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AUSTALIA, I

Financial Viability Risk Assessment

Requirements 201-I1 '
The AUSTRALIAN SKILLS QUALITY AUTHORITY makes this legislative
instrument under subsection 158(1) of the _National Vocational Education and Training Regulator Act 2011.

Dated 1 July 2011

Christopher Robinson Acting Chief Commissioner Australian Skills Quality Authority

Contents

Part 1.

Preliminary Arrangements on commencement:

Name of standards Commencement

Division 1
FVRAR 1 FVRAR 2 FVRAR 3

3
3 3 3

Definitions

Part 2
FVRAR 4 FVRAR 5

Context and intent oft-hese requirements

Context Intent

5
5 5

Part 3
FVRAR 6 FVRAR 7 FVRAR 8

Financial Viability Risk Assessment Requirements

Obligation to submit assessment at initial registration Obiigation to submit to assessment at any time NVR may waive requirement where risk is considered low

6
6 6 6

PART 4
FVRAR O9 FVRAR 10 FVRAR 11 FVRAR 12 FVRAR 13

Form and content of Financial Viability Risk

Assessment Assessment to be in required form
Assessment to be against common indicators

7
7 7 7 8

Reviews to have regard to Standards

Information to be assessed Assessment to consider size and scope of operations

Financial Viability Risk Assessment Requirements 2011

Preliminary

Part 1

Part 1 Division 1
FVRAR 1

Preliminary
Arrangements on commencement
Name_ostandards .....

This legislative instrument is the Financial Viability Risk Assessment

Requirements 2011.

FVRAR 2

Commencement This legislative instrument commences as follows:

(a) on 1 July 2011 or the day after the legislative instrument is

registered on Federal Register of Legislative Instruments - whichever is the later.

FVRAR 3

Definitions
In this legislative instrument, unless the contrary intention appears: Act means the National Vocational Education and training Regulator

Act 2011.
Financially viable means the ability of an organisation to generate sufficient income to meet operating payments, debt commitments and,

where applicable, to allow growth while delivering quality training and

assessment services and outcomes.

Financial viability risk is the assessed financial performance, operations, and capacity of an organisation as an ongoing concern to deliver quality training and assessment services and outcomes for the duration of its registration, and the potential of its losing this capacity.

(2)

The requirements of this legislative instrument apply to: (a) all organisations seeking registration under the Act and

(b) all training organisations registered under the Act. (3) The requirements may be refen'ed to by the abbreviation 'FVRAR'. For example, this is FVRAR 3 (3). NVR means the National VET Regulator

Financial Viability Risk Assessment Requirements 2011

Preliminary

Part 1

An independent qualified auditor is:

a) the Auditor-General of a State, of the Australian Capital Ten'itory or of the Northern Territory; or b) a person registered as a company auditor or a public accountant under a law in force in a State, the Australian Capital Terl"itory or
thg_._Northem_ Territ0rYl _or ..................................

c) a member of the Institute of Chartered Accountants in Australia, or of the Australian Society of Certified Practising Accountants; or

d) a person approved by the Minister in writing as a qualified auditor for the purposes of the Higher Education Support Act 2003; and
e) a person independent from the entity it is auditing. Note: For the purpose of this legislative instrument, a qualified auditor

will be considered to be independent from the entity it is auditing if the

qualified auditor meets the independence requirements specified in Part

2M.4, Division 3, of the Corporations Act 2001 as though the qualified auditor is an individual qualified auditor or an audit company and the body corporate seeking approval as a VET provider is the audited body
under that Act.

Financial Viability Risk Assessment Requirements 2011

Context and intent of these requirements

Part 2

Part 2
FVRAR 4
Context

Context and intent of these

requirements

The Act in Section 158 requires the National VET Regulator to make the requirements relating to the financial viability of NVR registered
training organisations. The requirements are to be made by legislative instrument and are to be lcnown as the "Financial Viability Risk Assessment Requirements".

The legislative instrument applies to NVR registered training

organisations. Section 24 makes it a condition of registration that an

NVR registered training organisation must satisfy the Financial

Viability Risk Assessment Requirements.

