Prudential Rules No. 47
Friendly society financial statements
Life Insurance Act 1995 (s 82(5))
These Prudential Rules are made under subsection 252(1) of the Life Insurance Act 1995
(the “Act”) for the purposes of paragraphs 82(5)(a) and (b) of the Act .
Basic requirements
1. The financial statements mentioned in subsections 82(1) and (2) of the Act, being
financial statements of a friendly society, must comply with these Rules.
Application
2. These Rules apply in relation to financial statements provided to APRA on or after the
date of registration of these Rules on the Federal Register of Legislative Instruments.
Interpretation
3. In these Rules:
(a)
“AASB ”, accompanied by a number, means the accounting standard made by
the Australian Accounting Standards Board which is designated by that number,
as that standard applied in relation to reporting periods that began immediately
before 1 January 2005;
(b)
“accounting standards” means:
(i)
the Accounting Standards made by the Australian Accounting Standards
Board that applied in relation to reporting periods that began
immediately before 1 January 2005; and
(ii) those Australian Accounting Standards issued by the Australian
Accounting Research Foundation, for which there is no corresponding
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applicable Accounting Standard made by the Australian Accounting
Standards Board, being the standards that applied in relation to reporting
periods that began immediately before 1 January 2005;
(c)
“Act” means the Life Insurance Act 1995 as in force from time to time;
(d)
“actuarial standards ” means the actuarial standards made by the Life
Insurance Actuarial Standards Board under section 101 of the Act, as in force
from time to time;
(e)
“assets held on behalf of benefit fund members” means the total of the
combined assets of all benefit funds of the friendly society net of the combined
non- member liabilities of all benefit funds;
(f)
“Corporations Act” means the Corporations Act 2001 as in force from time to
time;
(g)
“financial statements” has the meaning given in section 9 of the Corporations
Act;
(h)
“net market value ” means the amount which could be expected to be received
from the disposal of an asset in an orderly market after deducting costs expected
to be incurred in realising the proceeds of such a disposal;
(i)
“notes to the financial statements” has the meaning given by Chapter 2M of
the Corporations Act;
(j)
“surplus ” means profit, for the purposes of the Act.
4. Other words and phrases used in these Rules shall have the meaning given to them by
the Corporations Act, the accounting standards and the Act. Where there is an
inconsistency between the Corporations Act, the accounting standards and the Act,
the meaning given by the Corporations Act shall have precedence over the accounting
standards and the Act, and the meaning given by the accounting standards shall have
precedence over the Act.
Application of Corporations Law, accounting standards and actuarial
standards
5. For the purposes of section 82 of the Act, friend ly societies must comply with:
(a)
Chapter 2M of the Corporations Act as in force from time to time, which is
incorporated into, and is to be read as a part of, these Rules, with the
modifications set out in these Rules; and
(b)
except where they are expressed to not apply in these Rules, the accounting
standards; and
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(c)
where applicable, the actuarial standards.
General requirement
6. A friendly society must:
(a)
prepare separate financial statements and notes to the financial statements for
each of its benefit funds and for its management fund (these separate financial
statements need not be bound together); and
(b)
apply accounting standards to each fund as if each fund was an entity; and
(c)
include any interfund transactions between the management fund and any
benefit fund in preparing the management fund and benefit fund financial
statements.
7. A friendly society must not present financial statements to APRA which aggregate
the management fund and benefit funds on a line-by- line basis.
8. Each fund (whether a benefit fund or a management fund) is deemed to be a reporting
entity for the purposes of application of accounting standards.
9. These Rules apply to financial statements where information resulting from their
application is material in terms of AASB 1031 “Materiality”.
10. Financial statements must be expressed in English with all amounts expressed in
Australian currency.
11. Amounts in financial statements of each fund may be rounded in accordance with
Australian Securities and Investments Commission class order 98/0100 dated 10 July
1998, as modified by this rule. For the purposes of determining the prescribed amount
for each fund under that order, the assets of each fund must be considered separately.
