STATEMENT OF INTENT 2006/2007

PART B – FORECAST OF PERFORMANCE FOR 2006/2007

FORECAST FINANCIAL STATEMENTS FOR THE YEAR ENDING 30 JUNE 2007

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

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 reported in the financial period to which it relates.

Property, plant and equipment

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 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 expressed in the statement of financial performance.

Fixed Assets are recorded at cost or valuation, less accumulated depreciation. Land and buildings in New Zealand and overseas are recorded at fair value less depreciation. All other fixed assets, or groups of 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.

Depreciation

Depreciation is provided on a straight-line basis on all 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 to be: buildings 40 years (2.5%), leasehold improvements up to 10 years (up to 10%), furniture and fittings up to 10 years (up to 10%), carpets and drapes 4 to 7 years (14.3 to 25%), office equipment 4 years (25%), software up to 5 years (up to 20%) other up to 4 years (up to 25%) and specialised equipment 8 years (12.5%).

Operating leases

Leases where the lessor effectively and substantially retains all the risks and benefits of ownership of the leased items are classified
as operating leases. The Department leases office premises, computer 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.

Taxation

Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax has been provided.

Goods and Services Tax (GST)

The Statement of Financial Performance, Statement of Movement in Taxpayers’ Funds, Statement of Cash Flows, Statement of Commitments, Memorandum Account and the Statements of Objectives are exclusive of GST. The Statement of Financial Position is also exclusive of GST except for creditors and payables and debtors and receivables, which are GST inclusive. The amount of GST owing to or from, the Inland Revenue Department at balance date, being the difference between output GST and input GST, is included in creditors and payables or debtors and receivables (as appropriate).

Debtors and receivables

Receivables are recorded at expected realisable value after providing, where necessary, for doubtful debts.

Foreign currencies

Foreign currency transactions are converted into New Zealand dollars at a rate approximating the exchange rate at the date of the transaction.

Transactions covered by forward exchange contracts are measured and reported at the forward rates specified in those contracts. Consequently, no exchange gain or loss resulting from the difference between the forward exchange contract rate and the spot rate on date of settlement is recognised.

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.

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. This includes the investment of funds not immediately required for expenditure by the Insolvent Insurers Fund, as required by Section 275 of the Accident Insurance Act 1998 and retained by the provisions in Part 10 of the Injury Prevention Rehabilitation Compensation Act 2001.
All financial instruments are recognised in the Statement of Financial Position and 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 Immigration New Zealand. Funding of these accounts is limited to the amounts necessary to enable the settlement of transactions as they fall due. 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 use 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 as follows. 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.

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 they are equally unperformed obligations. Commitments relating to employment agreements are not disclosed.

Fair value

Estimated fair values of the Department’s financial assets and liabilities at 30 June 2006 equate with the carrying amounts reflected in these financial statements.

Cost accounting policies

Costs that can be causally linked and assigned to an output class economically are direct costs. Costs incurred to produce more than one output class are indirect costs, which are allocated to outputs according to the amount of resource consumption or use.

The Department’s accounting systems record costs by output class. The costs may be direct or indirect. The direct costs of personnel, operating, depreciation and capital charge costs are assigned directly to outputs. There are two types of indirect costs that are allocated to outputs:

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.

Adoption of New Zealand International Financial Reporting Standards (NZ IFRS)

New Zealand accounting standard-setting bodies have announced that New Zealand reporting entities should adopt for external financial reporting purposes International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. As these standards are developed internationally, with their primary focus on profit-orientated entities, New Zealand accounting standard-setters have reviewed and revised these standards to make them applicable to New Zealand public benefit reporting entities. The revised standards are known as NZ IFRS.

NZ IFRS must be applied by public benefit entities for accounting periods beginning on or after 1 January 2007. However, entities have the option of adopting the standards earlier if they wish. The Department intends to adopt NZ IFRS for external reporting purposes for the accounting period commencing 1 July 2007.

Under the requirements of the Public Finance Act, the Department’s annual planning documents must be prepared on a basis consistent with that of the Annual Report prepared for the same period. Therefore, in adopting NZ IFRS within the timeframe identified for annual reporting purposes, the Department will be adopting NZ IFRS in its Statement of Intent for the period commencing 1 July 2007.