Note 1: Summary of Accounting Policies (continued)
Significant Accounting Policies
Reporting and Forecast Period
The reporting and forecast period for the financial statements of the Government of New Zealand is the financial year from 1 July to 30 June.
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 financial statements combine the following entities using the acquisition method of combination:
Core Crown 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 financial statements. 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 asset.
- 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.
Income
Taxation revenue levied through the Crown's sovereign power
The Government provides many services and benefits that do not give rise to revenue. Further, payment of tax does not of itself entitle a taxpayer to an equivalent value of services or benefits, since there is no relationship between paying tax and receiving Crown services and transfers. Such revenue is received through the exercise of the sovereign power of the Crown in Parliament.
Tax revenue is recognised when a taxable event has occurred and the tax revenue can be reliably measured. The taxable event is defined as follows:
| Revenue type | Revenue recognition point |
|---|---|
| Source deductions | When an individual earns income that is subject to PAYE |
| Resident withholding tax (RWT) | When an individual is paid interest or dividends subject to deduction at source |
| Fringe benefit tax (FBT) | When benefits are provided that give rise to FBT |
| Provisional tax | When assessed income is earned during the taxation period |
| Terminal tax | Assessment filed date |
| Goods and services tax (GST) | When the purchase or sale of taxable goods and services occurs during the taxation period |
| Customs and excise duty | When goods become subject to duty |
| Road user charges and motor vehicle fees | When payment of the fee or charge is made |
| Stamp, cheque and credit card duties | When the liability to the Crown is incurred |
| Exhaustible resources levy | When the resource is extracted |
| Other indirect taxes | When the debt to the Crown arises |
| Levies (eg, ACC levies) | When the obligation to pay the levy is incurred |
The New Zealand tax system is predicated on self-assessment where taxpayers are expected to understand the tax laws and comply with them. Inland Revenue has implemented systems and controls (eg, performing audits of taxpayer records) in order to detect and correct situations where taxpayers are not complying with the various acts it administers.
Revenue earned through operations
Revenue from the supply of goods and services to third parties is measured at the fair value of consideration received. Revenue from the supply of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from the supply of services is recognised on a straight-line basis over the specified period of the services unless an alternative method better represents the stage of completion of the transaction.
Interest income
Interest income is accrued using the effective interest rate method.
The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income each period.
Dividend income
Dividend income from investments is recognised when the Government's rights as a shareholder to receive payment have been established.
Rental income
Rental income is recognised in the statement of financial performance on a straight-line basis over the term of the lease. Lease incentives granted are recognised evenly over the term of the lease as a reduction in total rental income.
Donated or subsidised assets
Where an asset is acquired for nil or nominal consideration, the fair value of the asset received is recognised as income in the statement of financial performance.
