NOTES TO THE DEPARTMENTAL FINANCIAL STATEMENTS

1 Reporting entity

The Department of Labour is a government department as defined by section 2 of the Public Finance Act 1989 and is domiciled in New Zealand. The Department's principal activities are outlined in the Statement of Service Performance on pages 34 to 61.

The Department also administers trust monies and memorandum accounts for the sale of visas and permits and the provision of HSE levy-funded services. This report also covers those activities as well as various non-departmental activities as outlined in the schedules on pages 91 to 100.

For the purposes of financial reporting the Department is a public benefit entity as defined in NZ IAS 1: Presentation of Financial Statements.

2 Basis of preparation

(a) Statement of compliance

These financial statements and schedules have been prepared pursuant to the Public Finance Act 1989 and in accordance with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for public benefit entities.

Standards, amendments and interpretations issued but not yet effective and have not been early-adopted and which are relevant to the Department include:

• NZ IAS 1: Presentation of Financial Statements (revised 2007) replaces NZ IAS 1: Presentation of Financial Statements (issued 2004) and is effective for reporting periods beginning on or after 1 January 2009. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in equity resulting from transactions with the Crown in its capacity as "owner" separately from "non-owner" changes. The revised standard gives the Department the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The Department expects that it will apply the revised standard for the first time for the year ended 30 June 2010, and has yet to decide whether it will prepare a single statement of comprehensive income or a separate income statement followed by a statement of comprehensive income.

Other standards, amendments and interpretations issued but not yet effective which are not relevant to Department and/or will have no impact on the Department's financial statements are:

• NZ IFRS 4: Insurance Contracts - Amendments (approved 2007)
• NZ IFRS 5: Non-current Assets Held for Sale and Discontinued (approved 2009)
• NZ IFRS 7: Financial Instruments: Disclosures (approved 2009)
• NZ IFRS 8: Operating segments (approved 2006)
• NZ IAS 7: Statement of Cash Flows (approved 2009)
• NZ IAS 23: Borrowing costs (approved 2007)
• NZ IAS 32: Financial Instruments: Presentation (approved 2008)
• NZ IAS 36: Impairment of Assets (approved 2009)
• NZ IAS 38: Intangible Assets (approved 2009)
• NZ IAS 39: Financial Instruments: Recognition and Measurement (approved 2009)
• NZ IFRIC 13: Customer Loyalty Programmes (approved 2007)

The financial statements were authorised for issue by the Chief Executive on 24 September 2009.

(b) Basis of measurement

The measurement base applied to the financial statements is historical cost modified by the revaluation of certain items of property, plant and equipment and the revaluation of forward exchange contracts.

(c) Reporting period and currency

The reporting period for these financial statements is the year ended 30 June 2009. The budget figures are those presented in the Main Estimates on 22 May 2008 and those amended by the Supplementary Estimates on 28 May 2009 and any transfers made by Order in Council under the Public Finance Act 1989.

The reporting currency used in the preparation of these financial statements is New Zealand dollars rounded to the nearest thousand.

(d) Use of judgements and estimates

The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results may differ from these estimates.

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 a significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in the notes to the financial statements.

Note 17 provides an analysis of the Department's insurance liability in the ACC Partnership Programme.

Note 18 provides the key assumptions used in determining the estimates for Long Service leave and Retirement leave.

Note 19 contains an estimate for Redundancy which is expected to be paid out in the financial year 2009/10.

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Revenue

Crown funding

Funding from the Crown for the supply of Departmental services is recognised on a straight line basis over the financial period for which the appropriation is approved.

Rendering of services

Revenue from applications for processing visas and permits is recognised by reference to the stage of completion at the balance sheet date. Application fees received in advance of any service provided are recognised as deferred revenue in the Statement of Financial Position.

Interest revenue

Interest earned from Westpac Trust and overseas bank accounts is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(b) Expenses

Grants and subsidies

Where grants and subsidies are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled and notice has been given to the Department.

Capital charge

The capital charge represents a charge by the Crown on the Department's taxpayer funds as at 30 June and 31 December each year. The capital charge is recognised as an expense in the period to which the charge relates.

Income tax

The Department is exempt from the payment of income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax is recognised.

(c) 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 and that are shared across several work groups such as corporate costs are indirect costs. Indirect costs are allocated to outputs according to staff numbers, the amount of resource consumption, or use. There have been no changes in cost accounting policies, since the date of the last audited financial statements.

(d) 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.