However, where the financial statements for different funds are presented together (eg
side-by-side), the financial statements of all such funds may only be rounded to the
extent permitted for the fund in respect of which the prescribed amount under the
class order is the smallest.
12. Financial statements must provide comparative information for corresponding
preceding periods for all information required to be disclosed by Schedule 1 and
Rules 6, 13 to 19 and 21 to 36, except where the information was not required (by
these Rules or any other requirements which applied to the friendly society) to be
disclosed in that preceding period. If the financial years are not equal in length, the
periods covered must be clearly indicated.
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Requirements for the management fund
13. In accounting for the management fund, traded securities are to be measured at net
market value as at the reporting date.
14. Other assets, including general operating assets, are not required to be measured at
net market value.
15. Where an asset has been revalued, any revaluation increment or decrement must be
shown as reve nue or expense in the Statement of Financial Performance. The
requirements of paragraph 5.5, paragraph 5.6, the last sentence of paragraph 6.2, the
last sentence of subparagraph 8.5(a), and subparagraph 8.5(b) of AASB 1041
“Revaluation of Non-Current Assets” as issued in July 2001 (“AASB 1041”) do not
apply. In addition, the last sentence of subparagraph 8.7(b) of AASB 1041 shall be
applied as if it read, “For that class of non-current assets, the resulting increments and
decrements to the carrying amounts of assets must be recognised by directly adjusting
retained profits or accumulated losses”.
16. Deferred acquisition costs must be valued consistently with the valuation of the
liability for member benefits of the benefit funds.
17. The management fund financial statements must not include the assets and liabilities,
equity, revenue, expenses and appropriations of the benefit funds in any manner
(whether line-by- line or as single aggregated line items in the Statement of Financial
Position or Statement of Financial Performance). The management fund must not
consolidate the benefit funds.
18. No asset relating to the right to manage the benefit funds may be recognised in the
financial statements of the management fund, except to the extent that purchased
goodwill has been recognised in accordance with AASB 1013 “Accounting for
Goodwill”.
19. The details outlined in Schedule 2 must be provided in the notes to the management
fund financial statements in respect of all benefit funds (this includes any health
benefit funds, despite paragraph 36 of these Rules).
20. The notes to the management fund financial statements must disclose the assets held
on behalf of benefit fund members by the friendly society. This note may appear
below the Statement of Financial Position provided tha t the presentation makes it
clear that the assets are not those of the management fund.
21. The notes to the management fund financial statements must separately disclose:
(a)
fees transferred from the benefit funds in accordance with the benefit fund rule;
(b)
other revenue from the benefit funds;
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(c)
costs associated with earning the revenue referred to in (a) and (b);
(d)
transfers from the surplus of the benefit funds to the management fund;
(e)
any transfers from management fund to the benefit funds; and
(f)
any indebtedne ss between the management fund and the benefit funds.
22. Despite the requirements of accounting standards:
(a)
any transfers from the surplus of the benefit funds to the management fund must
be treated as transfers to retained profits rather than as revenue; and
(b)
any transfers from management fund to the benefit funds must be treated as
appropriations rather than as expenses.
23. In determining whether the management fund is a “financial institution” for the
purposes of AASB 1032 “Specific Disclosures by Financial Institutions”, the
activities of the benefit funds must be disregarded.
24. The financial statements and notes of the management fund are not required to
comply with AASB 1038 “Life Insurance Business”.
Requirements for benefit funds
25. A friendly society must prepare separate financial statements for each of its benefit
funds.
26. The financial statements of each approved benefit fund must comply with the
requirements of Schedule 1.
27. In accounting for approved benefit funds, a friendly society must adopt the principle
of accounting for assets and liabilities at market value with all gains and losses
(whether realised or unrealised) taken to the Statement of Financial performance.
28. Approved benefit fund assets must be measured at net market values as at the
reporting date.
29. Liabilities to approved benefit fund members (“Value of Policy Liabilities”) must be
valued by the appointed actuary in accordance with Actuarial Standard ASFS1.02
“Friendly Society Valuation Standard” issued by the Life Insurance Actuarial
Standards Board and shown on the Statement of Financial Position of the relevant
benefit fund.
