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3 Financial Statements for the Ministry for the Environment
Performance Indicators for the Year Ended 30 June 2007
View performance indicators for the year ended 30 June 2007 (large table)
Statement of Financial Performance for the Year Ended 30 June 2007
View statement of financial performance for the year ended 30 June 2007 (large table)
The accompanying accounting policies and notes form part of these financial statements.
Statement of Financial Position as at 30 June 2007
View statement of financial position as at 30 June 2007 (large table).
The accompanying accounting policies and notes form part of these financial statements.
Statement of Movements in Taxpayers’ Funds for the Year Ended 30 June 2007
View statement of movements in taxpayers’ funds for the year ended 30 June 2007 (large table).
The accompanying accounting policies and notes form part of these financial statements.
Statement of Cash Flows for the Year Ended 30 June 2007
View statement of cash flows for the year ended 30 June 2007 (large table).
The accompanying accounting policies and notes form part of these financial statements.
Reconciliation of Net Operating Surplus to Net Cash Flow from Operating Activities for the Year Ended 30 June 2007
| Actual 30/06/2006 $000 |
Actual 30/06/2007 $000 |
|
|---|---|---|
|
1,902 |
Net surplus from operations |
676 |
|
Add non-cash items |
||
|
558 |
Depreciation |
582 |
|
Add non-cash provision |
||
|
9 |
Increase/(decrease) in provisions for employee entitlements |
340 |
|
Add/(less) movements in working capital items |
||
|
(74) |
Decrease/(increase) in pre-payments |
(22) |
|
1,656 |
Decrease/(increase) in debtors and receivables |
(558) |
|
1,945 |
Increase/(decrease) in creditors and payables |
399 |
|
Add/(less) investing activity |
||
|
(10) |
Net loss/(gain) on sale of fixed assets |
3 |
|
5,986 |
Net cash flow from operating activities |
1,420 |
The accompanying accounting policies and notes form part of these financial statements.
Statement of Commitments as at 30 June 2007
The commitments disclosed below include amounts for both accommodation and operating leases in Wellington, Christchurch and Auckland.
Operating commitments include lease payments for premises, telephone contracts and maintenance of contracts for the Ministry’s computer systems. All commitments are disclosed at current rental rates.
| 30/06/2007 $000 |
30/06/2006 $000 |
|
|---|---|---|
|
Operating and accommodation lease commitments (GST exclusive) |
||
|
Not later than one year |
10,377 |
9,396 |
|
Later than one year but not later than two years |
5,601 |
2,762 |
|
Later than two years but not later than five years |
14,252 |
6,179 |
|
Later than five years |
17,320 |
4,008 |
|
Total operating and lease commitments |
47,550 |
22,345 |
|
Capital commitments |
0 |
0 |
|
Total commitments |
47,550 |
22,345 |
The accompanying accounting policies and notes form part of these financial statements.
Statement of Contingencies as at 30 June 2007
There were no contingent liabilities as at 30 June 2007. (2006: Nil)
The accompanying accounting policies and notes form part of these financial statements.
Statement of Unappropriated Expenditure for the Year Ended 30 June 2007
Departmental appropriations
Departmental output classes were produced within appropriation (30 June 2006: no unappropriated expenditure).
Non-departmental appropriations
The Ministry has incurred no unappropriated expenditure during the 2006/07 year.
The accompanying accounting policies and notes form part of these financial statements.
Statement of Departmental Expenditure and Appropriations for the Year Ended 30 June 2007
The accompanying accounting policies and notes form part of these financial statements.
Statement of Non-Departmental Expenditure and Appropriations for the Year Ended 30 June 2007
The movement in the Kyoto Protocol Liability reflects a re-measurement in the provision for the Crown’s liability under the Kyoto Protocol. The re-measurement in the provision takes account of the revision in the price for Kyoto-compliant emission units, the re-estimation of the net emission position, and movements in the $US/$NZ exchange rate.
In accordance with Section 4(2)(a) of Part One of the Public Finance Amendment Act 2004, changes in assets and liabilities due to re-measurement do not require appropriations.
The accompanying accounting policies and notes form part of these financial statements.
Statement of Accounting Policies for the Year ended 30 June 2007
Reporting entity
The Ministry for the Environment is a Government department as defined in the Public Finance Act 1989.
These are the financial statements of the Ministry for the Environment prepared pursuant to the Public Finance Act 1989.
In addition, the Ministry has reported the Crown activities it administered.
Measurement system
The financial statements have been prepared on the basis of historical cost.
Accounting policies
The following particular accounting policies, which materially affect the measurement of financial results and financial position, have been applied.
(i) Budget and appropriation figures
The Budget and appropriation figures are those presented in the Budget Night Estimates (Main Estimates) and those amended by the Supplementary Estimates and any transfer made by Order in Council under the Public Finance Act 1989 (Supplementary Estimates).
