The Crown's Balance Sheet - An Overview
The accounting basis of Crown balance sheet reporting
Since 1992, the Crown's balance sheet as reported in the Financial Statements of the Government has been based on GAAP using accrual accounting. New Zealand was one of the first countries in the world to use GAAP for Government financial reporting. Prior to 1992 only accounts showing the cash inflows and outflows from the Crown had been prepared.
The GAAP reporting conventions balance the costs of producing the information against the benefit and aim of capturing all the information required for a relevant and reliable picture of an organisation's finances and risks. This means that the Crown's reported balance sheet does not always recognise assets or liabilities that are intangible, contingent, prospective or implicit, some of which have a potentially significant impact on the Crown's financial position. For example, in respect of risks, recent Treasury modelling has indicated that around 70% of the Crown's financial risk is sourced from changes in the economy feeding into tax and spending, with the remainder attributable to valuation changes in conventional assets and liabilities (Treasury Working Paper 09/06). These “off balance sheet” issues are discussed in more detail at the end of Section 3 (“What's not on the balance sheet?”) and in Section 4 on balance sheet risks.
GAAP also allows the use of various measurement approaches including depreciated cost, replacement value or some form of market value all of which can give different results for the value of reported assets. Other features of the Crown's reported balance sheet include:
- It is accrual based, where accrued or deferred revenues and expenses are shown in the balance sheet, as accounts receivable or accounts payable for instance.
- Potential inflows or outflows that are contingent on a particular future event, which is not considered probable, are not reported on the balance sheet but noted as either contingent assets or liabilities. If the potential flows are implicit, rare or difficult to measure then they may be entirely off balance sheet.
- Almost all Crown-controlled entities are consolidated line by line with any related transactions eliminated. A few entities are reported as equity investments.
- Local authorities are not included in the Financial Statements of the Government because they are separate entities not controlled by central government.
- See http://www.treasury.govt.nz/government/financialstatements/yearend/jun10
- Timothy Irwin and Oscar Parkyn (2009) “Improving the Management of the Crown's Exposure to Risk”, New Zealand Treasury Working Paper 09/06. See http://www.treasury.govt.nz/publications/research-policy/wp/2009/09-06
- Under the accrual concept, transactions and other events are recognised when they occur regardless of the timing of the related cash receipts and payments.