Reporting Entity
The Ministry of Economic Development is a government department as defined by the Public Finance Act 1989.
The forecast financial statements are prepared pursuant to the Public Finance Act 1989, and cover all the activities of the Ministry of Economic Development including Votes: Economic, Industry and Regional Development; Commerce; Communications; Consumer Affairs; Energy; and Tourism.
In addition, the Ministry has reported the Crown activities that it administers.
The forecast financial statements have been prepared for the special purpose of the 2007/2008 Statement of Intent of the Ministry of Economic Development. They are not prepared for any other purpose and should not be relied upon for any other purpose. These forecast statements will be used in the Annual Report as the budgeted figures. It is not intended to update the forecast financial statements subsequent to presentation to Parliament.
Statement of Compliance
These forecast financial statements have been prepared in accordance with New Zealand generally accepted accounting practice. They comply with New Zealand equivalents to IFRS (NZ IFRS), New Zealand Financial Reporting Standards No. 42 - Prospective Financial Statements, and other applicable Financial Reporting Standards, as appropriate for public benefit entities. For the 2007/2008 year the statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for public benefit entities. This is the Ministry of Economic Development's first SOI forecast financial statements complying with NZ IFRS, and NZ IFRS 1 has been applied. Other comparative years comply with generally accepted accounting practice prior to application of NZ IFRS.
Presentation
These forecast financial statements are presented in New Zealand dollars rounded to the nearest thousand.
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. Actual results may differ from these estimates.
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.
Revenue
The Ministry derives revenue through the provision of outputs to the Crown and for services to third parties. Such revenue is measured at the fair value of consideration received and 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.
Expenditure
Expenses are recognised in the financial period to which they relate.
Cost Allocation
The Ministry has derived costs shown in these forecast statements using a costing system which will directly charge 82 per cent of 2007/2008 actual costs and indirectly allocate the remaining 18 per cent.
Direct costs are those attributable to outputs on the basis of resource consumption. Costs which bear no direct relationship to outputs are classified as indirect. These indirect costs are confined to corporate support costs.
The following are the cost drivers employed to assign direct and indirect costs to outputs for the major cost groupings:
| Cost Groupings |
Cost Driver |
| Direct Costs |
|
| Accommodation |
Amount of floor space occupied |
| Cafeteria administration |
Staff numbers |
| Depreciation on leasehold improvements |
Amount of floor space occupied |
| Depreciation on furniture and fittings |
Amount of floor space occupied |
| Other personnel and operating |
Direct charging |
| Indirect Costs |
|
| Corporate overheads and time |
Assessed usage, staff numbers |
Inventories
Inventories are stated at the lower of cost (calculated on a first in first out basis) or net realisable value.
Operating Leases
The Ministry leases office premises and office equipment, mainly photocopiers. As all the risks and rewards of ownership are retained by the lessor, these leases are classified as operating leases. Operating lease costs are recognised in a systematic manner over the term of the lease. Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter. Lease incentives are recognised evenly over the term of the lease as a reduction in rental expense.
Property, Plant and Equipment
Items of property, plant and equipment costing $2,000 (excluding GST) or more are capitalised and are initially recorded at cost. Apart from leasehold improvements, the carrying amounts of property, plant and equipment are reviewed annually to determine if there is any indication of impairment. Where an asset's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the Statement of Financial Performance, unless the asset is carried at a revalued amount in which case any impairment loss is first treated as a revaluation decrease.
Leasehold improvements are stated at net current values determined by an independent registered valuer. Leasehold improvements are revalued at least every five years or whenever the carrying amount differs materially to fair value.
Accumulated depreciation at revaluation date may be either restated proportionately or eliminated against the gross carrying amount so that the carrying amount after revaluation equals the revalued amount. The elimination approach is applied unless otherwise indicated.
Realised gains arising from sales of property, plant and equipment are recognised in the Statement of Financial Performance in the period in which the transaction occurs. Unrealised gains arising from changes in the value of property, plant and equipment are recognised at balance date. To the extent gains reverse losses previously charged to the Statement of Financial Performance, the gains are credited to the Statement of Financial Performance. Otherwise, gains are credited to an asset revaluation reserve for that class of assets.
Realised losses arising from sale of property, plant and equipment are recognised in the Statement of Financial Performance in the period in which the transaction occurs.
Unrealised losses arising from changes in the value of property, plant and equipment are recognised in the period in which they occur. Unrealised losses are first applied against the revaluation reserve for that class of asset. The balance, if any, is charged to the Statement of Financial Performance.
