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Notes to the financial statements

1. Statement of accounting policies for the year ended 30 June 2010

Reporting entity

The Ministry for the Environment (the Ministry) is a government department as defined by section 2 of the Public Finance Act 1989 and is domiciled in New Zealand.

In addition, the Ministry has reported on Crown activities, which it administers.

The primary objective of the Ministry is to provide services to the public rather than making a financial return. Accordingly, the Ministry has designated itself as a public benefit entity for the purposes of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The financial statements of the Ministry are for the year ended 30 June 2010. The financial statements were authorised for issue by the Chief Executive of the Ministry on 30 September 2010.

Basis of preparation

Statement of compliance

These financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with the New Zealand generally accepted accounting practices (NZ GAAP) and Treasury instructions. These financial statements also comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable financial reporting standards, as appropriate for public benefit entities.

Measurement base

The financial statements have been prepared on the basis of historical cost.

Function and presentation of currency

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($’000). The functional currency of the Ministry is New Zealand dollars.

Accounting policies

There have been no changes in accounting policies during the financial year.

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

The accrual basis of accounting has been used unless otherwise stated.

The Ministry has adopted the following revisions to accounting standards during the financial year, which have had only a presentational or disclosure effect:

  • NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (issued 2004). The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. The statement of comprehensive income will enable readers to analyse changes in equity resulting from non owner changes separately from transactions with owners. The Ministry has decided to prepare a single statement of comprehensive income for the year ended 30 June 2010 under the revised standard. Financial statement information for the year ended 30 June 2009 has been restated accordingly. Items of other comprehensive income presented in the statement of comprehensive income were previously recognised directly in the statement of changes in equity.
  • Amendments to NZ IFRS 7 Financial Instruments:Disclosures. The amendments introduce a three-level fair value disclosure hierarchy that distinguishes fair value measurements by the significance of valuation inputs used, and requires the maturity analysis of derivative liabilities to be presented separately from non-derivative financial liability contractual maturity analysis. This new information is disclosed in note 18. The transitional provisions of the amendments do not require disclosure of comparative information in the first year of application. The Ministry has elected to disclose comparative information.

Standards, amendments and interpretations issued that are not yet effective and have not been early adopted, and which are relevant to the Ministry, are:

  • NZ IAS 24 Related Party Disclosures (Revised 2009) replaces NZ IAS 24 Related Party Disclosures (Issued 2004) and is effective for reporting periods commencing on or after 1 January 2011. The revised standard:
    1. Removes the previous disclosure concessions applied by the Ministry for arms-length transactions between the Ministry and entities controlled or significantly influenced by the Crown. The effect of the revised standard is that more information is required to be disclosed about transactions between the Ministry and entities controlled or significantly influenced by the Crown.
    2. Provides clarity on the disclosure of related party transactions with Ministers of the Crown. Further, with the exception of the Minister for the Environment, the Ministry will be provided with an exemption from certain disclosure requirements relating to transactions with other Ministers of the Crown. The clarification could result in additional disclosures should there be any related party transactions with Ministers of the Crown.
    3. Clarifies that related party transactions include commitments with related parties.

     

    The Ministry expects it will early adopt the revised standard for the year ended 30 June 2011.

  • NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following three main phases: Phase 1 Classification and Measurement; Phase 2 Impairment Methodology; and Phase 3 Hedge Accounting. Phase 1 on the classification and measurement of financial assets has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ended 30 June 2014. The Ministry has not yet assessed the effect of the new standard and expects it will not be early adopted.

Significant accounting policies

Budget figures

The budget figures are those included in the Information Supporting the Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2010, which are consistent with the financial information in the Main Estimates. In addition, the financial statements also present the updated budget information from the Supplementary Estimates. The budget figures have been prepared in accordance with NZ GAAP, using accounting policies that are consistent with those adopted in preparing these financial statements. The variance between the Main Estimates and the forecast financials relates to the accounting treatment of the in principle expense transfers.

Revenue

Revenue Crown

Revenue earned from the supply of outputs to the crown is recognised as revenue when earned.

Revenue other

The Ministry derives revenue through the provision of services to third parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.

Expenditure

Capital charge

The capital charge is recognised as an expense in the period to which the charge relates.

Grants/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 Crown.

