Understand the terms we use

Terms

Accrual basis of accounting

The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relat

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Acquisition Costs

The fixed and variable costs of acquiring new business, including commissions and similar distribution costs, and costs of accepting, issuing and initially recording policies.

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Acquisition Date

The date on which the acquirer obtains control of the acquiree.

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Active Investment management

A style of investment management that seeks to attain returns above a set benchmark by constantly monitoring and, if necessary, changing asset allocation and security selection.

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Actuarial Gains & Losses

These comprise: (a) Experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and (b) the effects of changes in actuarial assumptions.

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Annual Reporting Period

The financial year or similar period to which annual financial statements relate.

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Asset

A resource: (a) controlled by an entity as a result of past events; and ...

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Asset class

A category of financial assets. The major asset classes are shares, property, fixed interest and cash, which in turn can be broken down further to include domestic or international shares, domestic or international fixed interest, direct or indirect prope

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Basic Earnings per Share

Profit or loss attributable to ordinary equity holders of the parent entity (the numerator) divided by the weighted average number of ordinary shares outstanding during the period (the denominator).

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Bear market

A declining financial market. The opposite of a bull market.

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Beneficiaries

Those persons who are currently receiving, or are currently entitled to receive, benefits from the superannuation plan or other trust structures.

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Blue Chip

Stock/shares of leading, quality companies (usually highly valued) that are well known for their strong financial position and ability to make profits.

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Bull Market

An advancing financial market. The opposite of a bear market.

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Capital

Under a financial concept of capital, such as invested money or invested purchasing power, the net assets or equity of the entity. The financial concept of capital is adopted by most entities.

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Cash Flows

Inflows and outflows of cash and cash equivalents.

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Cash Surplus/(Deficit)

Net cash flows from operating activities plus net cash flows from acquisition and disposal of non-financial assets less distributions paid less value of assets acquired under finance leases and similar arrangements.

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Cash-Generating Unit

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

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Claim Incurred

Claims that have occurred prior to the end of the reporting period, whether reported or unreported at the end of the reporting period.

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Claims Expense

The charge to the statement of comprehensive income for the reporting period and represents the sum of claims settled and claims management expenses relating to claims incurred in the period and the movement in the gross outstanding claims liability in th

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Commutation

The process of converting a pension or annuity into a lump sum

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Complying Pension or Annuity

A series of payments received over the remaining lifetime of a pensioner. The pension may be paid by a super fund or life insurance company. The pension must meet a number of legislated requirements.

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Compound Interest

Compound interest is what occurs when you earn interest, on your interest.

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Concessional (Personal) contributions

In relation to super, personal contributions are payments made to a fund from an individual's after-tax salary or other financial source, e.g. investment dividends, inheritance. Also referred to as 'after-tax contributions' or 'non-concessional contributi

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Consumer Price Index (CPI)*

CPI is the measurement measure of inflation across the country, which allows comparisons of the relative cost of living over a period of time.

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Contingent Asset

A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

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Contingent Consideration

Usually, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met.

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Contingent Liability

(a) A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or

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Contingent Rent

That portion of the lease payments that is not fixed in amount but is based on the future amount of a factor that changes other than with the passage of time (eg percentage of future sales, amount of future use, future price indices, future market rates o

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Costs of Disposal

Incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax expense.

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Costs to Sell

The incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.

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Credit Risk

The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

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Current Asset

An entity shall classify an asset as current when: (a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle; ...

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Deferred annuity

A type of annuity (retirement income product) that starts payment of income at a later date, such as when an investors turns 65. Deferred annuities can only accept Eligible Termination Payments such as lump sums from super funds

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Deferred Tax Assets

The amounts of income taxes recoverable in future periods in respect of: (a) deductible temporary differences; ...

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Deferred Tax Liabilities

The amounts of income taxes payable in future periods in respect of taxable temporary differences.

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Deficit or Surplus (relating to the net defined benefit liability (asset))19

The deficit or surplus is: (a) the present value of the defined benefit obligation less ...

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Depreciated Replacement Cost

The current replacement cost of an asset less, where applicable, accumulated depreciation calculated on the basis of such cost to reflect the already consumed or expired future economic benefits of the asset.

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Depreciation (amortisation)

The systematic allocation of the depreciable amount of an asset over its useful life.

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Derivative

A financial instrument or other contract within the scope of [AASB 139 (see paragraphs 2–7)] or [AASB 9 (see paragraph 2.1)] with all three of the following characteristics: ...

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Diversification

The process of distributing funds across a number of asset classes to reduce the impact that volatility in one asset class, sector or market will have on the performance of your overall portfolio of assets.

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Dividend imputation

In order that company earnings are not taxed twice, investors who receive dividend payments may also receive a tax or imputation credit for the tax already paid by the company.

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Dollar Cost Averaging

The practice of investing amounts of money at regular intervals, regardless of whether the securities markets are declining or rising.