30. Any revaluation increment or decrement that arises as a result of the valuation of
assets in accordance with Rule 28 or liabilities in accordance with Rule 29 must be
included as revenue or expense in the Statement of Financial Performance.
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31. The financial statements and notes of benefit funds are not required to comply with
the following accounting standards:
(a)
AASB 1041 "Revaluation of Non-Current Assets" as issued in July 2001;
(aa)
AASB 1005 "Segment Reporting";
(b)
AASB 1011 “Accounting for Research and Development Costs”;
(c)
AASB 1019 “Inventories”;
(d)
AASB 1021 “Depreciation”;
(e)
AASB 1026 “Statement of Cash Flows”;
(f)
AASB 1032 “Specific Disclosures by Financial Institutions”; and
(g)
AASB 1038 “Life Insurance Business”.
32. Accounting standards are amended in their application to the financial statements and
notes of approved benefit funds as follows:
(a)
AASB 1008 “Leases”
As approved benefit funds are to adopt the market value basis of accounting,
investments in leases by approved benefit funds are to be marked to net fair value
rather than as required by the AASB 1008. However, the AASB 1008 applies in its
unmodified form to all non- investment lease transactions.
(b)
AASB 1013 “Accounting for Goodwill”
Where an acquisition gives rise to goodwill or a discount on acquisition the
accounting treatment is to be in accordance with AASB 1013.
Under the market value basis of accounting, movements in the net fair value of assets,
including any goodwill component, are to be reflected in the Statement of Financial
Performance in the period in which they occur. The requirement of AASB 1013 to
disclosure and amortisation of goodwill as a separate asset does not apply to the
financial statements of a benefit fund.
Internally generated goodwill in respect of an approved benefit fund’s own operations
is not to be recognised in the financial statements of the approved benefit fund.
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In the consolidated financial statements of an approved benefit fund all of the assets
and liabilities of a controlled entity, including goodwill, must be valued at net market
value.
(c)
AASB 1014 “Set -off and Extinguishment of Debt”
As approved benefit funds are to adopt the market value basis of accounting,
investments in leveraged leases by benefit funds are to be marked to net fair value
rather than as required by AASB 1014. As this accounting treatment will result in the
investment being recorded net of any associated debt, any potential contingent
liability relating to the non-payment of the debt is to be disclosed in the notes to the
financial statements.
(d)
AASB 1015 “Acquisition of Assets”
The commentary of AASB 1015 in relation to dividends paid out of pre-acquisition
profits of a controlled entity does not apply, as such dividends are a component of the
movement in the fair value of the asset over the financial year. Within the Statement
of Financial Performance, any dividend received out of pre-acquisition profits is to be
offset by the associated reduction in the fair value of the asset acquired.
(e)
AASB 1016 “Equity Accounting”
As approved benefit funds are to adopt the market value basis of accounting, the
excess of the net market value of the investment in an associate over the equity
accounted value must be shown as a separate item in the Statement of Financial
Position or the notes to the financial statements. The movement in that excess must be
separately disclosed in the Statement of Financial Performance or the notes to the
financial statements.
(f)
AASB 1018 “Statement of Financial Performance” as issued in June 2002
Surplus allocated to members of an approved benefit fund must be shown as an
appropriation rather than as an expense. Similarly, transfers to the management fund
are to be treated as appropriations rather than expenses. Transfers from the
management fund to an approved benefit fund are to be treated as transfers to
unallocated surplus/deficit rather than as revenue.
(g)
AASB 1040 “Statement of Financial Position”
Only paragraphs 5.3, 6.1, 6.2, 6.3, 8.3(c), 8.3(d) and 8.8(b) of AASB 1040 and the
definitions of “revenue”, “expense”, “assets”, “liabilities” and “equity” contained in
AASB 1040 apply in relation to the financial statements of approved benefit funds.
