General Publications
Department of Labour Annual Report 2006
Financial statements
Statement on the adoption of New Zealand equivalents to international financial reporting standards
Background
New Zealand accounting standard-setting bodies have announced that New Zealand reporting entities will be required to adopt New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) for financial years commencing after 1 January 2007. Differences between NZ IFRS and the current accounting standards mean that many reporting entities in New Zealand, including the Department, will account for and disclose some transactions differently.
The purpose of this statement is to outline the transitional requirements and the Department’s plans for the transition to NZ IFRS, and to highlight the key reporting changes that will affect the Department when it reports under NZ IFRS for the first time in the financial year beginning 1 July 2007.
Transitional requirements and plans
When publishing its first set of NZ IFRS compliant financial statements for the year ended 30 June 2008, the Department will be required to:
- restate all of the 30 June 2006 closing balances in the Statement of Financial Position that have been prepared under current accounting rules
- compile NZ IFRS compliant financial information for the period commencing 1 July 2006, which will be used as comparative information in the financial statements for the period ending 30 June 2008.
To prepare for the transitional requirements and to consider the implications of NZ IFRS, the Department has established a project team that reports to the Department’s Audit Committee on a quarterly basis. The Audit Committee has the overall governance responsibility for the oversight and review of the Department’s financial statements, including the transition to NZ IFRS.
Key reporting changes
During the 2005/06 financial year, the project team, in conjunction with external professional advisors, reviewed NZ IFRS to identify which standards are applicable and which standards will result in significant changes for the Department. The Department is a public benefit entity for the purposes of NZ IFRS and intends to take advantage of all available reporting exemptions.
In accordance with FRS 41: Disclosing the impact of adopting New Zealand equivalents to international financial reporting standards, the key areas where accounting policies will change and may have a material impact on the financial statements are:
Recognition of forward exchange contracts
Under NZ IAS 39: Financial instruments: recognition and measurement, the Department will recognise its forward exchange contracts in the Statement of Financial Position at fair value, with any changes in the fair value being recognised in the Statement of Financial Performance.
Currently, the forward exchange contracts and movements in value are not recognised in the financial statements. However, they are disclosed in the notes to the financial statements.
Sick leave
Under NZ IAS 19: Employee benefits, the Department will recognise accumulating sick leave as a liability. Accumulating sick leave is any sick leave which can be carried forward and can be used in future periods if the current period’s entitlement is not used in full. Currently, no liability for accumulating sick leave is recognised by the Department.
Inventories held for distribution
Under NZ IAS 2: Inventories, the Department will be required to recognise the brochures and publications that it gives away to the public as inventories held for distribution. Inventories held for distribution are assets:
- held for distribution at no or nominal consideration in the ordinary course of operations
- in the process of production for distribution at no or nominal consideration in the ordinary course of operations, or
- in the form of material or supplies to be consumed in the production process or in the rendering of services at no or nominal consideration.
The Department does not currently recognise as an asset the brochures and publications it freely distributes.
Cautionary note
The areas identified above should not be taken as an exhaustive list of all the differences between current accounting rules and NZ IFRS. None of the potential impacts of the adoption of NZ IFRS on the Department’s financial statements, including implementation cost, has yet been quantified and the impact could be material. In addition, NZ IFRS may change between the date of issuing these statements and the date of adoption.