Petroleum Fund of Timor-Leste Notes to the financial statements
for the year ended 31 December 2013
3. Significant accounting policies continued
c Petroleum Fund Gross Receipts
The Petroleum Fund Law requires certain parties to deposit taxes and other petroleum-related payments payable to the Government of Timor- Leste directly into the Petroleum Fund. The Petroleum Fund recognises these and other transactions as follows:
· Payments made as Petroleum Fund receipts in accordance with Article 6.1a are recognised as increases in the statement of changes in
capital of the Petroleum Fund. ·
Payments made by the Designated Authority in accordance with Article 6.1b are recognised as increases in the statement of changes in capital of the Petroleum Fund.
· Income earned by the Petroleum Fund from the investment of its assets is recognised in the statement of profit or loss and other
comprehensive income in accordance with Article 6.1c. ·
Payments received by Timor-Leste relating directly to Petroleum Fund resources not covered in Article 6.1 a to d of the Petroleum Fund law are recognised as increases in the statement of changes in capital of the Petroleum Fund in accordance with Article 6.1e.
· Management fees paid from the gross receipts of the Petroleum Fund pursuant to Article 6.2 are recognised in the statement of profit or
loss and other comprehensive income. ·
Refunds of taxation made pursuant to Article 10 are recognised as reductions in the statement of changes in capital of the Petroleum Fund.
d Transfers to the Consolidated Fund
Transfers to the Consolidated Fund are appropriations approved by National Parliament of Timor-Leste. All transfers to the Consolidated Fund are authorised and recognised when paid to the Consolidated Fund.
e Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s carrying amount. It is
recognised in the statement of profit or loss and other comprehensive income.
f Dividend income
Dividend income from investments is recognised when the shareholders right to receive payment has been established. Dividend income is presented gross of any non-recoverable withholding taxes, which are disclosed separately in the statement of profit or loss and other
comprehensive income.
g Net gain or loss on financial assets and liabilities at fair value through profit and loss
This item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as ‘at fair value through profit or loss’ and excludes interest and dividend income and expenses.
h Expenses
In accordance with the provisions of the Petroleum Fund Law, all expenses of the Petroleum Fund, not relating to the purchase or sale of securities and recognised in the sale or purchase price, are met by the Banco Central de Timor-Leste BCTL and are covered by a
management fee. In accordance with Article 6.3 of the Petroleum Fund Law, the management fee paid to the BCTL is recognised as a deduction from the gross
receipts of the Petroleum Fund, although it is accounted in the statement of profit or loss and other comprehensive income of the Petroleum Fund. Management and performance fees payable to external fund managers are met from the management fee payable to the BCTL.
Expenses which are incidental to the acquisition of an investment are included in the cost of that investment. Expenses that are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
i Taxation
The Petroleum Fund is exempt from paying taxes on income, withholding or capital gains under the current system of taxation in the Democratic Republic of Timor-Leste.
Income of the Petroleum Fund earned in foreign jurisdictions is subject to the withholding taxes levied in those jurisdictions. Income or gains are recorded gross of withholding taxes in the statement of profit or loss and other comprehensive income. Withholding taxes, to the
extent that they are not recoverable, are shown as a separate line item in the statement of profit or loss and other comprehensive income. Cash inflows from investments are presented net of withholding taxes, when applicable.
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Petroleum Fund of Timor-Leste Notes to the financial statements
for the year ended 31 December 2013
4. Critical accounting estimates and judgments
Management of the Petroleum Fund makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Estimates use observable data to the extent practicable. However, areas such as credit risk, volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of
financial instruments.
Judgements
In the process of applying the Fund’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the financial statements:
i Capital Judgments have been made as to whether certain transactions should be recognised as capital or revenue. The basis for these judgments is
outlined in Note 3c.
Estimates and assumptions
The Fund based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of
the Fund. Such changes are reflected in the assumptions when they occur. ii Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and changes in tax laws on foreign withholding tax. Given the wide range of international investments, differences arising between the actual investment income and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments to tax expense already recorded. The Fund establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it invests. The amounts of
such provisions are based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the
conditions prevailing in the respective investments domicile. As the Fund assesses the probability for litigation and subsequent cash outflow with respect to taxes as remote, no contingent liability has been recognised.
5. Interest income
Year ended 31122013
Year ended 31122012
USD USD
Interest from debt securities at fair value through profit or loss 148,956,261
166,999,061 Interest from cash and cash equivalents
230,984 152,056
149,187,245 167,151,117
6. Other Receivables
As at 31122013
As at 31122012
USD USD
Dividends receivable 5,793,209
3,257,223 Withholding tax receivables
4,515,589 1,472,956
Trust distributions receivables 580,945
405,870 Due from brokers receivables
140,790 1,341,235
Interest receivables 81,734
416
11,112,267 6,477,700
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