(e) Foreign currency

Transactions in foreign currencies are translated to New Zealand dollars at the average rates for the month of the transaction, approximating the exchange rate at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies at balance date are translated to New Zealand dollars at the foreign exchange rate at balance date. Foreign exchange gains or losses arising from translation of monetary assets and liabilities are recognised in the Statement of Financial Performance.

(f) Financial instruments

Cash and cash equivalents

Cash and cash equivalents include cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than three months from the date of acquisition.

Debtors and other receivables

Receivables are recognised initially at fair value and subsequently measured at amortised cost. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the receivable is impaired. Impairment losses are recognised in the Statement of Financial Performance.

Creditors and other payables

Creditors and other payables represent liabilities for goods and services provided to the Department prior to the end of the financial year which are unpaid. These are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.

(g) Inventories

Inventories held for distribution for public benefit purposes such as freely available publications and brochures as well as the inventory of visa labels are recorded at the estimate of lower of cost or current replacement cost.

(h) Property, plant and equipment

Items of property, plant and equipment are initially recorded at cost. Cost includes expenditure that is directly attributable to the acquisition of the item. Any borrowing costs incurred during the period required to complete and prepare the asset for its intended use are expensed. Subsequent to acquisition, items of property, plant and equipment (excluding land and buildings) are stated at cost less accumulated depreciation and impairment.

Subsequent to acquisition land and buildings are measured at fair value less depreciation accumulated since the assets were last revalued. The fair value of land and buildings is based on an independent valuation prepared by external valuation experts. Land and buildings are valued at least every three years or whenever the carrying amount differs materially to fair value. Unrealised gains and losses arising from changes in the fair value of land and buildings are recognised at the balance date. To the extent that a gain reverses a loss previously charged to the Statement of Financial Performance for the asset class, the gain is credited to the Statement of Financial Performance. Otherwise, gains are credited to an asset revaluation reserve for that class of asset. To the extent that there is a balance in the asset revaluation reserve for the asset class any loss is debited to the reserve. Otherwise, losses are reported in the Statement of Financial Performance.

The carrying amounts of property, plant and equipment are reviewed at least annually to determine if there is any indication of impairment. Where an item's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the Statement of Financial Performance, unless the item is land and buildings in which case any impairment loss is treated as a revaluation decrease.

Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant and equipment, less any estimated residual value, over its estimated useful life. Typically, the estimated useful lives of different classes of property, plant and equipment are as follows:

• Buildings 15 to 40 years
• Leasehold improvements 1 to 10 years
• Motor vehicles 6 years
• Furniture and fittings
  • Fixtures and fittings 1 to 10 years
  • Carpets and drapes 4 to 7 years
  • Office equipment 4 years
• Specialised equipment 8 years

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, which ever is the shorter.

Realised gains and losses arising from the disposal of property, plant and equipment are recognised in the Statement of Financial Performance in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to Taxpayer's Funds.

(i) Intangible assets - computer software

Computer software is initially recorded at cost. The cost of internally generated computer software represents expenditure incurred in the development phase of the software only. The development phase occurs after the following can be demonstrated: technical feasibility; ability to complete the asset; intention and ability to sell or use the asset; and development expenditure can be reliably measured. Expenditure incurred on research of an internally generated intangible asset is expensed when it is incurred. Where the research phase cannot be distinguished from the development phase, the expenditure is expensed when it is incurred.

Subsequent to acquisition all computer software is recorded at cost less any amortisation and impairment losses. Amortisation is charged to the Statement of Financial Performance over the useful life of the asset (not more than 5 years).

Computer software is reviewed annually to determine if there is any indication of impairment. Where the software's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the Statement of Financial Performance.

(j) Employment entitlements

Pension liabilities

Obligations for contributions to the State Services Retirement Savings Scheme and the Government Superannuation Fund are recognised in the Statement of Financial Performance as they fall due. Any reimbursement of these costs from the State Services Commission is recognised as revenue in the Statement of Financial Performance.

Other employment entitlements

Employee entitlements for salaries and wages, annual leave, long service leave, retiring leave, sick leave and other similar benefits are recognised in the Statement of Financial Performance when they accrue to employees. Employee entitlements to be settled within 12 months are reported at the amount expected to be paid. The liability for long-term employee entitlements is reported as the present value of the estimated future cash outflows.

Termination benefits

Termination benefits are recognised in the Statement of Financial Performance only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.

(k) Insurance contracts - ACC partnership programme

Obligations for managing workplace injury claims under the ACC Partnership Programme are recognised as a liability in the Statement of Financial Position. The liability is revalued annually based on an actuarial valuation. Movements in the liability are recognised in the Statement of Financial Performance.

