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Accounting Policies

The forecast financial statements contained in the published Pre-Election Economic and Fiscal Update 2014 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) as defined in the Financial Reporting Act 2013.

Forecasts for the 2013/14 year have been prepared in accordance with NZ equivalents to International Financial Reporting Standards as appropriate for public benefit entities (NZ IFRS (PBE)). Forecasts for the 2014/15 year and beyond have been prepared in accordance with Public Sector PBE Accounting Standards (PBE IPSAS).

For the purposes of these forecast financial statements, the government reporting entity has been designated as a public benefit entity (PBE). Public benefit entities (PBEs) are reporting entities whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders. The forecast financial statements comply with FRS-42 (PBE): 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.

The description “consolidated financial statements for the Government reporting entity” and the description “financial statements for the Government of New Zealand” have the same meaning and can be used interchangeably.

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 separately identified.

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. A further area of uncertainty relates to the estimation of the claims and provisions arising from the Canterbury earthquakes.

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.

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

Early adoption of standards and interpretations

The New Zealand Accounting Standards Board has issued a new suite of accounting standards (called Public Sector PBE Accounting Standards) that will apply to the Financial Statements of Government for the financial year beginning 1 July 2014.

While these forecasts incorporate changes as a consequence of the new suite of standards for the 2014/15 year and beyond, the impact is not significant. This is due to a strong degree of convergence between the current NZ IFRS and the Public Sector PBE Accounting Standards.

The Government has adopted all NZ IFRSs and interpretations applicable to public benefit entities issued to date for the 2013/14 year, 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.

As the Government will be adopting PBE IPSAS 29: Financial Instruments: Recognition and Disclosure on 1 July 2014, the Crown has not early adopted NZ IFRS 9 in 2013/14, to reduce the risk of unnecessary accounting changes.

Reporting and forecast period

The reporting periods for these Forecast Financial Statements are the years ended 30 June 2014 to 30 June 2018.

The “2013 Actual” figures reported in the statements are the audited results reported in the Financial Statements of Government for the year ended 30 June 2013. The “2014 Previous Budget” figures are the original forecasts to 30 June 2014 as presented in the 2013 Budget. The “2014 Forecast” figures include an update of the operating results and expense forecasts using the 2013/14 pre-audited financial information of departments and other significant reporting entities.

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 and 4A of the Public Finance Act 1989
  • Organisations listed in Schedule 5 of the Public Finance Act 1989
  • Legal entities listed in Schedule 6 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 2013. This treatment recognises these entities' net assets, including asset revaluation movements, surpluses and deficits.

The basis of combination for a joint venture depends on the form of the joint venture.

Accounting policies

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

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