(ii) Revenue
The Ministry derived revenue through the provision of outputs to the Crown and for services to third parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.
(iii) Cost allocation
The Ministry derived the costs of outputs using a cost allocation system, which is outlined below.
Cost allocation policy
Direct costs are charged directly to the Ministry’s outputs. Indirect costs are charged to outputs based on a primary cost driver of salaried full-time equivalents. There were no material changes to the cost allocation model during the 2006/07 year.
Criteria for direct and indirect costs
‘Direct costs’ are those costs directly attributed to an output. ‘Indirect costs’ are those costs that cannot be directly associated with a specific output.
Direct costs assigned to outputs
All direct operating costs are charged directly to outputs. Direct personnel costs are charged on the basis of the full-time equivalents that are directly attributable to an output. For the year ended 30 June 2007, direct costs accounted for 73% of the Ministry’s costs (2006: 68%).
Indirect costs assigned to outputs
All indirect costs are assigned to outputs on a percentage basis calculated on the number of full-time equivalents per output. For the year ended 30 June 2007, indirect costs accounted for 27% of the Ministry’s costs (2006: 32%).
(iv) Debtors and receivables
Debtors and receivables are recorded at estimated realisable value, after providing for doubtful debts.
(v) 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. Operating lease expenses are recognised on a systematic basis over the period of the lease.
(vi) Plant and equipment
All fixed assets are recorded at cost less accumulated depreciation. Fixed assets are recognised as individual items costing $1,500 (GST exclusive) or more, which have a useful life greater than one year.
(vii) Depreciation
Depreciation of fixed assets is calculated on a straight-line basis so as to allocate the cost of the assets, over their useful lives.
The estimated useful lives of the assets are:
| Useful life (years) |
Depreciation rate (%) |
|
|---|---|---|
|
Furniture and fittings |
5–8 |
12.5–20 |
|
Office equipment |
5 |
20 |
|
Computer software |
3 |
33 |
|
Computer hardware |
3 |
33 |
The cost of leasehold improvements (included in furniture and fittings) is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. Items classified as furniture and fittings but not deemed to be part of leasehold improvements are depreciated over their useful lives.
Losses and gains on disposal of fixed assets are taken into account in determining the operating result for the year.
(viii) Employee entitlements
Provision is made in respect of the Ministry’s liability for annual leave, long-service leave and retirement leave. Annual leave has been calculated on an actual entitlement basis at current values of pay. All annual leave is expected to be settled within 12 months of the reporting date.
Long-service leave and retirement leave have been calculated on an actuarial basis, based on the present value of expected future entitlements. These have been provided for in the Statement of Financial Position.
(ix) Statement of cash flows
Cash means cash balances on hand and cash held in bank accounts.
Operating activities include cash received from all income sources of the Ministry and record the cash payments made for the supply of goods and services.
Investing activities are those activities relating to the acquisition and disposal of non-current assets.
Financing activities comprise capital injections by, or repayment of capital to, the Crown.
(x) Financial instruments
The Ministry for the Environment is party to financial instrument arrangements as part of its normal operations. All financial instruments are recognised in the Statement of Financial Position and all revenues and expenses relating to financial instruments are recognised in the Statement of Financial Performance. The Ministry for the Environment has not entered into any off-balance sheet transactions.
The following methods and assumptions were used to value each class of financial instrument:
-
accounts receivable are recorded at expected realisable value
-
all other financial instruments including cash at bank and accounts payable are recognised at their estimated fair value.
(xi) Goods and Services Tax (GST)
All statements are GST exclusive, except where otherwise stated. Creditors and payables and Debtors and receivables in the Statement of Financial Position are stated inclusive of GST. The GST payable or receivable at balance date is included in Creditors and payables or Debtors and receivables.
(xii) Taxation
The Ministry is exempt from income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax has been provided for.
(xiii) 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 yet to be performed.
(xiv) Contingencies
Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident.
(xv) Taxpayers’ funds
Taxpayers’ funds are the Crown’s net investment in the Ministry.
(xvi) 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.
(xvii) Comparatives
When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current year.
The accompanying accounting policies and notes form part of these financial statements.
Notes to the Financial Statements for the Year Ended 30 June 2007
1. Other revenue
| Actual 30/06/2006 $000 |
Actual 30/06/2007 $000 |
Main estimates 30/06/2007 $000 |
Supplementary estimates 30/06/2007 $000 |
|
|---|---|---|---|---|
|
413 |
Departmental |
467 |
428 |
428 |
|
398 |
Other |
281 |
5 |
297 |
|
13 |
Gain on sale of fixed assets |
6 |
5 |
5 |
|
824 |
Total other revenue |
754 |
438 |
730 |
2. Personnel costs
Personnel costs include expenditure and provisions for salaries, wages, annual leave, retirement and long-service leave.
