Report of the Auditor-General

To the Readers of the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2012

I have audited the financial statements of the Government of New Zealand (the Government) for the year ended 30 June 2012 using my staff, resources and appointed auditors and their staff.

The financial statements of the Government on pages 34 to 173 comprise:

• The annual financial statements that include the statement of financial position as at 30 June 2012, the statement of financial performance, analysis of expenses by functional classification, statement of comprehensive income, statement of changes in net worth and statement of cash flows for the year ended on that date, a statement of segments and the notes to the financial statements that include accounting policies, a statement of borrowings in note 24, and other explanatory information; and
• The statement of unappropriated expenditure, statement of expenses or capital expenditure incurred in emergencies and statement of trust money.

Opinion

In my opinion, the financial statements of the Government on pages 34 to 173:

• comply with generally accepted accounting practice in New Zealand; and
• fairly reflect the Government's
  • financial position as at 30 June 2012;
  • financial performance and cash flows for the year ended on that date; and
  • borrowings as at 30 June 2012, and unappropriated expenditure, expenses or capital expenditure incurred in emergencies, and trust monies managed by the Government, for the year ended on that date.

Emphasis of matter - uncertainties due to the Canterbury earthquakes

Without modifying my opinion, I draw your attention to note 30 to the financial statements about the effects of the Canterbury earthquakes. The most significant effects of the earthquakes relate to the Earthquake Commission (EQC), the Southern Response Earthquake Services Limited (Southern Response) support package, the Canterbury residential red zone support package, and the Government's share of local authority costs in response to the earthquakes and its share for restoring local authority water infrastructure damaged by the earthquakes.

The note describes:

• the inherent uncertainties involved in estimating EQC's and Southern Response's earthquake related outstanding claims liabilities and reinsurance receivables, using actuarial assumptions (see notes 30a and 30d);
• the inherent uncertainties involved in estimating the provision and associated insurance recoveries resulting from the Government's offer to purchase properties in the Canterbury residential red zone, using actuarial assumptions (see note 30c); and
• the high level of uncertainty associated with the Government's share of costs for restoring local authority water infrastructure damaged by the earthquakes (see note 30b).

I consider the disclosures about the uncertainties related to the Canterbury earthquakes to be adequate.

My audit was completed on 28 September 2012. This is the date at which my opinion is expressed.

The basis of my opinion is explained below. In addition, I outline the responsibilities of the Treasury and the Minister of Finance, and my responsibilities, and I explain my independence.

Basis of opinion

Using my staff and appointed auditors and their staff, I have carried out the audit in accordance with the Auditor-General's Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require ethical requirements to be complied with. They also require me to plan and carry out the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

Material misstatements are differences or omissions of amounts and disclosures that would affect a reader's overall understanding of the financial statements. If material misstatements had been found that were not corrected, I would have referred to them in my opinion.

An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgements of my staff and appointed auditors and their staff. Also the procedures depend on my judgement, including my assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments I consider internal control relevant to the Treasury's preparation of the financial statements that fairly reflect the matters to which they relate. I consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Treasury's internal control.

An audit also involves evaluating:

• the appropriateness of accounting policies used and whether they have been consistently applied;
• the reasonableness of the significant accounting estimates and judgements made;
• the adequacy of all disclosures in the financial statements; and
• the overall presentation of the financial statements.

My staff and appointed auditors and their staff did not examine every transaction. Therefore, I do not guarantee complete accuracy of the financial statements. I have obtained all the information and explanations I have required and I believe I have obtained sufficient and appropriate audit evidence to provide a basis for my audit opinion.

Responsibilities of the Treasury and the Minister of Finance

The Treasury is responsible for preparing financial statements for the Government that:

• comply with generally accepted accounting practice in New Zealand;
• fairly reflect the Government's financial position, financial performance and cash flows; and
• fairly reflect the Government's borrowings, unappropriated expenditure, expenses or capital expenditure incurred in emergencies, and trust money.

The Treasury is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Minister of Finance is responsible for forming an opinion that the financial statements fairly reflect the financial position and financial performance of the Government.

The responsibilities of the Treasury and the Minister of Finance arise from the Public Finance Act 1989.

Responsibilities of the Auditor

I am responsible for expressing an independent opinion on the financial statements and reporting that opinion to you based on my audit. My responsibility arises from section 15 of the Public Audit Act 2001 and section 30 of the Public Finance Act 1989.

Independence

As an Officer of Parliament, I am constitutionally and operationally independent of the Government and in exercising my functions and powers under the Public Audit Act 2001 as the auditor of public entities, I have no relationship with or interests in the Government.

Lyn Provost
Controller and Auditor-General

Wellington, New Zealand