Independent accounting standards

The Act requires that the financial statements (and financial forecasts) of the Government and each individual department be prepared in accordance with generally accepted accounting practice (GAAP) in New Zealand. GAAP is an objective and independent set of rules that governs the recognition and measurement of financial elements such as assets, liabilities, revenues and expenses. For example, GAAP requires that expenses and revenue be shown separately except in the limited circumstances where GAAP permits offsets.

The financial reporting standards that are the core of GAAP in New Zealand are approved by the Accounting Standards Review Board (ASRB) – an independent body established by the Government. The ASRB approves standards for application by both the public and private sectors.

The Government uses independently established rules for financial reporting in order to give users of reports a high level of confidence in the relevance and reliability of the information. The alternative, the Government setting its own standards, was rejected because of the credibility issues that this would raise.

Notwithstanding the special characteristics of Government, the Government applies the same financial reporting standards as applied by other reporting entities in New Zealand. This means that public sector financial statements can be more readily understood by a wide range of people. It has also allowed the Government to recruit accountants from the private sector and enhanced the ability of accountants to move from one sector to the other.

The approval of New Zealand equivalents to International Financial Reporting Standards by the ASRB in 2004 has led to even greater harmonisation of New Zealand’s financial reporting standards with international standards.

Comparability

As discussed above, the accrual basis of accounting and the associated GAAP rules on recognition and measurement guide the preparation of financial statements, budgets and forecast financial statements, and the associated parliamentary authorisation of budgets. The consistent application of the same accounting rules and policies between these sets of financial information permit direct comparisons between forecast and actual results and information over time.

GAAP requires that entities disclose the accounting policies applied and details of any changes in policies from the previous reporting period. This enhances the comparability of information between entities.

Independent audit

Public sector organisations are accountable to Parliament for their use of public resources and the exercise of powers conferred by Parliament. As part of its accountability requirements, Parliament seeks independent assurance that public sector organisations are operating, and accounting for their performance, in accordance with Parliament’s intentions.

The Auditor-General provides this independent assurance to both Parliament and the public.

Offices of Parliament

There are currently three Offices of Parliament as defined in the Public Finance Act: the Office of the Controller and Auditor-General, the Parliamentary Commissioner for the Environment and the Office of the Ombudsmen.

The requirements of the Act in relation to departments are modified slightly to acknowledge that Offices of Parliament act on behalf of Parliament. For example, the Speaker of the House of Representatives is the Responsible Minister in respect of an Office of Parliament[2] and the appropriation requests of Offices of Parliament are commended by way of an address by the House of Representatives to the Governor General. (Sections 2(1) and 26E).

Intelligence and security departments

There are currently two intelligence and security departments:

• the New Zealand Security Intelligence Service, and
• the Government Communications Security Bureau.

The requirements of the Act in relation to these departments are modified to address needs of national security. For example, intelligence and security departments present one aggregated appropriation request.