However, the definitions of “revenue”, “expense”, “assets”, “liabilities” and “equity”
do not apply where this would be inconsistent with other specific requirements of
these Rules.
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(h)
AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets”
The provisions of AASB 1044 do not apply to the extent that they may require the
recognition and measurement of liabilities to approved benefit fund members on a
basis that is inconsistent with that specified in paragraph 29 above.
33. Despite the requirements of accounting standards:
(a)
Allocations of surplus to members of an approved benefit fund and transfers to
the management fund are to be treated as appropriations rather than expenses.
(b)
Transfers from the management fund to an approved benefit fund are to be
treated as transfers to unallocated surplus/deficiency rather than as revenue.
(c)
Value of policy liabilities is shown as equity/members’ funds rather than
liabilities.
34. In applying accounting standards to approved benefit funds, any references to
“retained profits” and “accumulated losses” should be read as references to
“unallocated surplus” or “deficiency”, respectively.
35. For each approved benefit fund with transactions with the management fund, the
following information must be disclosed in the notes:
(a)
fees transferred to the management fund in accordance with the approved
benefit fund rules;
(b)
transfers from management fund retained earnings to each benefit fund;
(c)
transfers of surplus from each approved benefit fund to the management fund;
and
(d)
any indebtedness between the approved benefit fund and the management fund.
35A.The notes to the financial statements must also include the summary (prepared by
the appointed actuary in accordance with paragraphs 6.1 of Actuarial Standard ASFS
1.02) of the significant elements of the calculation processes relating to the valuation
of the policy liabilities and significant assumptions used in deriving the results of the
valuation.
36. The financial statements of the health benefit fund of a friendly society which is a
registered health benefits organisation under the National Health Act 1953 (Cth) must
comply with the requirements of accounting standards as if the fund was an entity.
However, rules 26 to 35A and 38 do not apply in relation to such a fund.
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Directors’ declaration
37. A single directors’ declaration must be prepared covering each and every fund. In
addition to the matters required by subsection 295(4) of the Law (which must be
applied in relation to the financial statements of each and every fund of the friendly
society), the directors’ declaration must include a declaration by the directors stating
whether or not, in the opinion of the directors:
(a)
the financial statements of each fund are properly drawn up in accordance with
the requirements of the Act and these Rules;
(b)
the allocation and distribution of the surplus of the benefit funds of the friendly
society have been made in accordance with Division 5 of Part 4 of the Act and
the benefit fund rules of each benefit fund;
(c)
any assets of the benefit funds of the friendly society have been applied or
invested in contravention of the Act; and
(d)
there are reasonable grounds to believe that, as at the time the statement is
made, the management fund of the friendly society and each of the benefit
funds of the friendly society will be able to pay all debts or claims that are
referable to it.
Appointed actuary’s statement
38. There must be attached to financial statements of a friendly society a statement by the
appointed actuary of the friendly society that complies with the Act, stating whether
or not, in his or her opinion:
(a)
for each approved benefit fund of the friendly society, the value of the policy
liabilities and the solvency of each approved benefit fund have been determined
using methods and assumptions consistent with the actuarial standards;
(b)
the allocation and distribution of the surplus of the approved benefit funds of
the friendly society have been made in accordance with Division 5 of Part 4 of
the Act and the approved benefit fund rules of each approved benefit fund; and
(c)
proper records have been kept by the friendly society in respect of each
approved benefit fund from which its value of policy liabilities and solvency
have been able to be properly determined.
39. If, in the appointed actuary’s opinion, the financial statements contain information
based on actuarial valuations or calculations which do not comply with the actuarial
standards, the statement must:
(a)
be appropriately qualified;
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(b)
state the fund or funds to which the qualification applies;
(c)
give particulars of the non-compliance; and
(d)
to the extent practicable, quantify the financial effects of the non-compliance in
relation to each fund.
Auditor’s report
40. In addition to the matters required by section 308 of the Corporations Act, the
auditor’s report covering all funds must:
(a)
comply with the Act, including subsections 80(3) and 83(3); and
(b)
state whether, in the opinion of the auditor, any part of the assets of the benefit
funds have been applied directly or indirectly in contravention of the provisions
of Division 1 of Part 4 and Division 4 of Part 2A of the Act.
