below:
Risk
Register
Item No.
Event
Consequence
Likelihood
Internal Controls
/ Mitigation
Strategy
Key Considerations and Identified Gaps
The assessor is to highlight and summarise the identified gaps and any other key considerations
in the risk management information submitted.
9.4 Corporate Governance The assessor is to complete the ‘Corporate Governance’ table,
conducting their review on the applicant’s Corporate Governance Framework with a
particular focus on financial risk and the overall financial viability of the arrangement.
In assessing the adequacy of the applicant’s corporate governance framework, the assessor
may include consideration of the principles of good Corporate Governance as defined by the
Australian Securities Exchange (ASX).
The assessor needs to take into the account the size and structure of the applicant for the
purposes of ascertaining whether appropriate governance measures are in place, however
the following provides an illustrative list that would be appropriate for a large organisation.
Corporate Governance
Governance Framework


The objectives and strategy of the risk and governance
frameworks are endorsed by the board and senior
executives
Clear delineation of the respective roles in compliance of
all layers of the organisation
Page 54 of 64
Governance and Risk
Committees



Dedicated Personnel to Risk
and Compliance

A majority of the board [comprise / do not comprise] of
independent directors

The applicant [has / does not have] an established audit
committee with at least 3 members and is comprised of
only non-executive directors, a majority of independent
directors and is chaired by an independent chair.

The applicant [has / does not have] an established
remuneration committee.

The remuneration committee should be structured so that
it consists of a majority of independent directors, is
chaired by an independent chair and has at least three
members.

Appropriate resources are allocated to develop,
implement, maintain and improve the organisation’s /
arrangement’s risk and compliance programs
The applicant [has / has not] appointed dedicated
personnel to oversee risk and compliance. This includes
the following personnel….
[List names, titles and experience of relevant personnel]
Responsibility for compliant outcomes [is / is not] clearly
articulated and assigned.
Competence and training needs are identified and
addressed to enable employees to fulfil their compliance
obligations
Controls are in place to manage the identified compliance
obligations and achieve desired behaviours





Policies and Procedures
There [appears / does not appear] to be an established
board with the functions of the board and senior
executives clearly defined.
The composition and experience of the board / senior
executives appear to cover each of the primary
management disciplines including…
The board and senior executives [have / do not have]
appropriate qualifications and prior experience in the
operation of a similar or comparable arrangement.



The process of evaluating the performance of senior
executives [is / is not] well defined
The applicant [has / does not have] an established code of
conduct [which is appears detailed and appropriate for the
proposed arrangement]
The applicant [has / has not] established policies for the
oversight and management of material business risks and
has disclosed a summary of those policies.
Page 55 of 64
Policies and Procedures
(continued)