Cost allocation

The Ministry derives the cost of outputs using a cost allocation system. 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 2009/10 year.

Direct costs are those costs directly attributed to an output. Indirect costs are those costs that cannot be directly associated with a specific output. For the year ended 30 June 2010, direct costs accounted for 74% of the Ministry’s costs (2009: 74%) indirect costs accounted for 26% of the Ministry’s costs (2009: 26%).

Leases

Operating leases

An operating lease is a lease where the lessor does not transfer substantially all the risks and rewards of ownership of an asset. Lease payments under an operating lease are recognised as an expense in a systematic manner over the term of the lease. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

Foreign currency

Transactions in foreign currencies are initially translated at the foreign 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 Comprehensive Income.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and funds on deposit with banks.

Debtors and other receivables

Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment changes.

Plant and equipment

Plant and equipment consists of leasehold improvements, furniture and office equipment, and computer hardware. Plant and equipment are recognised and disclosed at cost, less accumulated depreciation and impairment losses.

Additions

Individual assets, or group of assets, are capitalised if their cost is greater than $1,500. The value of an individual asset that is less than $1,500 and is part of a group of similar assets is capitalised.

Disposals

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses arising from disposal of plant and equipment are recognised in the Statement of Comprehensive Income in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.

Depreciation

Depreciation is provided on a straight-line basis on all plant and equipment, at a rate that will write off the cost or valuation of the assets, over their useful lives. The depreciation charge for each period is recognised in the Statement of Comprehensive Income. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

  Depreciation rate
(%)
Useful life
(years)
Furniture and fittings 12.5 – 20 5 – 8
Office equipment 20 5
Computer hardware 25 – 33.33 3 – 4

Leasehold improvements (included in furniture and fittings) are 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.

Intangible assets

Software acquisition and development

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Costs that are directly associated with the development of software for internal use by the Ministry are recognised as an intangible asset.

Costs associated with staff training and the maintenance of computer software is recognised as an expense when incurred.

Amortisation

The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date the asset is derecognised. The amortisation charge for each period is recognised in the Statement of Comprehensive Income.

Typically, the estimated useful lives and associated amortisation rates of intangible assets have been estimated as follows:

  Amortisation rate
(%)
Useful life
(years)
Acquired computer software 33.33 3
Acquired computer software licences (Land Use and Carbon Analysis System) 13.33 7.5
Developed computer software 33.33 3

Impairment of non-financial assets

Plant and equipment and intangible assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the Statement of Comprehensive Income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

An intangible asset that is not yet available for use at the balance date is tested for impairment annually.

Creditors and other payables

Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

Employee entitlements

Pension liabilities

Obligations for contributions to defined contribution retirement plans are recognised in the Statement of Comprehensive Income as they fall due.

Other employee entitlements

Employee entitlements to salaries and wages, annual leave, long service leave, retiring leave and other similar benefits are recognised in the Statement of Comprehensive Income 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 on an actuarial basis, based on the present value of the expected future entitlements.

Termination benefits

Termination benefits are recognised in the Statement of Comprehensive Income only when there is a demonstrable commitment to either terminate employment before 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.

Superannuation schemes

Obligations for contributions to the State Sector Retirement Savings Scheme, Kiwisaver and the Government Superannuation Fund are accounted for as defined contribution schemes and are recognised as an expense in the Statement of Comprehensive Income as incurred.

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 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.

Provisions

A provision is recognised for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Goods and Services Tax (GST)

All items in the financial statements, including appropriation statements, are stated exclusive of GST except where otherwise stated. Creditors and other payables and debtors and other receivables in the Statement of Financial Position are stated inclusive of GST. Where GST is not recoverable as an input tax, then it is recognised as part of the related asset or expense.

The GST payable or receivable at balance date is included in creditors and other payables or debtors and other receivables in the Statement of Financial Position.

Taxation

Government departments are exempt from income tax as public authorities. Accordingly, no charge for income tax has been provided for.

Critical accounting estimates and assumptions

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 are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect 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 12 contains an estimate for restructuring costs which is expected to be paid out in the financial year ended 30 June 2011.

Note 13 provides the key assumptions used in determining the estimates for long service leave and retirement leave.

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.

Contingencies

Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident.