41. Rule 40 must be read as requiring the auditor to form a separate opinion in relation to
each fund but to provide those opinions in a single document.
42. Any qualification or emphasis of matter must specify the fund or funds to which it
relates and, to the extent practicable, quantify the effect of the non-compliance
separately for each fund. If it is not practical to quantify the effect on each fund fully,
the report must say why.
Separate fund financial statements
43. Where the financial statements for all funds are not bound together, the directors’
declaration, appointed actuary’s statement and auditor’s report must still accompany
the separate financial statements of each fund.
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Schedule 1
Additional disclosure requirements for benefit funds
1.
2.
GENERAL
(1)
If, in the opinion of the directors of a friendly society, any requirement of this
Schedule would prevent the financial statements of the benefit fund, or the
consolidated financial statements, as the case may be, from giving a true and fair
view of the financial position and performance of the benefit fund and of the
benefit fund and its controlled entities in any respect, the directors must add such
information and explanations as will give a true and fair view.
(2)
If a provision of an accounting standard requires any matter relating to an entry in
a Statement of Financial Performance or a subheading in a Statement of Financial
Position to be provided for in a note, that matter may be incorporated into that
entry or subheading.
(3)
The information appearing above the line “Operating profit/loss before income
tax” in the format for the Statement of Financial Performance may be transferred
to the notes to the financial statements.
(4)
Where there is nil information to report in the heading or subheading for the
current period and comparative period, the heading or subheading can be
removed.
STATEMENT OF FINANCIAL PERFORMANCE - BASIC FORMAT
A Statement of Financial Performance of each benefit fund must have the following
format:
INVESTMENT INCOME
Interest
Dividends
Property rentals
Changes in net market values
Direct investment expense
Net investment income
REVENUE COMPONENT OF MEMBER CONTRIBUTIONS
OTHER INCOME
TOTAL INCOME
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OPERATING EXPENSES
Fees to management fund
Claims expense
Member liability revaluation
Other expenses
Operating profit/loss before income tax
Income tax expense/benefit attributable to operating profit/loss
Operating profit/loss after income tax
Profit/loss on extraordinary items after income tax
Operating profit/loss and extraordinary items after income tax
Unallocated surplus/deficiency
at the beginning of the financial year
Transfers from management fund
Total available for allocation
Surplus allocated to members
Transfers to management fund
Unallocated surplus/deficiency
at the end of the financial year
3.
STATEMENT OF FINANCIAL PERFORMANCE - BASIC NOTES
The financial statements must include a note of Changes in Net Market Values
showing totals of:
(a)
Changes in net market value of securities
Securities held at the reporting date
Government securities
Other public securities
Certificates of deposit
Term loans
Other debt securities
Equity securities
Securities realised during the period
Government securities
Other public securities
Certificates of deposit
Term loans
Other debt securities
Equity securities
(b)
Changes in net market value of other assets
Other assets held at the reporting date
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Loans and advances
Other investments
Property, plant and equipment
Other assets realised during the period
Loans and advances
Other investments
Property, plant and equipment
4.
STATEMENT OF FINANCIAL POSITION - BASIC FORMAT
A Statement of Financial Position of a benefit fund must have the following format:
ASSETS
Cash and liquid assets
Accrued receivables
Securities
Loans and advances
Other investments
Property, plant and equipment
Other assets
TOTAL ASSETS
Note
(1)
(2)
(3)
(4)
(5)
(6)
(7)
LIABILITIES
Borrowings
Creditors and other liabilities
TOTAL LIABILITIES
NET ASSETS
(8)
(9)
MEMBERS’ FUNDS
Value of policy liabilities
Unallocated surplus/deficiency
TOTAL MEMBERS’ FUNDS
5.
