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Budget 2013 Home Page Budget Economic and Fiscal Update 2013

Accounting Policies

The forecast financial statements contained in the published Budget Economic and Fiscal Update 2013 are based on the following accounting policies:

Statement of compliance

These forecast financial statements have been prepared in accordance with the Public Finance Act 1989 and with New Zealand Generally Accepted Accounting Practice (NZ GAAP). The accounting policies applied in the forecast financial statements were the same as those applied in the audited, actual financial statements of the Government for the year ended 30 June 2012.

For the purposes of these forecast financial statements, the government reporting entity has been designated as a public benefit entity. The forecast financial statements comply with FRS-42: Prospective Financial Statements and NZ GAAP as it relates to prospective financial statements.

Reporting entity

The Government reporting entity as defined in section 2(1) of the Public Finance Act 1989 means:

  • the Sovereign in right of New Zealand, and
  • the legislative, executive, and judicial branches of the Government of New Zealand.

Basis of preparation

These forecast financial statements have been prepared on the basis of historic cost modified by the revaluation of certain assets and liabilities, and prepared on an accrual basis, unless otherwise specified (for example, the statement of cash flows).

The forecast financial statements are presented in New Zealand dollars rounded to the nearest million, unless otherwise specified.

Judgements and estimations

The preparation of these forecast financial statements requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. For example, the present value of large cash flows that are predicted to occur a long time into the future, as with the settlement of ACC outstanding claim obligations and Government Superannuation retirement benefits, depends critically on judgements regarding future cash flows, including inflation assumptions and the risk free discount rate used to calculate present values.

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.

A second area of uncertainty relates to the relative immature nature of the claims experience available to assist in estimating the claims and provisions arising from the Canterbury earthquakes. Actuarial valuations of these liabilities using the best available information have been used, however it is common in such cases for adjustments to be required as the claims experience develops.

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.

Where these judgements significantly affect the amounts recognised in the forecast financial statements they are described below.

Early adoption of standards and interpretations

From 1 July 2011 no NZ IFRS or amendments to existing NZ IFRS applicable to public benefit entities have been issued as a consequence of recent decisions on the new Accounting Standard Framework. The Government has adopted all NZ IFRSs and Interpretations applicable to public benefit entities issued prior to that date, with the exception of NZ IFRS 9: Financial Instruments, approved in 2010.

NZ IFRS 9 becomes effective for annual reporting periods commencing on or after 1 January 2015. Under the proposed new accounting framework for public sector entities, currently expected to be finalised prior to that date, the proposed accounting standard for recognition and measurement of financial instruments will be based on IPSAS 29: Financial Instruments: Recognition and Disclosure. The Crown has not early adopted NZ IFRS 9 to reduce the risk of unnecessary accounting changes through this period.

The New Zealand Accounting Standards Board has proposed a new suite of accounting standards (called Public Sector PBE Accounting Standards) that would apply to the Financial Statements of Government. This proposal is expected to be finalised later this year. These forecasts do not incorporate any of the changes proposed in moving to the new suite of standards. At the broad level the impact of moving from NZ IFRS to PBE Standards is not expected to be particularly significant as there is a strong degree of convergence between IFRS and IPSAS, and therefore between the current NZ IFRS and the proposed Public Sector PBE Standards.

Reporting and forecast period

The reporting period for these Forecast Financial Statements is the year ended 30 June 2013 to 30 June 2017.

The "2012 Actual" figures reported in the statements are the audited results reported in the Financial Statements of Government for the year ended 30 June 2012. The "2013 Previous Budget" figures are the original forecasts to 30 June 2013 as presented in the 2012 Budget. The "2013 Forecast" figures incorporate actual financial results up to either 28 February 2013 or 31 March 2013, and a forecast for the remainder of the financial year.

Where necessary, the financial information for state-owned enterprises and Crown entities that have a balance date other than 30 June has been adjusted for any transactions or events that have occurred since their most recent balance date and that are significant for the Government's financial statements. Such entities are primarily in the education sector.

Basis of combination

These forecast financial statements combine the following entities using the acquisition method of combination:

Core entities

  • Ministers of the Crown
  • Government departments
  • Offices of Parliament
  • the Reserve Bank of New Zealand
  • New Zealand Superannuation Fund

Other entities

  • State-Owned Enterprises
  • Crown entities (excluding tertiary education institutions)
  • Air New Zealand Limited
  • Organisations listed in Schedule 4 of the Public Finance Act 1989
  • Companies listed in Schedule 5 of the Public Finance Act 1989

Corresponding assets, liabilities, income and expenses, are added together line by line. Transactions and balances between these sub-entities are eliminated on combination. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Government reporting entity.

Tertiary education institutions are equity-accounted for the reasons explained in the notes to the Government's financial statements for the period ended 30 June 2012. This treatment recognises these entities' net assets, including asset revaluation movements, surpluses and deficits.

The basis of combination for joint ventures depends on the form of the joint venture:

  • Jointly controlled operations: The Government reporting entity recognises the assets it controls, the liabilities and expenses that it incurs, and its share of the jointly controlled operations' income
  • Jointly controlled assets: The Government reporting entity recognises its share of the jointly controlled assets, its share of any liabilities and expenses incurred jointly, any other liabilities and expenses it has incurred in respect of the jointly controlled asset, and income from the sale or use of its share of the output of the jointly controlled assets; and
  • Jointly controlled entities: Jointly controlled entities are equity accounted, whereby the Government reporting entity initially recognises its share of interest in these entities' net assets at cost and subsequently adjusts the cost for changes in net assets. The Government reporting entity's share of the jointly controlled entities' surpluses and deficits are recognised in the statement of financial performance.

Accounting policies

The accounting policies set out below have been applied consistently to all periods in the Budget Update.

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