Taxpayers’ funds

Taxpayers’ funds is the Crown’s net investment in the Ministry and is measured as the difference between total assets and liabilities. Taxpayers’ funds is disaggregated and classified as general funds.

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.

2. Other revenue

Actual
2009
$000
  Actual
2010
$000
600 Departmental 820
1,850 Other 1,914
2,450 Total other revenue 2,734

3. Gains


Actual
2009
$000
 
Actual
2010
$000
0 Net gain on disposal of plant and equipment 12
0 Total gains 12

4. Personnel costs

Personnel costs include expenditure and provisions for salaries, wages, annual leave, retirement and long service leave, and redundancies.


Actual
2009
$000
 
Actual
2010
$000
26,436 Salaries and wages 26,568
706 Employer contribution to defined contribution plans 714
463 Increase/(decrease) in employee entitlements (75)
47 Other 56
27,652 Total personnel costs 27,263

Employer contributions to defined contribution plans include contributions to the State Sector Retirement Savings Scheme, KiwiSaver and Government Superannuation Fund.

5. Capital charge

The Ministry 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 2010 was 7.5% (2009: 7.5%).

6. Other operating expenses


Actual
2009
$000
 
Actual
2010
$000
  fees to auditor  
149 -fees for the financial statement audit 154
5 -fees for the NZ IFRS transition 0
2,039 Operating lease payments 2,256
923 Advertising and publicity 786
923 Contributions and sponsorship 2,761
20,591 Consultancy 17,633
4,740 General and administration 4,248
676 Net loss on disposal of plant and equipment an dintagibles 0
3,761 Other operating expenses 3,178
36,007 Total other operating expenses 31,016

7. Debtors and other receivables

Actual
2009
$000
  Actual
2010
$000
4,312 Debtors 7,094
0 Less provision for impairment 0
4,312 Net debtors 7,094
811 GST receivable 909
5,123 Total debtors and other receivables 8,003

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

As at 30 June 2010 and 2009, all overdue receivables have been assessed for impairment. No provision has been made for doubtful debts as all debtors are current. There were no indications at balance date that any of these debtors are impaired.

The aging profile of receivables at year end is detailed below:

  Gross $000 2010
Impairment
$000
Net
$000
Gross
$000
2009
Impairment
$000
Net
$000
Not past due 7,997 0 7,997 5,032 0 5,032
Past due 1 – 30 days 0 0 0 74 0 74
Past due 31 – 60 days 0 0 0 0 0 0
Past due 61 – 90 days 0 0 0 17 0 17
Past due > 91 days 6 0 6 0 0 0
Total 8,003 0 8,003 5,123 0 5,123

8. Plant and equipment

  Furniture and fixtures
$000
Office equipment
$000
Computer hardware
$000
Total
$000
Cost or valuation
Balance as at 1 July 2008 1,842 200 1,562 3,604
Additions 0 17 476 493
Add: Closing work in progress 0 0 12 12
Less: Opening work in progress 0 0 (188) (188)
Revaluation increase 0 0 0 0
Transfer to be held for sale 0 0 0 0
Disposals (13) (13) (116) (142)
Balance at 30 June 2009 1,829 204 1,746 3,779
 
Balance as at 1 July 2009 1,829 204 1,746 3,779
Additions 0 6 234 240
Add: Closing work in progress 8 0 71 0 71
Less: Opening work in progress 0 0 (12) (12)
Revaluation increase 0 0 0 0
Transfer to be held for sale 0 0 0 0
Disposals 0 (19) (193) (212)
Balance at 30 June 2010 1,829 262 1,775 3,866
 
Accumulated depreciation and impairment losses
Balance as 1 July 2008 727 139 914 1,780
Depreciation expense 226 19 331 576
Eliminate on disposal (7) (11) (116) (134)
Eliminate on revaluation 0 0 0 0
Eliminate on transfer to be held for sale 0 0 0 0
Impairment losses 0 0 0 0
Balance at 30 June 2009 946 147 1,129 2,222
         
Balance as 1 July 2009 946 147 1,129 2,222
Depreciation expense 223 19 324 566
Eliminate on disposal 0 (19) (193) (212)
Eliminate on revaluation 0 0 0 0
Eliminate on transfer to be held for sale 0 0 0 0
Impairment losses 0 0 0 0
Balance at 30 June 2010 1,169 147 1,260 2,576
Carrying amounts
At 1 July 2008 1,115 61 648 1,824
At 30 June / 1 July 2009 883 57 617 1,557
At 30 June 2010 660 115 515 1,290

There are no restrictions over the title of the Ministry’s plant and equipment, nor are any plant and equipment pledged as security for liabilities.