(l) Leases

Finance leases transfer to the Department as lessee substantially all the risks and rewards incident on the ownership of the leased items. Initial recognition of a finance lease results in an asset and liability being recognised at amounts equal to the lower of the fair value of the leased property or the present value of the minimum lease payments. The capitalised values are amortised over the period in which the Department expects to receive benefits from their use.

Operating leases, where the Department is a lessee and the lessor substantially retains the risk and rewards of ownership, are recognised in a systematic manner over the term of the lease. Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

(m) Provisions

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.

Redundancy Provisions

A provision for redundancy is recorded at the best estimate of the expenditure required to settle the obligation.

Other provisions

Other provisions are recorded at the best estimate of the expenditure required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.

(n) Taxpayer's funds

Taxpayer's funds represent the Crown's net investment in the Department and is measured as the difference between total assets and total liabilities. Taxpayers' funds is disaggregated and classified as general funds and property, plant and equipment revaluation reserves.

(o) Contingent assets and contingent liabilities

Contingent liabilities and contingent assets are recorded in the Statement of Contingent Liabilities and Contingent Assets at the point at which the contingency is evident. Contingent liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.

(p) 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.

Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the statement of commitments at the value of that penalty or exit cost.

(q) Related party transactions

The Department's key management personnel are defined as the Secretary for Labour, the Deputy Secretaries and the Department's third tier managers as defined in the Department's Delegations Framework. All these personnel have authority and the primary responsibility for planning, directing, and controlling the activities of the Department.

(r) Comparatives

When presentation or classification of items in the financial statements are amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.

4 Revenue Department

Actual 2008 $000		Actual 2009 $000
-	Ministry of Economic Development: Energy Safe	300
2,377	State Services Commission - State Sector Retirement Savings Scheme	2,099
	State Services Commission - KiwiSaver	139
	IRD - AMS Employer Tax Credit Claim	154
236	MFAT - Pacific Security Fund Project	169
-	MFAT - Pacific Immigration Directors Conference	649
	Ministry of Health - Partnership Resource Centre (Recovery)	166
869	Ministry of Social Development - Refugee Services	806
3,482	Total revenue Department	4,482

5 Revenue other

Actual 2008 $000		Actual 2009 $000
107,818	Immigration fees	112,325
-	Immigration Advisers Authority	229
1,186	Other	1,290
109,004	Total revenue other	113,844

6 Finance income

Actual 2008 $000		Actual 2009 $000
259	Interest income on cash at bank	252
939	Realised/unrealised foreign exchange gains	1,013
1,198	Total finance income	1,265

7 Employee benefits

Actual 2008 $000		$000
127,576	Salaries and wages	145,813
3,218	Employer contributions to defined contribution schemes	3,761
2,283	Increase/decrease in employee entitlements	1,508
133,077	Total employee benefits	151,082

8 Capital charge

The Department pays a capital charge to the Crown on its taxpayers' funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2009 was 7.5% (2008:7.5%).

9 Other operating costs

Actual 2008 $000		Actual 2009 $000
	Fees to auditors
312	Audit fees for the financial statement audit	286
20	Audit fees for NZ IFRS transition	-
21,905	Operating lease payments	26,142
34	Net loss on disposal of property, plant and equipment	242
3,936	Other property related costs	4,069
23	ACC Partnership Programme (note 18)	27
16,653	Information systems & communication costs	18,394
28,016	Professional services	30,257
10,306	Immigration services direct operating costs	10,855
1,505	Inventories distributed and consumed	506
31,905	Other operating costs	31,531
114,615	Total other operating costs	122,309

10 Finance expenses

Actual 2008 $000		Actual 2009 $000
13	Bad debts written off	17
13	Total finance expenses	17

11 Debtors and other receivables

Actual 2008 $000		Actual 2009 $000
	Current
18,548	Debtor Crown	9,000
3,216	Other debtors	3,250
21,764	Total debtors	12,250
(13)	Less: provision for doubtful debts	(10)
21,751	Total current receivables	12,240
	Non-current
-	Debtors and other receivables	400
	Total non-current Receivables	400
21,751	Total debtors and other receivables	12,640

The carrying value of debtors and other receivables approximates their fair value.

The non-current portion of Debtors and other receivables relate to bonds given to property owners to secure offshore rental accommodation and offices.