(10)
STATEMENT OF FINANCIAL POSITION - BASIC NOTES
(1)
Cash and liquid assets :
(a)
(b)
(2)
Cash on hand, at banks and societies
Deposits at call
Accrued receivables:
Debtors
(3)
Securities:
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(a)
(b)
(c)
(d)
(e)
Government securities
Other public securities
Certificates of deposit
Other debt securities
Equity securities
Maturity analysis
Not longer than 3 months
Longer than 3 months and not longer than 6 months
Longer than 6 months and not longer than 12 months
Longer than 12 months and not longer than 2 years
Longer than 2 years and not longer than 5 years
Longer than 5 years
(4)
Loans and advances:
Amount
(a) Term loans
(b) Other
Maturity analysis
Not longer than 3 months
Longer than 3 months and not longer than 6 months
Longer than 6 months and not longer than 12 months
Longer than 12 months and not longer than 2 years
Longer than 2 years and not longer than 5 years
Longer than 5 years
Provisions for impairment
Opening balance
Doubtful debts expense
Bad debts written off
Other adjustments
Closing balance
Impairment expenses
Doubtful debts expense
Bad debts written off directly
Other concessions
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Provision for
impairment
(5)
Other investments:
(a)
(b)
(6)
Controlled entities
Other (detail)
Property, plant and equipment:
Land
At net market value
Buildings
At net market value
Leasehold improvements
At net market value
Total land and buildings
Plant and equipment
At net marke t value
Leased plant and equipment at net market value
Total plant and equipment
Total property, plant and equipment
(7)
Other Assets:
(a) Intangibles
(b) Other assets
(c) Future income tax benefit
(8)
Borrowings:
(a) Overdrafts
(b) Loans from management fund
(c) Loans from controlled entities
(d) Other
(e) Subordinated debt
Maturity analysis
Not longer than 3 months
Longer than 3 months and not longer than 6 months
Longer than 6 months and not longer than 12 months
Longer than 12 months and not longer than 2 years
Longer than 2 years and not longer than 5 years
Longer than 5 years
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(9)
Creditors and other liabilities:
(a)
(b)
(c)
(d)
(10)
Sundry creditors
Provision for income tax
Provision for deferred tax liability
Provision for employee entitlements
Transfers to or from Value of Policy Liabilities (Members’ liabilities):
The financial statements must include a note reconciling the movement in
members’ balances/liabilities during the financial year detailing:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
balance/liability at the be ginning of the financial year (prior to surplus
allocation)
allocation of surplus as at end of the previous financial year
liability component of contributions
allocation of surplus during year (eg. interim bonuses)
withdrawals (including bonuses, excluding claims expense)
member liability revaluation (ie adjustments from actuarial review)
balance/liability at the end of the financial year
proposed allocation of surplus (annual)
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Schedule 2
Additional disclosures in notes to management fund financial
statements
Benefit Fund Allocated Surplus
Benefit Fund 1 Benefit Fund 2 All Benefit Funds
Value of Policy Liabilities (start of
period prior to surplus allocation)
Liability component of contributions
Withdrawals (including bonuses and
exclude claims expense)
Allocation of surplus to members
(final and interim)
Member liability revaluation
Value of Policy Liabilities (end of
period)
Abbreviated Benefit Fund Statement of Financial Performance
Benefit Fund 1 Benefit Fund 2 All Benefit Funds
Net investment income
Revenue component of contributions
Other income
Fees to management fund
Claims expense
Member liability revaluation
Other expenses
Income tax expense
Profit/loss after income tax
Unallocated surplus/deficiency at
beginning of the financial year
Surplus allocated to members
Transfers to/from management fund
Unallocated surplus/deficiency at the
end of the financial year
Total member funds
(Value of Benefit Entitlements plus Unallocated Surplus)
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Benefit Fund Statement of Financial Position Summary
Benefit Fund 1
Benefit Fund 2
All Benefit Funds
Benefit Fund 1
Benefit Fund 2
All Benefit Funds
Net assets (Total member funds)
Other liabilities
Total assets
Solvency Requirement
Solvency Requirement (SR)
Ratio of SR to Gross Assets
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