3. Operating expenses
View operating expenses (large table).
4. Depreciation
| Actual 30/06/2006 $000 |
Actual 30/06/2007 $000 |
Main estimates 30/06/2007 $000 |
Supplementary estimates 30/06/2007 $000 |
|
|---|---|---|---|---|
|
233 |
Furniture and fittings |
221 |
262 |
225 |
|
25 |
Office equipment |
24 |
39 |
25 |
|
31 |
Computer software |
93 |
209 |
100 |
|
269 |
Computer hardware |
244 |
239 |
175 |
|
558 |
Total depreciation charge |
582 |
749 |
525 |
5. Capital charge
The Ministry pays a capital charge to the Crown on its average Taxpayers’ Funds as at 31 December and 30 June each year. The capital charge rate for the year ended 30 June 2007 was 7.5% (2006: 8.0%).
6. Debtors and receivables
| Actual 30/06/2007 $000 |
Actual 30/06/2006 $000 |
|
|---|---|---|
|
Trade debtors |
235 |
320 |
|
Less provision for doubtful debts |
0 |
0 |
|
GST receivable |
996 |
353 |
|
Total debtors and receivables |
1,231 |
673 |
7. Fixed assets
View fixed assets (large table).
Work in progress as at 30 June 2007 relates to:
(i) the development of the New Zealand Carbon Accounting System which will assist New Zealand in assessing its compliance with the Kyoto Protocol
(ii) the development of a Contract Management System.
8. Creditors and payables
| Actual 30/06/2007 $000 |
Actual 30/06/2006 $000 |
|
|---|---|---|
|
Trade creditors |
6,747 |
5,124 |
|
Accruals |
2,616 |
3,840 |
|
Fixed asset payable |
110 |
78 |
|
Total creditors and payables |
9,473 |
9,042 |
9. Employee entitlements
| Actual 30/06/2007 $000 |
Actual 30/06/2006 $000 |
|
|---|---|---|
|
Current employee entitlements |
||
|
Annual leave and retention/refresher leave |
917 |
702 |
|
Retirement and long-service leave |
103 |
113 |
|
Total current employee entitlements |
1,020 |
815 |
|
Non-current employee entitlements |
||
|
Retirement and long-service leave |
754 |
619 |
|
Total non-current employee entitlements |
754 |
619 |
|
Total employee entitlements |
1,774 |
1,434 |
The retirement and long-service leave were valued by Aon Consulting as at 30 June 2007. The major assumptions used in the actuarial valuation were:
-
a discount rate has been used by finding the weighted averages of returns on government stock of different terms as at 30 June 2007. The rates used range from 6.27 per cent to 7.37 per cent depending on the term of the liability for each employee
-
a salary growth rate of 3.8 per cent for the first year and then a long-term annual rate of salary growth of 3 per cent per year
-
a promotional salary scale derived from the experience of New Zealand superannuation schemes.
10. Provision for repayment of surplus to the Crown
The balance in the provision for repayment of surplus to the Crown for the current year is the gain on sale of fixed assets and surplus from operations.
11. Financial instruments
The Ministry is party to financial instrument arrangements as part of its everyday operations. These include instruments such as bank balances, investments, accounts receivable and accounts payable.
Credit risk
Credit risk is the risk that a third party will default on its obligations to the Ministry, causing the Ministry to incur a loss. In the normal course of business, the Ministry incurs credit risk from accounts receivable and transactions with financial institutions.
The Ministry does not require collateral or other security to support financial instruments with credit risk, as the Ministry deals with financial institutions which have high credit ratings. For its other financial instruments, the Ministry does not have significant concentrations of credit risk.
Fair value
The fair value of all financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.
Currency and interest rate risk
Currency risk is the risk that debtors and creditors due in foreign currency will fluctuate because of changes in foreign exchange rates. The Ministry has no significant exposure to currency risk on its financial instruments.
Interest rate risk is the risk that the Ministry’s return on the funds it has invested will fluctuate because of changes in market interest rates. Under the Public Finance Act 1989, the Ministry cannot raise a loan without Ministerial approval and no such loans have been raised. Accordingly, there is no interest rate exposure on funds borrowed.
The Ministry has no significant exposure to interest rate risk on its financial instruments.
12. Contingencies
The Ministry does not have any contingent assets as at 30 June 2007 (2006: nil).
Contingent liabilities are disclosed separately in the Statement of Contingencies.
13. Major budget variations
The Ministry had very few significant variances. Listed below are the major variances measured against the Main Estimates.