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Economically Recoverable Reserves

The estimated quantity of product in an area of interest that can be expected to be profitably extracted, processed and sold under current and foreseeable economic conditions.

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Effective Interest Rate

The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability....

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Eligible Termination Payment (ETP)

A lump sum payment made to an individual by an employer (or from a super fund/approved deposit fund) as a result of retrenchment, retirement, resignation, death or disablement. ETPs are subject to concessional tax rates.

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Employee Benefits

All forms of consideration given by an entity in exchange for service rendered by employees.

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Entity

Any legal, administrative, or fiduciary arrangement, organisational structure or other party (including a person) having the capacity to deploy scarce resources in order to achieve objectives.

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Equity

A term for shares. Also a general word used to describe a shareholding or ownership in a company. Can also refer to the value of your capital invested in an asse

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Exchange Difference

The difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

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Exit Fee

A fee payable by investors when withdrawing money from or closing certain investment options.

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Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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FIFO (first-in, first-out)

The assumption that the items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced.

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Financial Asset

Any asset that is: (a) cash; (b) an equity instrument of another entity; (c) a contractual right: ...

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Financial Instrument

Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

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Financial Position

The relationship of the assets, liabilities and equity of an entity, as reported in the balance sheet [statement of financial position].

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Financial Statements

A complete set of financial statements comprises: (a) a statement of financial position as at the end of the period; (b) a statement of profit or loss and other comprehensive income for the period; ...

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Financing Activities

Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.

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Float

In relation to companies, it refers to the decision to list on a stock exchange and offer shares to the public. For currencies, it is the decision to let market forces set the exchange rates.

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Forecast Transaction

An uncommitted but anticipated future transaction.

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Foreign Currency

A currency other than the functional currency of the entity.

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Foreign Currency Transaction

A transaction that is denominated in or requires settlement in a foreign currency.

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Franked dividends

Company/share dividends paid out of profits on which the company has already paid tax. The investor is then entitled to a reduction in income tax for that amount (imputation credit).

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Futures

A contract that obligates the owner to buy or sell a certain quantity and quality of an underlying asset at a predetermined price at a future date

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Gearing

Describes the practice of borrowing to invest. Gearing is usually expressed as a ratio of the borrowed amount divided by the total amount invested.

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General Reinsurance Contract

A reinsurance contract that is not a life reinsurance contract.

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Growth asset allocation

An asset alloation or fund that has a higher proportion of assets in investments such as shares and property that are expected to deliver most of their returns through capital appreciation

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Guaranteed Element

An obligation to pay guaranteed benefits, included in a contract that contains a discretionary participation feature.

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Hedging

An investment position taken to counteract the potential risk from another investment.

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Hire Purchase Contract

The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option to acquire title to the asset upon the fulfillment of agreed conditions. These contracts are sometimes known as hire purchase contrac

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Historical Cost

A measurement basis according to which assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition.

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Impairment Loss

The amount by which the carrying amount of an asset exceeds its recoverable amount.

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Income

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

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Independent Financial Adviser

A financial adviser who practices without incentive and conflicts due to a unique ownership structure.

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Insurance Bond

A single premium investment product, issued by life insurance companies or friendly societies, which operates in the same manner as a unit trust except that the return is provided to the investor net of tax.

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Insurance Contract

A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder

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Insurance Liability

An insurer’s net contractual obligations under an insurance contract.

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Interest in Another Entity

An interest in another entity refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity.

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Interest Rate Risk

The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

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Interim Financial Report

A financial report containing either a complete set of financial statements (as described in AASB 101) or a set of condensed financial statements (as described in AASB 134) for an interim period.

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Inventories Held for Distribution

In respect of not-for-profit entities, inventories held for distribution are assets: ...

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Joint Venture

A contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

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Lessee’s Incremental Borrowing Rate of Interest

The rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term, and with a similar security, the funds necessary to p

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Liability Adequacy Test

An assessment of whether the carrying amount of an insurance liability needs to be increased (or the carrying amount of related deferred acquisition costs or related intangible assets decreased), based on a review of future cash flows.

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Liquidity Risk

The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

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Listed company

A company whose shares can be bought and sold on a stock exchange.

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Loans and Receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: ...

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Market Risk

The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

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Market-linked fund

A pooled investment fund (also see 'pooled fund') that is valued according to movements in the market to which it is linked.

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Materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

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Monetary Assets

Money held and assets to be received in fixed or determinable amounts of money.

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Monetary Items

Units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

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Net Lending/(Borrowing)

The financing requirement of government, calculated as the net operating balance less the net acquisition of non-financial assets. A positive result reflects a net lending position and a negative result reflects a net borrowing position. Based on the defi

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Net Market Value

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.

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Net Realisable Value

The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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Non-Concessional Contribution

Contributions to a super fund or retirement savings account made after 30 June 1983 for which no tax deductions were allowable. The non concessional contributions component of an Eligible Termination Payment is not taxable

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Observable Inputs

Inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability.