Depreciation
Depreciation of property, plant and equipment, other than leasehold improvements and work in progress, is provided on a straight line basis so as to allocate the depreciable amount of assets over their useful lives. The depreciable amount is the cost or revalued amount (deemed to be cost upon transition to NZ IFRS), less the residual value. The estimated useful lives are:
| Buildings |
20 years |
| Computer hardware |
4 years |
| Furniture and fittings |
5 years |
| Office equipment |
5 years |
| Testing equipment |
10 years |
| Motor vehicles |
5 years |
All property, plant and equipment other than motor vehicles ($5,000) are assumed to have no residual value.
The cost (or valuation) of leasehold improvements is capitalised and amortised over the unexpired period of the lease.
Capital work in progress is recognised as costs are incurred. Depreciation is not recorded until the asset is fully operational.
Intangible Assets
Intangible assets are initially recorded at cost. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. 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 sell or use; and development expenditure can be reliably measured. 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.
Bespoke software (custom built in-house major registry applications) developed in-house (including work undertaken by IT outsource partners) with a total development cost of under $20,000 (GST exclusive) is expensed. In these cases any expenditure is to be treated as "software - minor enhancements". Other items of computer software costing $5,000 (excluding GST) or more are capitalised and recorded initially at cost.
Amortisation
Intangible assets with finite lives are subsequently recorded at cost less any amortisation and impairment losses. Amortisation of intangible assets is charged to the Statement of Financial Performance on a straight line basis so as to allocate the carrying value of the assets over their useful lives. The estimated useful lives are:
| Computer software |
4 years |
Intangible assets with finite lives are reviewed at least annually to determine if there is any indication of impairment. Any intangible asset with an indefinite life is also tested for impairment annually. Where an intangible asset's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the Statement of Financial Performance, unless the asset is carried at a revalued amount in which case the impairment is treated as a revaluation decrease.
Taxation
The Ministry of Economic Development, as an institution of the Crown, is not required to pay income tax in terms of the Income Tax Act 2004.
Goods and Services Tax (GST)
The Statement of Financial Position is exclusive of GST, except for Payables and Receivables which are GST inclusive. All other statements are GST exclusive.
The amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between Output GST and Input GST, is included in Creditors and payables, or Receivables and advances (as appropriate).
Provision for Employee Entitlements
Provision is made in respect of the Ministry's liability for annual leave, long service leave and retirement leave. Annual leave is recognised as it accrues to employees at current rates of pay. Long service leave and retirement leave are determined on an actuarial basis based on the present value of expected future entitlements.
Employee entitlements to be settled within 12 months are reported at the amount expected to be paid.
Financial Instruments
Designation of financial assets and 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. The Ministry is party to financial instruments as part of its normal operations. Apart from foreign currency forward contracts, all financial instruments are recognised in the Statement of Financial Position, and all revenues and expenses in relation to financial instruments are recognised in the Statement of Financial Performance.
Except for those items covered by a separate accounting policy, all financial instruments are shown at their estimated fair value.
Financial Assets
Receivables and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recognised initially at fair value plus transaction costs. No discounting is applied, as the effect is not material. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the asset is impaired.
Cash and cash equivalents include cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than three months from date of acquisition.
Financial Liabilities
Financial liabilities are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method if material. Financial liabilities entered into with duration 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.
The Ministry enters into foreign currency forward contracts to hedge currency transactions. Any exposure to gains or losses on those contracts is generally offset by a related loss or gain on the monetary asset or liability being hedged.
Statement of Cash Flows
The following are definitions of the terms used in the Statement of Cash Flows:
- cash means coins, notes and current accounts;
- investing activities are those activities relating to the acquisition and disposal of non-current assets;
- financing activities comprise changes in the capital structure; and
- operating activities include all transactions and other events that are not investing or financing activities.
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
Contingent liabilities are disclosed at the point at which the contingency is evident.
Taxpayers' Funds
This is the Crown's net investment in the Ministry.
International Financial Reporting Standards
The Ministry's forecast financial statements for the year ended 30 June 2008 reflect compliance with NZ IFRS for the balances as at 30 June 2008. The Ministry has applied NZ IFRS 1 in preparing these forecast financial statements.
In preparing these forecast financial statements in accordance with NZ IFRS 1, the Ministry has applied the mandatory exemptions and certain optional exemptions from full retrospective application of NZ IFRS.
Exemptions from Full Retrospective Application Elected by the Ministry
- Fair value as deemed cost exemption
The Ministry has elected to measure Leasehold Improvements at fair value following a valuation from a registered valuer as at 30 June 2006 and to use that fair value as the deemed cost at and from that date.
Reconciliation of Equity
There are no significant impacts on the Departmental and Non-Departmental Statements of Financial Position for the transition from previous NZ GAAP to NZ IFRS for estimated actuals as at 30 June 2007.
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.
There have been no significant changes in accounting policies on transition to NZ IFRS.