Notes to the Financial Statements
Note 1: Summary of Accounting Policies
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. These financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for public benefit entities.
These financial statements were authorised for issue by the Minister of Finance on 28 September 2012.
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. 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 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 financial statements they are described below and in the following notes.
Early Adoption 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 will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. The first of three phases of this new standard has been completed and has been published in the new financial instrument standard NZ IFRS 9 (2010). This standard addresses the issues of classification and measurement of financial assets and financial liabilities and becomes effective for annual reporting periods commencing on or after 1 January 2015.