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Orderly Transaction

A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (eg a forced li

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Ordinary Share

An equity instrument that is subordinate to all other classes of equity instruments.

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Ordinary Shares

Securities or fully paid shares that represent an ownership interest in a company. They carry voting rights (for the shareowner) and entitle the shareholder to receive dividends if the company makes a profit and decides to pay dividends.

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Overweight

Taking a greater exposure to one investment market or security compared with a benchmark or neutral position. The opposite of underweight.

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PAYG

An abbreviation for 'Pay As You Go' tax, where employees have income tax deducted from their wages or salary by their employer.

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Percentage of Completion Method

The recognition of revenue and expenses by reference to the stage of completion of a contract. Under this method contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expen

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Portability

The ability to transfer benefits from one investment or super fund to another.

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Present Value

A current estimate of the present discounted value of the future net cash flows in the normal course of business.

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Preserved Benefits

Benefits within a super fund that cannot be accessed until the fund member turns 55 and/or retires, or a special circumstance has been met (eg severe financial difficulties or permanent incapacity).

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Profit

The residual amount that remains after expenses (including capital maintenance adjustments, where appropriate) have been deducted from income. Any amount over and above that required to maintain the capital at the beginning of the period is profit.

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Property, Plant and Equipment

Tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and ...

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Put Options (on ordinary shares)

Contracts that give the holder the right to sell ordinary shares at a specified price for a given period.

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Quartile

A statistical measure dividing a sample into four numerically equal groups. Thus top quartile in a funds management context means the top 25 per cent of the fund managers in a particular category or asset class.

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Quasi-Corporation

An unincorporated enterprise that functions as if it were a corporation, has the same relationship with its owner as a corporation, and keeps a separate set of accounts. Defined in the ABS GFS Manual (Glossary, page 261).

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Realisable Value

The amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal.

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Recoverable Amount

The higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use.

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Related Party

A person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the ‘reporting entity’)...

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Related Party Transaction

A transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

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Remeasurements of the Net Defined Benefit liability (asset)

Remeasurements of the net defined benefit liability (asset) comprise: (a) actuarial gains and losses; ...

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Reporting Date

The end of the reporting period to which the financial report relates.

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Reporting Entity

An entity (including an economic entity) in respect of which it is reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making and evaluating decisions about the alloca

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Residual Value (of an asset)

The estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

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Rollover

Transfer of super money from one approved super fund to another.

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Sale and Leaseback Transaction

The sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually interdependent because they are negotiated as a package.

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Self Managed Superannuation Fund (SMSF)

A self managed super fund (SMSF) is a form of retirement savings, controlled by members who act as trustees of their own fund.

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Separate Financial Statements

Those presented by a parent (ie an investor with control of a subsidiary) or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance with AASB 9 Financial Instrumen

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Settlement Value

The undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.

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Share-Based Payment Arrangement

An agreement between the entity (or another group entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive: ...

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Superannuation

A system where individuals set aside funds during their working life to fund retirement. The Government supports this system by requiring employer contributions on behalf of employees, providing tax concessions and regulatory controls for the benefit of c

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Tax Base of an Asset or Liability

The amount attributed to that asset or liability for tax purposes.

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Tax Expense (tax income)

The aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax. Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income).

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Taxable Profit (tax loss)

The profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable).

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Transaction Costs

The costs to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet both of the following criter

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Trust Deed

A document that sets out the rules for the establishment and operation of a fund

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Trustee

The person or company that has the legal responsibility to ensure that the trust or super fund is operated in accordance with the trust deed.

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Underlying investments or securities

In relation to managed investments, this normally means the investments selected by the investment manager. In the case of master trusts, underlying investments are the investments offered through menu options for an investor to select. The menu may inclu

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Underweight

Taking on a smaller exposure to one investment market or security compared with a benchmark or neutral position. The opposite of overweight.

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Unit Trust

A pooled investment structure set up under a trust deed where investors buy units in a trust that is managed by the fund manager on behalf of the investors. The value of units is set either by the market (if a listed trust) or by the trustees (if unlisted

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Useful Life

The estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity.

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Value in Use (in respect of not-for-profit entities)

Depreciated replacement cost of an asset when the future economic benefits of the asset are not primarily dependent on the asset’s ability to generate net cash inflows and where the entity would, if deprived of the asset, replace its remaining future econ

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Vested Employee Benefits

Employee benefits that are not conditional on future employment.

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Vesting Conditions

The conditions that determine whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share-based payment arrangement.

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Volatility

The extent to which total returns from an investment fluctuate over time.

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Warrant

A financial instrument that gives the holder the right to purchase ordinary shares with an internal loan structure.

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Weighted Average Cost Formula

Under this formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic

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Yield

The income earned from an investment expressed as a percentage.

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