Notes to the Financial Statements

Note 1: Summary of Accounting Policies

Statement of compliance

These financial statements are prepared in accordance with the Public Finance Act 1989 and with New Zealand generally accepted accounting practice (NZ GAAP). For this purpose, the Government Reporting entity is designated as a public benefit entity. The financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for public benefit entities. These are the first set of annual audited financial statements of the Government prepared in accordance with NZ IFRS.

The Financial Statements were authorised for issue by the Minister of Finance on 30 September 2008.

Reporting entity

The consolidated financial statements for the Government Reporting entity (financial statements of the Government of New Zealand), 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 of the Government” have the same meaning and can be used interchangeably.

Basis of preparation

The financial statements have been prepared on the basis of historic cost modified by the revaluation of certain assets and liabilities.

The financial statements are prepared on an accrual basis.

The financial statements are presented in New Zealand dollars rounded to the nearest million, unless separately identified.

Judgements and estimations

The preparation of these financial statements 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.

Where these judgments significantly affect the amounts recognised in the financial statements they are described below and in the following notes.

Early adoption of standards and interpretations

The Government has elected to adopt the following Standards and Interpretations in advance of their effective dates:

• NZ IFRS 3 Business Combinations amendments with consequential amendments to other standards revising the application of the acquisition method (effective for reporting periods beginning on or after 1 January 2009)
• NZ IFRS 2 Share Based Payments amendment relating to vesting conditions and cancellations (effective for reporting periods beginning on or after 1 January 2009)
• NZ IAS 32 Financial Instruments: Presentation amendments relating to puttable instruments and obligations arising on liquidation (effective for reporting periods beginning on or after 1 January 2009)
• NZ IFRIC 12 Service Concession Arrangements (effective for reporting periods beginning on or after 1 January 2008)
• NZ IFRIC 13 Customer Loyalty Programmes (effective for reporting periods beginning on or after 1 July 2008), and
• NZ IFRIC 14/ IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for reporting periods beginning on or after 1 January 2008).

The adoption of these standards and interpretations has had no impact on these financial statements of the Government.

Standards and interpretations not yet adopted

At the date of authorisation of these financial statements, other than the Standards and Interpretations adopted by the Government in advance of their effective dates (as described above) the following amended standards and interpretations were issued but not yet effective:

• NZ IAS 1 (Amended) Presentation of Financial Statements requiring a statement of comprehensive income (effective from 1 January 2009)
• NZ IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009), and
• NZ IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009).

NZ IAS 1 is a presentation Standard which will result in changes in presentation and a number of additional disclosures but which is not expected to impact on the operating balance, net worth or other key fiscal indicators of the Government.

Public benefit entities are not required to comply with the requirements of NZ IFRS 8 and therefore this standard will not impact on the financial statements. These financial statements continue to show segmental information as appropriate for a Government Reporting entity.

The revision to NZ IAS 23 requiresdirectly attributable borrowing costs relating to qualifying assets to be capitalised. Application of this revised standard will increase the depreciation expense, reduce the interest expense reported in the statement of financial performance and increase the reported carrying values of tangible assets and the net worth of the Government. The amounts involved depend on a variety of assumptions required to be made and therefore it is not possible to reasonably estimate the financial impact of this change.