9. Intangible assets

  Acquired software
$000
Acquired software licences
$000
Internally generated software (others) $000 9 Internally generated software (LUCAS) $000 Total $000
Cost
Balance at 1 July 2008 1,506 187 0 277 1,970
Additions 293 0 0 1,392 1,685
Add: Closing work in progress 16 0 149 425 590
Less: Opening work in progress (187) 0 0 (643) (830)
Disposals (7) 0 0 (764) (771)
Balance at 30 June 2009 1,621 187 149 687 2,644
 
Balance as at 1 July 2009 1,621 187 149 687 2,644
Additions 44 0 453 509 1,006
Add: Closing work in progress 10 26 0 206 167 399
Less: Opening work in progress (16) 0 (149) (425) (590)
Disposals 11 (10) 0 0 0 (10)
Balance at 30 June 2010 1,665 187 659 938 3,449
 
Accumulated amortisation and impairment losses
Balance as 1 July 2008 285 21 0 201 507
Amortisation expense 197 30 0 177 404
Disposals (7) 0 0 (95) (102)
Impairment losses 0 0 0 0 0
Balance at 30 June 2009 475 51 0 283 809
 
Balance at 1 July 2009 475 51 0 283 809
Amortisation expense 204 31 81 396 712
Disposals (10) 0 0 0 (10)
Impairment losses 0 0 0 0 0
Balance at 30 June 2010 669 82 81 679 1,511
Carrying amounts
At 1 July 2008 1,221 166 0 76 1,463
At 30 June / 1 July 2009 1,146 136 149 404 1,835
At 30 June 2010 996 105 578 259 1,938

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

10. Creditors and other payables

Actual
2009
$000
  Actual
2010
$000
1,926 Creditors 1,704
4,855 Accrued expenses 3,073
107 Fixed assets payable 129
6,888 Total creditors and other payables 4,906

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

11. Return of operating surplus

Actual
2009
$000
  Actual
2010
$000
998 Net surplus 44
998 Total return of operating surplus 44

The return of the operating surplus to the Crown is required to be paid by 31 October of each year.

12. Provisions

Actual
2009
$000
 
Actual
2010
$000
 
Current
 
470
Mapua contaminated site
0
0
Restructuring
662
470
Total provisions
662
 
Restructuring $000
Mapua contaminated site $000
Total $000
Balance at 1 July
0
0
0
Additional provisions made
0
470
470
Amounts used
0
0
0
Unused amounts reversed
0
0
0
Balance at 30 June 2009
0
470
470
Balance at 1 July 2010
0
470
470
Additional provisions made
662
0
662
Amounts used
0
91
91
Unused amounts reversed
0
379
379
Balance at 30 June 2010
662
0
662

Provisions of $661,565 represent the redundancy costs from the restructure of the Policy Division, which is part of the Ministry’s plan to refine its structure and capability to support the Government’s work programme priorities. The redundancy costs will be paid in 2010/11 (2009: $470,000 relate to the Mapua contaminated site clean-up project).

13. Employee entitlements

Actual
2009
$000
  Actual
2010
$000
  Current employee entitlements are represented by:  
952 Salary accrual 495
1,330 Annual leave 1,318
146 Retirement an dlong service leave 198
2,401 Total current portion 2,011
  Non-current employee entitlements are represented by:  
1,036 Retirement and long service leave 921
3,437 Total employee entitlements 2,932

The retirement and long service leave entitlements were valued by AON Consulting as at 30 June 2010. The major assumptions used in the actuarial valuation were:

  • a discount rate used in this valuation has been specified by Treasury for the use by Government departments as at 30 June 2010. The rates used range from 3.48% to 6.00% depending on the term of the liability for each employee (30 June 2009: 3.49% to 6.35%)
  • a long-term annual salary growth rate of 3.5% (2009: 3.0%)
  • a promotional salary scale derived from the experience of New Zealand superannuation schemes.