The board should require management to design and
implement the risk management and internal control
system to manage the company's material business risks
and report to it on whether those risks are being managed
effectively. The board should disclose that management
has reported to it as to the effectiveness of the company's
management of its material business risks.
The board should disclose whether it has received
assurance from the chief executive officer (or equivalent)
and the chief financial officer (or equivalent) that the
declaration provided in accordance with section 295A of
the Corporations Act is founded on a sound system of risk
management and internal control and that the system is
operating effectively in all material respects in relation to
financial reporting risks.
The applicant [has / does not have] an established
compliance policy which is aligned to the organisation’s
strategy and business objectives.
Performance of the compliance program is monitored,
measured and reported
The organisation is able to demonstrate its compliance
program through both documentation and practice.
The compliance program is regularly reviewed and
continually improved.
For further guidance and additional detailed references and background information on
Corporate Governance, please refer to ‘Corporate Governance Principles and
Recommendations with 2010 Amendments’, 2nd Edition, ASX Corporate Governance Council
which has an in depth overview of the principles and recommendations stated above.
Key Considerations and Identified Gaps
The assessor is to highlight and summarise in point form the identified gaps and any other key
considerations in the corporate governance information submitted.
9.5 Key Issues and Considerations The assessor is to highlight in point form all key issues and
considerations identified that are deemed material together with the likely consequence of
any events arising as a result.
Page 56 of 64
9.6 Assessment on Risk Management and Corporate Governance The assessor is to form an
overall opinion as to the overall adequacy of the applicant’s Risk Management and
Governance frameworks and its overall assessed level of risk. The Risk Effect, Risk Likelihood
and Risk Magnitude should be assigned in accordance with the classification matrices
outlined within the Risk Allocation Guidelines (refer V. Risk Allocation Guidelines).
Sample:
Assessment of Risk Management and Governance
Risk Effect
Description
High
Very limited capability, capacity or experience and/or lack of
understanding – substantial impact on the arrangement’s ability
to meet the outcomes and requirements in the Act, the
Regulation and the Instrument.
Risk Likelihood
Description
High
Is expected to occur in the first 12 months of the arrangement
Risk Category
Risk Effect
Risk Likelihood
Overall Risk Magnitude
Risk Management and Corporate
Governance
High
High
Very High
The assessor is also required to separately state their professional opinion from their overall
assessment of the applicant’s risk management and corporate governance frameworks. The
following paragraph should be used as a guide in stating the assessor’s opinion which should be
consistent as well as reflective of the assessor’s assessed Overall Risk Magnitude. For the assessor’s
ease of reference, the paragraph below has been colour coded to correspond with the traffic light
reporting system defined in section ‘V. Risk Allocation Guidelines’.
We have also undertaken a review of the applicant’s Risk Management and Corporate Governance
frameworks and from our review of the documentation submitted the applicant appears to [have
adequate risk management, contingency planning and corporate governance frameworks / does not
appear to have an established risk management framework and has not demonstrated the adoption
of any principles of good corporate governance / have basic frameworks in place with limited
processes and protocols to address a limited number of identified risks].
Recommendations:
The assessor is required to provide any key recommendations regarding the applicant’s risk
management and corporate governance frameworks.
Page 57 of 64
10. Information Sources and Supporting Documentation
10.1. Information Sources The assessor is required to complete the Information sources table
below:
Information Sources
Information Sources
The assessor is required to list all information sources in which the
assessment was based on.



Personnel Interviewed
The assessor is required to list the name, title and contact details
of all personnel interviewed.



Physical Sites Inspected
The assessor is required to detail the location and nature of all
physical sites inspected.



Summary of Identified Gaps
The assessor is required to highlight which items did not contain
adequate detail.



The assessor is to comment on the potential impact of the gaps
and whether they are significant enough to impact the overall
opinion.
Discrepancies in the
Information Provided
The assessor is required to highlight discrepancies which were
identified in the applicant’s submission.



The assessor is to comment on the potential impact of the
discrepancy and whether they are significant enough to impact the
overall opinion.
Page 58 of 64
Other Matters for Attention
The assessor is required to highlight matters for further review.



The assessor is to include any other matters in this section that
may not have been covered elsewhere in the report.
10.2 Request for Additional Information / Clarification The assessor is required to complete the
Request for Additional Information / Clarification table below:
Assessment Category
Funding and Capital
Request for Additional Information / Clarification



Applicant Viability



Underlying Assumptions



Arrangement Viability



Adaptive Management
Framework

Risk Management and
Corporate Governance





Page 59 of 64
11. Appendices
The assessor is to attach any schedules or supporting references deemed relevant in supplementing
the assessment report. An example of such appendices may include:




Heads of agreement
Business plans
Financial projections
Funding and bank letters
Page 60 of 64
VII.
Glossary
Act refers to the Product Stewardship 2011.
Arrangement refers to the Voluntary Product Stewardship Arrangement.
Application refers to all forms, information, documents and associated material lodged by
the applicant regarding the application for accreditation as a Voluntary Product Stewardship
Arrangement.
Adaptive Management Framework refers to policies, plans, protocols and procedures as
well as any associated strategies that the arrangement has in place to address and
accommodate for deviations from target levels and situations where membership, targets
and activity levels change.
Base case refers to the scenario in which the applicant is projecting to be the most likely
scenario of occurrence.
Credit quality a measurement of an entity's ability and willingness to meet commitments
and obligations as and when they fall due. The lower the credit quality of an entity, the
greater the risk to all relevant stakeholders and the greater the risk of default on the
principal. A credit rating is a measure of credit quality.
Funding arrangements includes any proposed or committee d agreements in place in order
for the applicant to derive funding.
Funding facilities external banking and other finance facilities in which the applicant is
expected to have access to.
Funding plan a schedule outlining all proposed and committed sources of funding in which
the applicant is expected to have access to at the date of the application.
Instrument refers to the Product Stewardship (Voluntary Arrangements) Instrument 2012.
Key assumptions refer to underlying assumptions in which underpin the applicant’s
estimates and projections.
Materiality is defined by Australian Accounting Standards (AABS1031) as “information which
if omitted, misstated or not disclosed has the potential to adversely affect… decisions
…made by users of [information] or the discharge of accountability by the management or
governing body of the entity”.
Page 61 of 64
Operating model is the applicant’s underlying business model and the means in which it is
proposing to generate positive cash flow.
Overall Risk Magnitude is a product of the assessed Risk Effect and Risk Likelihood and is to
be derived from the Risk Magnitude matrix detailed in section V. Risk Allocation Guidelines.
Risk Effect is the consequence of occurrence of a risk event. The Risk Effect is to be classified
in accordance with the defined Risk Effect matrix detailed in section V. Risk Allocation
Guidelines.
Risk Likelihood is the probability of occurrence of a risk event. The Risk Likelihood is to be
classified in accordance with the defined Risk Likelihood matrix detailed in section V. Risk
Allocation Guidelines.
Regulation refers to the Product Stewardship Regulation 2012.
Submission refers to the application and all associated information, documents and material
lodged by the applicant regarding the application for accreditation as a Voluntary Product
Stewardship Arrangement.
Page 62 of 64
Financial Metrics
The following table is a guide to the ratios that may be included in this report. Note: Financial
ratios are indicators of an entity's performance and financial position and will provide useful
information, especially when comparing entities in the same industry. It must however be
pointed out that ratios can be influenced by, but not limited to, point-in-time adjustments,
decisions taken by management, use of different accounting policies and whether the entity is
part of a larger group.
Indicator
Calculation
Profitability
Gross Profit Margin
Gross Profit / Sales shown as a percentage
Net Profit Margin
Net Profit before Tax / Sales shown as a percentage
Profitability
Annualised Profit after Tax and Dividends / Total Assets shown as a percentage
Reinvestment
Retained Earnings / Total Assets shown as a percentage
Return on Assets
Annualised Profit before Interest and Tax / Total Assets shown as a percentage
Return on Equity
Annualised Profit after Tax / Shareholders Equity shown as a percentage
Liquidity
Working Capital
Current Assets - Current Liabilities
Working Capital to Sales
Working Capital / Annualised Sales shown as a percentage
Cash Flow Coverage
Annualised Operating Cash Flow / Current Liabilities shown as a percentage
Cash Ratio
Cash/Current Liabilities shown as a percentage
Current Ratio
Current Assets / Current Liabilities
Quick Ratio
(Current Assets - Inventories) / Current Liabilities
Capital Adequacy
Adjusted Net Tangible Assets/Annualised Sales shown as a percentage
Gearing
Net Tangible Worth
Total Net Assets – Intangibles
Net Asset Backing
Net Tangible Worth / Annualised Sales shown as a percentage
Gearing
Total Liabilities / Total Assets
Debt to Equity
Total Interest Bearing Debt/Shareholders Equity
Interest Coverage
(Profit before Tax and Interest Expense) / Interest Expense
Repayment Capability
Annualised Profit before Tax / Total Liabilities shown as a percentage
Financial Leverage
Interest-Bearing Debt / Annualised EBITDA
Short Ratio
Current Debt/Total Debt shown as a percentage
Operating
Operating Leverage
Percentage change before Interest and Tax/Percentage change in Sales
Creditor Exposure
Trade Creditors / Total Assets shown as a percentage
Creditor Days
(Trade Creditors / Annualised Cost of Goods Sold) x 365 days
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Inventory Days
(Inventories / Annualised Cost of Goods Sold) x 365 Days
Debtor Days
(Trade Debtors / Annualised Sales) x 365 days
Cash Conversion Cycle
Debtor Days + Inventory Days-Creditor Days
Other Indicators
Sales (Annualised)
Annualised Sales Revenue
Activity
Annualised Sales / Total Assets
Dividend Payout
Dividend / Profit after Tax shown as a percentage
Related Party Loans Receivable
Current plus non current loans owing by related parties
Related Party Loans Payable
Current plus non current loans owing to related parties
Related Party Loans Dependency
Related Party Loans Payable/Working Capital shown as a percentage
Quick Asset Composition
Quick Assets / Total Assets as a percentage
Current Asset Composition
Current Assets / Total Assets as a percentage
Current Liability Composition
Current Liabilities / Total Liabilities as a percentage
Z-Score Risk Measure
Professor Altman's formula for assessing firm bankruptcy
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