NOTES TO THE NON-DEPARTMENTAL FINANCIAL STATEMENTS

1 Reporting entity

These non-departmental schedules and statements present financial information on public funds managed by the Department on behalf of the Crown.

These non-department balances are consolidated into the Financial Statements of the Government. For a full understanding of the Crown's financial position, results of operations and cash flows for the year, reference should also be made to the Financial Statements of the Government.

2 Basis of preparation

(a) Statement of compliance

The non-departmental schedules and statements have been prepared in accordance with the Government's accounting policies as set out in the Financial Statements of the Government, and in accordance with relevant Treasury Instructions and Treasury Circulars.

Measurement and recognition rules applied in the preparation of these non-departmental schedules and statements are consistent with New Zealand generally accepted accounting practice as appropriate for public benefit entities.

The schedules and statements are prepared using NZ IFRS.

Standards, amendments and interpretations issued but not yet effective and have not been early-adopted and which are relevant 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.

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.

(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 6 provides the key assumptions used in determining the estimates for Long Service leave and Retirement leave.

3 Significant accounting policies

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

The following particular accounting policies have been applied:

(a) Revenue - levies

Levy revenue includes the Health and Safety in Employment Levy and the Migrant Levy, which are legislated under the Health and Safety in Employment Act 1992 (section 59) and the Immigration Act 1987 (section 149B) respectively. Revenue from levies is recognised as revenue when the obligation to pay the levy is incurred.

(b) Grant expenditure

Non-discretionary grants are those grants awarded if the application meets the specified criteria and are recognised as expenditure when an application that meets the specified criteria for the grant has been received.

Discretionary grants are those grants where the Department has no obligation to award on receipt of the grant application and are recognised as expenditure when approved by the grants approvals committee and the approval has been communicated to the applicant.

(c) Goods and Services Tax (GST)

All items in the financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. In accordance with Treasury instructions, GST is returned on revenue received on behalf of the Crown, where applicable. However, an input tax deduction is not claimed on non-departmental expenditure. Instead, the amount of GST applicable to non-departmental expenditure is recognised as a separate expense and eliminated against GST revenue on the consolidation of the Government financial statements.

(d) Debtors and other receivables

Debtors and other 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 schedule of non-departmental expenses.

(e) Derivatives

Forward exchange contracts are recognised at fair value as either assets or liabilities with fair value gains or losses recognised in the Statement of Financial Performance. Further details on these contracts and the objectives for entering into forward exchange contracts are provided in note 7.

(f) Employment entitlements

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.

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.

(g) Commitments

Future expenses and liabilities to be incurred on non-cancellable contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations. 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.

(h) Changes in accounting policies

There have been no changes in accounting policies since the date of the last audited financial statements. All policies have been applied on a basis consistent with other years.

Notes to schedules

4 Debtors and other receivables

Actual 2008 $000		Actual 2009 $000
1,302	Debtors and receivables	11,139
544	Prepayments	661
1,846	Total debtors and other receivables	11,800

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

5 Creditors and other payables

Actual 2008 $000		Actual 2009 $000
894	Creditors	1,620
-	Income in advance	-
633	GST payable	824
1,527	Total creditors and other payables	2,444

Creditors and other 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.

6 Provisions for employee entitlements

Actual 2008 $000		Actual 2009 $000
	Current liabilities
373	Annual leave	374
373	Total current	374
	Non-current liabilities
11	Long service leave	14
206	Retirement leave	222
217	Total Non-current liabilities	236
590	Total provisions for employee entitlements	610

An independent actuarial valuation was undertaken by Melville Jessup Weaver as at 30 June 2009 to estimate the present value of retirement leave and long service leave. The key assumptions used in determining the present values were:

• Discount rate for the 2009 financial year 5.6% p.a. (2008: 6.7% p.a.).
• Salary growth rate for the 2009 financial year 3.0% p.a. (2008: 3.5% p.a.).

Any changes in these assumptions will impact on the carrying amount of the liability. In determining the appropriate discount rate the Department consider the interest rates on NZ government bonds which have terms to majority that match, as closely as possible, to the estimated future cash outflows. The salary inflation factor has been determined after considering historical salary inflation patterns and after obtaining advice from an independent actuary.

If the discount rate were to lower/higher by 1% from the Department's estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $ 0.010 million higher/lower.

If the salary inflation factor were to lower/higher by 1% from the Department's estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $ 0.010 million higher/lower.

7 Derivative financial instruments

The notional principal amount of outstanding forward exchange contracts at 30 June 2009 was CHF 1 million (2008: NIL).

The fair value of forward exchange contract has been determined using quoted market rates provided by the New Zealand Debt Management Office (NZDMO).

8 Vote ACC

Funding is provided by the Government through the Department of Labour to ACC for costs relating to the Non-Earners Account. The Non-Earners Account covers all personal injuries to people not in the paid workforce- students, beneficiaries, older people and children. The Non-Earners Account also funds injuries for non-earners sustained as a result of medical treatment through the Treatment Injury Account.

For claims that originated after 1 July 2001, ACC funding is provided based on an actuarial assessment of the whole-of-life cost. This is reassessed annually and funding appropriated from the Crown and provided to ACC. This is referred to as 'fully funded' and cost $1,097.958 million in 2009 [2008: $755.388 million].

For claims that originated prior to 1 July 2001, ACC funding is provided to cover the costs relating to claims in the year the costs are incurred. The cost of this is actuarial assessed and appropriation sought from the Crown and funding provided to ACC. This is referred to as 'pay as you go' and, in 2009, cost $135.500 million [2008: $112.594 million].

9 Events after the balance sheet date

There were no events occurring between year-end and the signing of the financial statements that would have a significant effect on these financial statements.

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