Prospective Departmental Financial Statements
The purpose of presenting the prospective financial statements is for the preparation of the Statement of Intent 2007-2010 in accordance with section 38 of the Public Finance Act 1989. The information presented in the Statement of Intent may not be appropriate for other purposes.
Statement of Significant Underlying Assumptions
These preliminary financial statements have been compiled on the basis of Government policies at the time the statements were finalised.
For the purposes of financial reporting the Department of Building and Housing is a public benefit entity.
The actual financial results achieved for the period covered are likely to vary from the information presented in the prospective financial statements, and variations may be material.
These statements have been prepared on a going-concern basis.
Statement of Significant Accounting Policies
Reporting entity
The Department of Building and Housing is a government department as defined by the Public Finance Act 1989.
The financial statements of the Department of Building and Housing have been prepared pursuant to the Public Finance Act 1989.
In addition, the Department of Building and Housing has reported the Crown activities and trust monies that it administers.
Statement of compliance
These financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards (FRS), as appropriate for public benefit entities. These are the Department of Building and Housing's first consolidated financial statements complying with NZ IFRS and NZ IFRS 1. In particular, prospective financial statements comply with FRS-42.
Accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS balance sheet as at 1 July 2006 for the purposes of the transition to NZ IFRS.
The measurement base applied is historical cost modified by the revaluation of certain assets and liabilities as identified in this statement of accounting policies.
The accrual basis of accounting has been used unless otherwise stated. These financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($'000). The functional currency is New Zealand dollars.
Judgements and estimations
The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed.
Revenue
Operations
The Department derives revenue through the provision of outputs to the Crown, for services to third parties and interest from the Residential Tenancies Trust Account. Revenue from the supply of goods and services is measured at the fair value of consideration received. Revenue from the supply of services is recognised at balance date on a straight-line basis over the specified period for the services unless an alternative method better represents the stage of completion of the transaction.
Interest
Interest income is accrued using the effective interest rate method. The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income for each period.
Expenses
Interest expense is accrued using the effective interest rate method. The effective interest rate exactly discounts estimated future cash payments through the expected life of the financial liability to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest expense for each period.
Other liabilities and provisions
Other liabilities and provisions are recorded at the best estimate of the expenditure required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.
Commitments
Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.
Contingent liabilities and contingent assets
Contingent liabilities and contingent assets are recorded in the Statement of Contingent Liabilities and Contingent Assets at the point at which the contingency is evident. Contingent liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.
Taxation
Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax has been provided for.
Foreign currency
Foreign currency transactions are recorded at the date of settlement of the transaction.
Cost allocation
The Department has determined the cost of outputs using a cost allocation system outlined below.
Cost allocation Policy
Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities based on cost drivers and related activity/use information.
Criteria for direct and indirect costs
'Direct costs' are those costs directly attributable to an output. 'ndirect costs' are those costs that cannot be identified, in an economically feasible manner, with a specific output.
Assignment of costs to outputs
Direct costs are charged directly to outputs. Indirect costs are assigned to outputs based on a number of cost drivers. Depreciation and capital charge are charged on the basis of asset utilisation. Personnel costs are charged on the basis of actual time incurred. Property and other premises costs, such as maintenance, are charged on the basis of floor area occupied for the production of each output. Remaining indirect costs are assigned on the proportion of direct costs for each output.
Receivables
Receivables are stated at their estimated realisable value.
Loans and receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method (refer to interest revenue policy). Loans and receivables issued with a duration of less than 12 months are recognised at their nominal value. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the asset is impaired.
Employee benefits
Employee entitlements
Employee entitlements to salaries and wages, annual leave, long service leave, retiring leave and sick leave are recognised in the Statement of Financial Performance when they accrue to employees. Employee entitlements to be settled within 12 months are reported at the amount expected to be paid. The liability for long-term employee entitlements is reported on an actuarial basis, based on present value of the expected future entitlements.
Termination benefits
Termination benefits are recognised in the Statement of Financial Performance only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.
Goods and services tax (GST)
The Statement of Financial Position is exclusive of GST, except for payables and receivables, which are stated inclusive of GST. All other statements are GST-exclusive.
Financial instruments
The Department is party to financial instruments as part of its normal operations. These financial instruments include accounts payable and receivable, cash and short-term deposits. Revenues and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance.
Designation of financial assets and financial liabilities into instrument categories is determined by the business purpose of the financial instruments, policies and practices for their management, their relationship with other instruments and the reporting costs and benefits associated with each designation.
