3 Accounting policies for external financial reporting by the Government
3.1 Introduction
This section of the Treasury Instructions details the accounting policies for inclusion in the external financial statements of the Government for the year ended 30 June 2012.
3.2 Reporting entity
The consolidated financial statements for the Government reporting entity as defined in the Act must be prepared in accordance with the requirements of the Act.
Government reporting entity, as defined in section 2(1) of the Act, 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.
3.2.1 Public benefit entity
For the purposes of financial reporting the Government of New Zealand is a public benefit entity.
3.3 General accounting policies
The Financial Statements of the Government of New Zealand must comply with generally accepted accounting practice.
The measurement base to be applied is historic cost modified by the revaluation of certain assets and liabilities.
Financial statements are to be prepared on an accrual basis.
The financial statements are to be presented in New Zealand dollars rounded to the nearest million, unless separately identified.
3.4 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 claims 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 relative 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.
Where material, information on the major assumptions used in preparing the financial statements must be provided in the relevant accounting policy or the relevant note.
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.
Judgements that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year must be discussed in the notes.
