annual report 2011

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IOOF | annual report 2011 Notes to the financial statements (cont’d) For the year ended 30 June 2011 4 Change in accounting policy As a result of the change in accounting policy for the recognition of fair value movements in the share buy back liability, the following adjustments to the balance sheet have been made. Consolidated 2010 Consolidated 2009 Published Change Restated Published Change Restated $’000 $’000 $’000 $’000 $’000 $’000 Retained earnings Balance at 1 July 14,403 (15) 14,388 10,688 6,788 17,476 Profit for the period 68,403 9,139 77,542 13,850 (6,803) 7,047 Dividends paid (77,841) - (77,841) (10,272) - (10,272) Profit on treasury shares sold on-market 1,494 - 1,494 - - - Forfeiture of redeemable converting - - - 137 - 137 preference shares during the year Balance at 30 June 6,459 9,124 15,583 14,403 (15) 14,388 Reserves Asset revaluation reserve 1,072 - 1,072 1,072 - 1,072 Available-for-sale investment revaluation 1,751 - 1,751 441 - 441 reserve Business combinations reserve (301) - (301) - - - Share-based payments reserve 3,278 - 3,278 4,658 - 4,658 Share buy back revaluation reserve - (9,124) (9,124) - 15 15 5,800 (9,124) (3,324) 6,171 15 6,186 Reconciliation of movement in reserves Share buy back revaluation reserve Balance at 1 July - 15 15 - (6,788) (6,788) Valuation gain/(loss) recognised - (9,139) (9,139) - 6,803 6,803 Balance at 30 June - (9,124) (9,124) - 15 15 The change in accounting policy has had no impact on the financial performance or position of the parent entity or on the statutory benefit funds or any disclosures for the Group except as set out in this note. The change in accounting policy had the following impact on earnings per share. Consolidated 2010 Consolidated 2009 Published Change Restated Published Change Restated $’000 $’000 $’000 $’000 $’000 $’000 Earnings per share Earnings used in the calculation of basic EPS 68,403 9,139 77,542 13,850 (6,803) 7,047 The change in accounting policy had no impact on the weighted average number of ordinary shares. Weighted average number of ordinary shares (basic) Weighted average number of ordinary shares (diluted) Consolidated Consolidated 2010 Consolidated 2009 2010 2009 Published Restated Published Restated No. ’000 No. ’000 cents cents cents cents 229,922 96,151 Basic earnings per share 230,914 96,141 Diluted earnings per share 29.8 33.7 14.6 7.4 29.6 33.6 14.4 7.3 page 66
IOOF | annual report 2011 5 Risk management IOOF risk management framework Risk is defined by IOOF as any event which hinders the sustainable achievement of Group objectives and results, including a failure to exploit opportunities. The Group’s strategy to manage risk involves the identification of risks by type, impact and likelihood, implementation of controls to mitigate risks, and continuous monitoring and improvement of the procedures in place. The Group’s objective is to satisfactorily manage its risks in line with the Group’s Risk Management Policy set by the Board, and this aligns to International Standard ISO 31000 Risk Management. Procedures are put in place to control and mitigate the risks faced by the Group and vary depending on the nature of the risk. The Group maintains a framework to ensure regulatory compliance obligations are managed in accordance with Australian Standard 3806 Compliance Programs. The Group’s exposure to all material risks is monitored by the Head of Risk and this exposure, and any anticipated risk exposure, is regularly reported to the Risk and Compliance Committee, and the Board. The Group’s income and operating cash flows are indirectly impacted by changing market conditions. Its exposure is through the impact of market changes on the level of funds under management and administration, and consequently management fee and service fee revenue. Information has been provided below only on the direct impact of changing market conditions to the Group’s income and operating cash flows. The financial condition and operating results of the Group are affected by a variety of financial and non-financial risks. The key non-financial exposures are to operational risk and a failure to meet regulatory compliance obligations. The nature of the financial risk exposures arising from financial instruments, the objectives, policies and processes for managing these risks, and the methods used to measure them are detailed below. Financial risk The financial risk management objectives, policies and processes and the quantitative data about the exposure to risk at the reporting date, as set out in the remainder of this note, excludes the benefit funds and the controlled unit trusts. This is because the risks associated with financial instruments held by the benefit funds and controlled trusts are borne by the policyholders and members of those funds and trusts, and not the shareholders of the Group. There is no direct impact on the net profit or the equity of the Group as a consequence of changes in markets as they apply to financial instruments held by those funds and trusts at the reporting date. Similarly the objectives, policies and processes for managing the risks of the Group are separate and distinct from those for the benefit funds and trusts. The funds and trusts are managed under extensive regulatory requirements, and in accordance with specific investment guidelines, risk management strategies, risk management plans, and product disclosure statements. The Group is managed under a set of separate corporate policies and review processes that are directed toward the interests of the shareholders of the Group. Information in relation to financial risks associated with the benefit funds and controlled trusts is available in their Product Disclosure Statements and the individual annual financial reports of those trusts. Further information in relation to the Australian Accounting Standards requirement to consolidate the benefit funds and controlled trusts in the consolidated financial statements of the Group is available in Note 3(a) Basis of consolidation. The following table shows the value of financial instruments held directly and actively managed by the corporate entities within the Group in relation to its shareholder interests. It shows the financial instruments, as reported in the notes to the financial statements, excluding any elimination entries made upon consolidation with the funds and trusts. The adjustment of these eliminations has the effect of identifying the interentity financial instruments that are also actively managed by the Group. page 67
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