FVRAR 5

Intent The National VET Regulator requires a NVR registered training organisation to demonstrate its financial viability at any point in time,
upon request.

The assessment of an organisation's financial viability risk is directed at

evaluating the likelihood of its business Continuity, and its. capacity to

achieve quality outcomes. In particular, the assessment informs a judgement about whether .the organisation has the financial resources
necessary to:

a) . acquire the requisite assets and physical resources to deliver all qualifications on its scope of registration

b) employ sufficient appropriately qualified staff to cover the courses

for which it takes enrolments c) provide appropriate levels of student services to students d) remain in business to ensure that each student can achieve completion
e) meet the above requirements, ' even in an unsure environment.

Financial Viability Risk Assessment Requirements 2011

Financial viability risk assessment requirements

Part 3

Part 3

Financial viability risk assessment

requirements

FVRAR 6-- Obligation to submitto assessmentat initial registration (1) An organisation seeMng registration with the NVR must submit to an assessment of financial viability risk by a qualified independent
financial auditor nominated by the NVR, as part of the assessment of the application for registration.

(2) The assessment will include an assessment of the source and

reliability of the evidence supporting the assumptions underlying the
projections.

(3) The obligation to submit to the assessment referred to in (1) applies

also to parent organisations, affiliated companies or organisations that have a vested interest in the organisation.

FVRAR 7

Obligation to submit to assessment at any time (1) An NVR registered training organisation must submit to an assessment of financial viability risk by a qualified independent financial auditor nominated by the NVR at other times during the registration period as determined by the NVR in accordance with
the NVR Risk Assessment Framework.

(2) The obligation to submit to the assessment referred to in. (1) also
applies to parent organisations, affiliated companies or organisations that have a vested interest in the organisation.

FVRAR 8

NVR may waive requirement where risk is considered low (1) Where the NVR considers the financial viability risk of an
organisation is low, it may waive the requirement for a financial viability risk assessment.

(2) The waiving of the requirement does not remove the obligation in FVRAR 8 to submit to a future assessment if required by the NVR.

Financial Viability Risk Assessment Requirements 2011

Form and content of financial viability risk assessment

Part 4

Part 4
FVRAR 9

Form and content of financial viability

risk assessment
Assessment to be in required form Financial data and information must be submitted to the qualified independent financial auditor nominated by the NVR in a format that is
in accordance with Australian Accounting Standards.

FVRAR i 0

Assessment to be against common indicators The assessment of financial viability risk will be undertaken by
assessing common indicators of financial performance and position.

These may include but are not limited to the following indicators:
a) Liquidity- including current ratio and cash flow assessments b) Solvency - including debt to assets assessment, debt to equity
assessment

c) Economic Dependency - for example, reliance upon government funded training, or reliance on a particular cohort Of students (e.g. overseas students) d) Revenue, profit and cash flow

e) Commercial risk tO Audit opinion g) Contingencies h) Compliance with all of its statutory obligations (for example: GST,
taxation, superannuation, Companies Code)

i) Compliance with accounting standards

j) Accounting policies - impact of the organisation's accounting policies on its financial risk..

FVRAR 1 i

Reviews to have regard to Standards

Independent reviews of financial projections will have regard to the

Australian Audit and Assurance Standards, A US 804 The Audit of

Prospective Financial Information and ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information.

FVRAR t 2

Information to be assessed
Information that could be used to assess the common indicators in

FVRAR 10 and to make a determination about financial viability risk may include, but not be limited to:

a)

Independent reviews of financial proj ections including underlying

assumptions

Financial Viability Risk Assessment Requirements 2011

Form and content of financia] viability risk assessment

Part 4

b) Business planning including forecast income streams and forecast expenditure

c) Assets and liabilities d) Financial statements audited by an independent qualified auditor

e) Financial ........... records for the previous 12 months, including profit and

loss, balance sheets f) Cash flow and bank accounts g) Short term budgets and forecasts, including assumptions h) Information on current and projected student enrolments, including assumptions i) Tax records

j) Information about cmTent debts and debtors, credits and creditors, loans and repayment k) Plans, and information on any legal disp'utes 1) Inter-company dealings, transfers, ownerships and loans

m) Contingent liabilities n) Ultimate ownership details o) Post reporting activities (includes activities that relate to the
period after accounts have been audited that would have a material impact on the organisation's operations, viability or ownership).