Cash and cash equivalents include cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than 3 months from date of acquisition.
Other financial liabilities are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method (refer to interest expense policy). Financial liabilities entered into with a duration of less than 12 months are recognised at their nominal value. Amortisation and, in the case of monetary items, foreign exchange gains and losses, are recognised in the Statement of Financial Performance as is any gain or loss when the liability is derecognised.
Derivatives
Derivative financial instruments are recognised at fair value as either assets or liabilities. Derivatives that do not qualify for hedge accounting are classified as held-for-trading financial instruments with fair value gains or losses recognised in the Statement of Financial Performance. Recognition of fair value gains or losses on derivatives that qualify for hedge accounting depends on the nature of the item being hedged.
Leases
Finance leases: A liability equal to the present value of the future minimum lease payments is recognised for office equipment acquired by way of finance lease. Each lease payment is apportioned between the finance charge and the reduction of the outstanding liability. The interest expense component of the finance lease payments is recognised in the Statement of Financial Performance using the effective interest rate method. Finance leases transfer to the Crown as lessee substantially all the risks and rewards incident on the ownership of a leased asset.
Operating leases: The Department leases office premises. These leases are operating leases and the costs are expensed in the period in which they are incurred. Operating leases, where the lessor substantially retains the risks and rewards of ownership, are recognised in a systematic manner over the term of the lease. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.
Property, plant and equipment
Property, plant and equipment costing more than $2,000 are capitalised and recorded at cost less accumulated depreciation and accumulated impairment losses. Any write-down of an item to its recoverable amount is recognised in the Statement of Financial Performance. Where an asset is acquired for nil or nominal consideration the asset will be recognised initially at fair value, where fair value can be reliably determined, with the fair value of the asset received, less costs incurred to acquire the asset, also recognised as revenue in the Statement of Financial Performance.
Realised gains and losses arising from disposal of property, plant and equipment are recognised in the Statement of Financial Performance in the period in which the transaction occurs.
Depreciation
Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant and equipment, less any estimated residual value, over its estimated useful life.
The cost of leasehold improvements (included in furniture and fittings) is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. The depreciation rate for motor vehicles is based on rates that will write down the cost of vehicles to their estimated residual value (40 percent of retail value at time of purchase) over 4 years.
The depreciation rates applied are:
Office equipment 20%
Office renovations 10-20%
Furniture and fittings 10%
Computer hardware 25%
Communications equipment 25%
Motor vehicles 16%
Leased assets 25%
Intangible Assets
Intangible assets costing more than $2,000 are capitalised and recorded at cost. The cost of an internally generated intangible asset represents expenditure incurred in the development phase of the asset only. The development phase occurs after the following can be demonstrated: technical feasibility; ability to complete the asset; intention and ability to use; and measurement of development expenditure. Expenditure incurred on research of an internally generated intangible asset is expensed when it is incurred. Where the research phase cannot be distinguished from the development phase, the expenditure is expensed when it is incurred.
Intangible assets with finite lives are subsequently recorded at cost less any amortisation and impairment losses. Amortisation is charged to the Statement of Financial Performance on a straight-line basis over the useful life of the asset.
The amortisation rates applied are:
Computer software 12.5-33%
Statement of Cash Flows
Cash means cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than 3 months from date of acquisition. Operating activities include cash received from all income sources of the Department and record the cash payments for the supply of goods and services. Investing activities are those activities relating to the acquisition and disposal of non-current assets. Financing activities comprise capital injections by, or repayment of capital to, the Crown.
Taxpayers' Funds
This is the Crown's net investment in the Department.
Changes in accounting policies
Accounting policies are changed only if the change is required by a standard or interpretation or otherwise provides more reliable and more relevant information. These prospective financial statements have been prepared in accordance with NZ IFRS. The resulting changes on transition to NZ IFRS are detailed in the Reconciliation of taxpayers' funds.
Comparatives
When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.
Related Parties
The Department is a wholly owned entity of the Crown. The Government significantly influences the roles of the Department as well as being a major source of revenue.
The Department enters into numerous transactions with other government departments, Crown agencies and state-owned enterprises on an arm's length basis. Where those parties are acting in the course of their normal dealings with the Department, related party disclosures have not been made for transactions of this nature. These transactions are conducted on an arm's length basis. Any transactions not conducted at arm's length will be disclosed in the financial statements.