General Publications
Department of Labour Annual Report 2006
Financial statements
Statement of accounting policies for the year ended 30 June 2006
Reporting Entity
The Department of Labour is a government department as defined by section 2 of the Public Finance Act 1989.
These are the financial statements of the Department of Labour prepared pursuant to the Public Finance Act 1989.
In addition, the Department has reported the trust monies and memorandum account which it administers, and separate schedules for non-departmental activities.
Measurement System
The financial statements have been prepared on a modified historical cost basis except for certain items, with specific accounting policies outlined below.
Accounting Policies
The following particular accounting policies, which materially affect the measurement of financial results and financial position, have been applied.
(a) Budget figures
The Budget figures are those presented in the Main Estimates and those amended by the Supplementary Estimates and any transfer made by Order in Council under the Public Finance Act 1989.
(b) Revenue
The Department derives revenue through the provision of outputs to the Crown, for immigration services, sale of publications to third parties and interest received from Westpac Trust and overseas bank accounts. Such revenue is recognised when earned and is reported in the financial period to which it relates.
(c) Fixed assets
Land and buildings are stated at fair value as determined by an independent registered valuer. Fair value is determined using market-based evidence. Freehold properties (land and buildings) in New Zealand and overseas are individually revalued on a three-yearly cycle.
The results of revaluing land and buildings are credited or debited to an asset revaluation reserve for that class of asset. Where a revaluation results in a debit balance in the revaluation reserve, the debit balance will be expensed in the Statement of Financial Performance.
Other fixed assets are recorded at cost less accumulated depreciation. Fixed assets forming part of a network which are material in aggregate, costing more than $5,000, are capitalised and recorded at cost.
Any write-down of an item to its recoverable amount is recognised in the Statement of Financial Performance.
(d) Depreciation
Depreciation is provided on a straight-line basis on all items of fixed assets, other than freehold land and items under construction, at a rate which will write off the cost (or valuation) of the assets to their estimated residual value over their useful lives.
Leasehold improvements are depreciated over the shorter of the unexpired period of the lease and the estimated useful life of the improvements.
The useful lives and associated depreciation rates of the major classes of assets have been estimated as follows:
| Buildings | 40 years | (2.5%) |
|---|---|---|
| Leasehold improvements | Up to 10 years | (10% to 100%) |
| Motor vehicles | 4 years | (25%) |
| Furniture and fittings: | ||
| Fixtures and fittings | Up to 10 years | (10% to 100%) |
| Carpets and drapes | 4 to 7 years | (14.3 to 25%) |
| Office equipment | 4 years | (25%) |
| Computer equipment: | ||
| Software | Up to 5 years | (20% to 100%) |
| Other | Up to 4 years | (25% to 100%) |
| Specialised equipment | 8 years | (12.5%) |
(e) Operating leases
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. The Department leases office premises and office equipment. Payments arising from operating lease commitments are charged against earnings in the periods in which they are incurred over the period of the lease.
(f) Finance leases
Leases that effectively transfer to the Department substantially all the risks and benefits incident to ownership of the leased items are classified as finance leases. These are capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments. The leased assets and the corresponding lease liabilities are recognised in the Statement of Financial Position. The leased assets are depreciated over the period the Department is expected to benefit from their use.
(g) Taxation
Government departments are exempt from the payment of income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax has been provided for.
(h) Goods and Services Tax (GST)
All items in the financial statements are exclusive of GST, with the exception of receivables and payables, which are stated as GST inclusive. Where GST is not recoverable as an input tax, then it is recognised as part of the related asset or expense.
(i) Debtors and receivables
Receivables are recorded at estimated realisable value after providing, where necessary, for doubtful and uncollectible debts.
(j) Foreign currencies
Transactions covered by forward exchange contracts are measured and reported at the forward rates specified in those contracts. All other foreign currency transactions are converted into New Zealand dollars at average rates for the month of the transaction, approximating the exchange rate at the date of the transaction.
At balance date, monetary assets and liabilities in foreign currencies are translated to New Zealand dollars at the closing exchange rate. The resulting unrealised exchange gain or loss is recognised in the Statement of Financial Performance. Other exchange gains or losses, whether realised or unrealised, are recognised in the Statement of Financial Performance in the period to which they relate.
(k) Financial instruments
The Department is party to financial instruments as part of its normal operations. These financial instruments include bank accounts, short-term deposits, debtors, creditors and foreign currency forward contracts. All revenues and expenses in relation to financial instruments are recognised in the Statement of Financial Performance.
Except for those items covered by a separate accounting policy, all financial instruments are shown at their estimated fair value.
The Department is exposed to currency risk and credit risk.
Currency risk
The Department operates foreign currency bank accounts to support the operations of the overseas branches of the Immigration Service. For business continuity reasons, balances of up to an average month’s expenses for each branch may be retained in the branch foreign currency bank account. All material foreign exchange transaction exposures arising in the normal course of business are identified as early as possible in the budgetary cycle. The Department may utilise forward contracts to hedge exposures when recognised. The Department has policies in place to limit foreign exchange exposure.
Credit risk
The risk that a bank with which funds are deposited will fail, or that a party with which future or current transactions are outstanding will not meet its obligations, is minimised by only opening accounts with banks following Treasury approval.
The Department deals only, where there is a choice, with banks that have a high credit standing. Exposure to any one counterparty is limited to NZ$5 million, including unsettled forward exchange contracts, bank account balances and contracts due for settlement on the day the exposure is calculated. This limit does not apply when the counterparty is the New Zealand Debt Management Office (NZDMO) or the Reserve Bank of New Zealand.
(l) Commitments
Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments (at the point a contractual obligation arises) to the extent that there are equally unperformed obligations. Commitments relating to employment contracts are not disclosed.
(m) Contingent liabilities and assets
Contingent liabilities and assets are disclosed at the point at which the contingency is evident.
(n) Cost accounting policies
The Department’s accounting systems record costs by outputs. The costs may be direct or indirect. Costs that can be causally linked and assigned to an output economically are direct costs. Costs incurred to produce more than one output are indirect costs. Indirect costs are allocated to outputs according to staff numbers, the amount of resource consumption or use. The direct costs of personnel, operating, depreciation and capital charge costs are assigned directly to outputs. Indirect costs are corporate costs that are mainly shared across all workgroups. For the year ended 30 June 2006, direct costs accounted for 81% of the Department’s costs (2005: 75%).
(o) Employee entitlements
Provision is made in respect of the Department’s liability for annual, long service and retirement leave. Annual leave and other entitlements that are expected to be settled within 12 months of reporting date are measured at nominal values on an actual entitlement basis at current rates of pay.
Entitlements that are payable beyond 12 months, such as long service leave and retirement leave, have been calculated on an actuarial basis on present value of expected future entitlements.
(p) Restructuring provisions
A provision for restructuring is recognised when the Department has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan; or announcing its main features to those affected by it.
(q) Taxpayers’ funds
This is the Crown’s net investment in the Department.
Changes in accounting policies
The Statement of Unappropriated Expenditure and the Statement of Departmental Expenditure and Appropriations were previously stated inclusive of GST. These are now stated exclusive of GST in accordance with an amendment to the Public Finance Act 1989. Refer to accounting policy (h) on GST. The comparative information has not been restated to exclude GST as approved appropriations for the 2005 financial year were made on a GST-inclusive basis and any restatement of the comparative information would not reflect those approved appropriations.
Except for the above, there have been no changes in accounting policies, including cost allocation accounting policies, since the date of the last audited financial statements. All policies have been applied on a basis consistent with other years.