FVRAR 13 Assessment to consider size and scope of Operations

In managing the financial viability risk of an oi'ganisation, the NVR
may take into consideration the size and scope of its operations.

Financial Viability Risk Assessment Requirements 2011

Explanatory Statement

Financial Viability Risk Assessment Requirements 2011

Authority
This instrument is made under subsection 158(1) of the National Vocational Education and
--TRlatoTA-ct-201 i(the tct)TThat subsectonaequires thNationaI-VE-T- Regulator,

by legislative instrument, to make requirements relating to the financial viabilityof NVR registered training organisations. Subsection 158(2) of the Act provides that the requirements are to be known as the Financial Viability Risk Assessment Requirements (the
Requirements).

Purpose and Operation

On 1 July 2011, the National VET Regulator assumed regulatory responsibility for functions that were previously performed by the states and territories in relation to the matters dealt with by the Act (Victoria and Western Australia retain regulatory responsibility for some organisations residing within their jurisdictions). The Requirements form part of the VET Quality Framework. As defined in section 3 of the Act, the VET Quality Framework is comprised of the Standards for NVR Registered Training Organisations, the Australian QualificatiOns Framework, the Fit and Proper Person Requirements, the Financial Viability Risk Assessment Requirements and the Data Provision
Requirements.

The Requirements apply to all NVR registered training organisations from 1 July 2011 (the National Vocational Education and Training Regulator (Transitional Provisions) Act 2011 sets out the dates from which state and territory registered training organisations are taken to be NVR registered training organisations for the purposes of the Act). NVR registered training organisations must comply with the Requirements as a condition of registration under the Act (see section 24 of the Act). Further, the NationaiVET Regulator is required to consider whether an applicant for registration underthe Act complies with the Requirements in deciding whether to grant their application (see subsection 17(2) of the Act).

Description of the provisions

Parts 1 and 2 of the Requirements set out preliminary matters, and the context and intent of
the Requirements.

Part 3 of the Requirements requires an'0rganisation seeking registration with the National VET Regulator to submit to an assessment of financial viabi!ity risk as part of the assessment of the application for registration, and requires an NVR registered training organisation to submit to an assessment at a time determined by the National VET Regulator. It also sets out the circumstances in which the National VET Regulator may waive the requirement for a financial viability risk assessment, and other matters relating to the obligation to submit to an
assessment.

Part 4 of the Requirements sets out the form and content of financial viability risk assessments. An assessment of financial viability is required to provide an indication of Whether an organisation will remain viable in the short to medium term. Financial viability is defined in the Requirements as the ability of an organisation to generate sufficient income to meet operating payments, debt commitments and, where applicable, to allow growth while

delivering quality training and assessment services and outcomes. In addition to an analysis of the financial data, the assessment will consider qualitative factors that can impact upon the organisation's financial health (eg. business plans, changes in ownership, pending legal
action etc.).

Commencement
The Requirements commence on the day after they are registered on the Federal Register of Legislative Instruments.

Consultation
Before the National VET Regulator made the Requirements, consultation was undertaken as follows: Meetings with: , Victorian Registration and Qualifications Authority . Department of Education, Employment and Workplace Relations - Financial Viability and Debt Team
e VET Fee-Help Financial & Payments Team.

Grant Thornton Australia Limited Further discussions with: Kingsway Financial Assessments P/L State and Territory regulators (QLD, NSW, WA) Tertiary Education Quality and Standards Agency PricewaterhouseCoopers Australia On 21 April 2011 a consultation meeting was held with key industry stakeholders to include discussion of a draft version of the Requirements. Representatives from the following industry bodies were present at this meeting: o Australian Council for Private Education and Training o Enterprise RTOAssociation Victorian Automobile Chamber of Commerce Australian Chamber of Commerce and Industry Construction, Forestry, Mining and Energy Union Master Builders Association National Centre for Vocational Education Research TAFE Directors Association
.State and Territory VET Regulators.

> The Requirements have been discussed at joint meetings held with State and Territory
representatives.