(i) Statement of financial performance
| Actual 30/06/2007 $000 |
Main estimates 30/06/2007 $000 |
Variance $000 |
|
|---|---|---|---|
|
Crown Revenue |
49,503 |
54,817 |
5,314 |
|
Personnel |
21,250 |
19,785 |
(1,465) |
|
Consultancy |
17,038 |
24,539 |
7,501 |
Crown Revenue was lower than budget mainly due to a reallocation of $4.707 million from 2006/07 to future outyears for the Carbon Monitoring Programme, to reflect the updated costings of the New Zealand Carbon Accounting System.
Personnel costs were higher than budget due to increased staff numbers.
Consultancy costs were lower than budget partly due to the reallocation of $4.707 million from 2006/07 to future outyears for the Carbon Monitoring Programme. Also, several work programmes were either not completed in 2006/07 or were completed using resources within the Ministry.
(ii) Statement of financial position
| Actual 30/06/2007 $000 |
Main estimates 30/06/2007 $000 |
Variance $000 |
|
|---|---|---|---|
|
Bank |
10,249 |
3,663 |
(6,586) |
|
Debtors and receivables |
1,231 |
0 |
(1,231) |
|
Creditors and payables |
9,473 |
2,080 |
(7,393) |
The Ministry extended its year-end Accounts Payable cut-off to enable invoices from suppliers/providers to be included in the 2006/07 accounts. This resulted in higher than budget Bank and Creditors and payables balances at year-end.
Debtors and receivables comprised mainly GST receivable. This is higher than budget due to the lower Crown Revenue and the higher Trade creditors at year-end.
14. Subsequent events
No significant events, which would materially affect the financial statements, occurred between 30 June 2007 and the date of signing the financial statements (2006: nil).
15. Related party transactions
The Ministry is a wholly owned entity of the Crown. The Government significantly influences the roles of the Ministry as well as being its major source of revenue.
The Ministry enters into numerous transactions with government departments, Crown agencies and state-owned enterprises. These transactions are not considered to be related party transactions.
Apart from those transactions described above, the Ministry has not entered into any related party transactions.
16. Implementation of New Zealand International Financial Reporting Standards (NZ IFRS)
In December 2002, the New Zealand Accounting Standards Review Board announced that the New Zealand International Financial Reporting Standards (NZ IFRS) will apply to all New Zealand reporting entities for the periods commencing on or after 1 January 2007, with earlier adoption optional.
In 2003, the Minister of Finance announced that the Crown would first adopt NZ IFRS for its financial year beginning 1 July 2007.
Implementation Working Group
In October 2005, a government-wide ‘Adoption of International Financial Reporting Standards’ working group, led by the Ministry for the Environment, was established. The purpose of this working group was to:
-
assess the implications of adopting NZ IFRS in 2007
-
implement any changes identified
-
identify accounting issues that might affect each department
-
share information and provide support.
This project has been completed and the Ministry expects its annual financial statements for the year ending 30 June 2008 to be fully compliant, as appropriate for public benefit entities, with NZ IFRS.
Changes in Accounting Policies on Transition to NZ IFRS
In complying with NZ IFRS for the first time, the Ministry will need to restate amounts previously reported under current New Zealand accounting standards (NZ GAAP) using NZ IFRS. This will also require a restatement of opening balances in the Statement of Financial Position as at 1 July 2007, with any necessary transitional adjustments being recognised mainly against Tax Payers’ Funds at that date.
The anticipated changes in accounting policies from the transition to NZ IFRS are presented below. It is important to note that this is a summary of the potential impacts as they apply only to the Ministry’s general purpose financial reporting. It should also be noted that the actual impact of adopting NZ IFRS may vary from the information presented below, and that the variation may be material. Also, the potential areas of impact from adoption of NZ IFRS may change materially as implementation unfolds and new standards are promulgated.
1. Computer Software
Currently all computer software is classified under fixed assets in the Statement of Financial Position. Under NZ IFRS, computer software is to be classified as an intangible asset provided it is not an integral part of the related hardware. As this is a reclassification within the Statement of Financial Position, there will be no impact on the net assets of the Ministry.
2. Receivables and Advances
Currently all receivables and advances are recorded at estimated realisable value after providing for doubtful debts. Under NZ IFRS, non-current receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. The amortised portion will be recognised as an expense in the Statement of Financial Performance or the Schedule of Expenses.
Other Changes in Accounting Policies on Transition to NZ IFRS
1. Land
Under NZ IFRS 1, preparers of general-purpose financial reporting have a number of transitional exemptions available to them. The one exemption of most relevance to the Ministry relates to the recognition of land under the non-departmental schedules. The Ministry can elect to measure the land at the date of transition to NZ IFRS at its fair value and use that fair value as its deemed cost at that date.
Any decision on whether to apply this exemption will be made in direct consultation with Treasury.
