2009-10 Annual Report - Australia Post

notes to And ForminG PArt oF the FinAnCiAl rePort For the year ended 30 June 2010
(gg) Financial guarantees
Financial guarantees are initially measured at fair value. at each
subsequent reporting date, they are carried at the higher of the initial fair
value amount less cumulative amortisation or the amount determined
under aasB 137: Provisions, Contingent Assets and Contingent
Liabilities. the fair value of financial guarantee contracts discussed in
note 18 has been assessed using a probability weighted discounted
cashflow approach. in order to estimate the initial fair value under this
approach, the following assumptions are made:
• probability of default (pd): represents the likelihood of the guaranteed
party defaulting over the terms of relevant agreements and is assessed
based on historical default rates of companies rated by standard
& poor’s. the range used in the model is between 0% and 5%.
• loss Given default (lGd): represents the proportion of the exposure
that is not expected to be recovered in the event of a default by
the guaranteed party and is based on the result of studies into
the recovery rate for unsecured debt obligations. the range used
in the model is between 0% and 50%.
• exposure at default (ead): represents the maximum loss that the
corporation is exposed to if the guaranteed party was to default and
is the maximum possible exposure at the time of default and hence
equates to the values disclosed in note 18.
• the discount rate adopted was based on the commonwealth
Government bond yield.
When the uncertainty associated with an assumption was sufficient
to warrant consideration of a range of possible assumptions, the
maximum in the range was used for valuation purposes.
(hh) Contributed equity
ordinary shares are classified as equity. incremental costs directly
attributable to the issue of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds.
(ii) insurance
Generally, the corporation self-insures its own risks. however, with
respect to catastrophic losses, appropriate insurance coverage for
both the corporation and its controlled entities has been arranged
with general insurers. payments on account of losses and insurance
premiums paid in any year are charged against revenue for the year.
Where appropriate, the controlled entities insure their other risks
with general insurers.
(jj) Contingent liabilities and contingent assets
contingent liabilities and contingent assets are not recognised in the
balance sheet but are reported in the relevant schedules and notes.
they may arise from uncertainty as to the existence of a liability or an
asset or may represent an existing liability or asset in respect of which
settlement is not probable or the amount cannot be reliably measured.
contingent assets are reported when settlement is probable, and contingent
liabilities are recognised when settlement is not considered remote.
(kk) Comparatives
Where necessary, comparatives have been reclassified and repositioned
for consistency with current year disclosures.
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AustrAliA Post AnnuAl rePort 2009–10 | Financial and statutory reports