12 Inventories

Actual 2008 $000		Actual 2009 $000
68	Publications and brochures held for distribution	69
534	Visa labels	431
602	Total inventories	500

No inventories are pledged as security for liabilities.

13 Property, plant and equipment

	Land $000	Buildings$000	* Furniture and fittings $000	Specialised equipment $000	Motor vehicles $000	Total $000
Cost or valuation
Balance at 1 July 2007	2,714	1,405	40,274	845	6,949	52,187
Additions	-	-	16,866	-	748	17,614
Other asset movement	-	-	(6,664)	-	-	(6,664)
Disposals	-	-	(33)	-	(382)	(415)
Balance at 30 June 2008	2,714	1,405	50,443	845	7,315	62,722
Balance at 1 July 2008	2,714	1,405	50,443	845	7,315	62,722
Additions	-	-	11,483	29	1,925	13,437
Other asset movement	-	-	(4,599)	-	-	(4,599)
Revaluation increase	588	282	-	-	-	870
Disposals	-	-	(6,774)	(185)	(1,454)	(8,413)
Balance at 30 June 2009	3,302	1,687	50,553	689	7,786	64,017
Accumulated depreciation and impairment losses			24,280	388	2,682	27,360
Balance at 1 July 2007	-	10	4,654	102	797	5,588
Depreciation expense	-	35	(9)	-	(244)	(253)
Eliminate on disposal	-	-	28,925	490	3,235	32,695
Balance at 30 June 2008	-	45	28,925	490	3,235	32,695
Balance at 1 July 2006	-	45	5,886	103	817	6,876
Depreciation expense	-	70	(6,621)	(185)	(839)	(7,645)
Eliminate on disposal	-	-				(76)
Eliminate on revaluation		(76)	28,190	408	3,213	31,850
Balance at 30 June 2009	-	39
Carrying amounts
At 1 July 2007	2,714	1,395	15,994	457	4,267	24,827
At 1 July 2008	2,714	1,360	21,518	355	4,080	30,027
At 30 June 2009	3,302	1,648	22,363	281	4,573	32,167

* Furniture and fittings includes leasehold improvements, office equipment, EDP equipment and furniture.

In accordance with the Department's asset management plan at 30 June 2009, the Department intends to sell and replace various motor vehicles worth $0.536 million (2008: $0.572 million). These vehicles do not meet the criteria for 'held for sale' as they are still in use and not yet marketed for sale. In accordance with NZ IAS 1: Presentation of Financial Statements the value of these motor vehicles has been recorded as a current asset as it is intended they will be realised within the next 12 months of the balance sheet date.

Land and buildings in Suva were revalued at fair value as at 13 May 2009, by an independent registered valuer, Ramesh Behari, of Fairview Valuations. Land and buildings at the Mangere Resettlement Centre in Auckland were revalued at fair value as at 10 February 2009, by an independent registered valuer, Richard S Arlidge, of Tse Wall Arlidge.

The total amount of property, plant and equipment in the course of construction is $2.815million (2008: $3.123 million).

The net carrying amount of plant and equipment held under finance leases is Nil (2008: Nil).

14 Intangible assets

	Acquired software $000	Internally generated software $000	Total $000
Cost
Balance at 1 July 2007	7,353	33,416	40,769
Additions	-	4,145	4,145
Balance at 30 June 2008	7,353	37,561	44,914
Balance at 1 July 2008	7,353	37,561	44,914
Additions	6,143	1,045	7,188
Balance at 30 June 2009	13,496	38,606	52,102
Accumulated amortisation and impairment losses
Balance at 1 July 2007	3,139	22,318	25,457
Amortisation expense	-	5,494	5,494
Balance at 30 June 2008	3,139	27,812	30,951
Balance at 1 July 2008	3,139	27,812	30,951
Amortisation expense	681	3,858	4,539
Balance at 30 June 2009	3,820	31,670	35,490
Carrying amounts
At 1 July 2007	4,214	11,098	15,312
At 1 July 2008	4,214	9,749	13,963
At 30 June 2009	9,676	6,936	16,612

There are no restrictions over the title of the Department's intangible assets, nor are any intangible assets pledged as security for liabilities.

15 Creditors and other payables

Actual 2008 $000		Actual 2009 $000
20,722	Creditors and accrued expenses	18,302
11,768	Income in advance	14,499
554	GST payable	803
19,040	Provision for repayment of surplus to the Crown	6,785
52,084	Total creditors and other payables	40,389

Creditors and payables are non-interest bearing and are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates their fair value.

The repayment of surplus is required to be paid by 31^st October of each year.

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