14. Taxpayers’ funds

Actual
2009
$000
  Actual
2010
$000
3,712 General funds at 1 July 5,101
998 Total comprehensive income 44
1,389 Capital contribution from the Crown 891
(998) Return of operating surplus to the Crown (44)
5,101 General funds at 30 June 5,992

15. Reconciliation of net surplus to net cash from operating activities

Actual
2009
$000
  Actual
2010
$000
998 Net surplus 44
  Add/(less) non-cash items:  
980 Depreciation and amortisation expense 1,278
980 Total non-cash items 1,278
     
  Add/(less) items classified as investing or financing activities:  
679 (Gains)/losses on disposal of plant and equipment (12)
     
  Add/(less) movements in deferrals and accruals:  
(3,754) (Increase)/decrease in debtors and other receivables (2,880)
(28) (Increase)/decrease in pre-payments (43)
(1,503) Increase/(decrease) in creditors and other payables 12 (2,004)
470 Increase/(decrease) in provisions 192
1,087 Increase/(decrease) in employee entitlements (505)
(3,049) Total net movement in working capital items (5,252)
(1,071) Net cash flow from operating activities (3,930)

16. 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 transactions with government departments, Crown entities and state-owned enterprises on an arm’s length basis. Those transactions that occur within a normal supplier or client relationship on terms and conditions no more or less favourable than those which it is reasonable to expect the Ministry would have adopted if dealing with that entity at arm’s length in the same circumstance are not disclosed.

Apart from those transactions described above, the Ministry has not entered into any related party transactions.

Key management personnel compensation

Actual
2009
$000
  Actual
2010
$000
1,766 Salaries and other short-term employee benefits 1,124
45 Post-employment benefits 14
0 Other long-term benefits 0
248 Termination benefits 0
2,059 Total key management personnel compensation 1,138

Key management personnel include the Chief Executive and the Ministry’s four members of the Executive Leadership Team. The decrease in compensation is due to a restructure of the senior management model that took effect from 1 July 2009 (2009: The Chief Executive and the seven members of the Senior Management Team).

Key management personnel compensation excludes the remuneration and other benefits the Minister for the Environment receives. The Minister’s remuneration and other benefits are not received only for his role as a member of key management personnel of the Ministry. The Minister’s remuneration and other benefits are set by the Remuneration Authority under the Civil List Act 1979 and are paid under Permanent Legislative Authority, and not paid by the Ministry.

17. Events after the balance sheet date

No significant events which may impact on the results have occurred between year end and the signing of these financial statements.

18. Financial instruments

Financial instrument categories

The carrying amounts of financial assets and financial liabilities in each of the categories are as follows:

Actual 2009
$000
  Actual 2010
$000
  Loans and receivables  
8,197 Cash and cash equivalents 3,080
5,123 Debtors and other receivables 8,003
13,320 Total loans and receivables 11,083
  Financial liabilities measured at amortised cost  
6,888 Creditors and other payables 4,906

Fair value hierarchy disclosures

For those instruments recognised at fair value in the statement of financial position, fair values are determined according to the following hierarchy:

  • Quoted market price (level 1) – Financial instruments with quoted prices for identical instruments in active markets.
  • Valuation technique using observable inputs (level 2) – Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
  • Valuation techniques with significant non-observable inputs (level 3) – Financial instruments valued using models where one or more significant inputs are not observable.

The Ministry has no significant exposure to foreign exchange on its financial instruments.

Financial instruments’ risks

The Ministry’s activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The Ministry has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Market risk

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Ministry has no significant exposure to currency risk on its financial instruments. Accordingly, no sensitivity analysis has been completed.

Interest rate risk

Interest rate risk is the risk that the return on invested funds will fluctuate due to 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.

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 its business, credit risk arises from debtors and deposits with banks.

The Ministry is only permitted to deposit funds with Westpac, a registered bank. Westpac bank has a high credit rating of AA. For its other financial instruments, the Ministry does not have significant concentrations of credit risk.

The Ministry’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents, and net debtors (note 7). There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired.

Liquidity risk

Liquidity risk is the risk that the Ministry will encounter difficulty raising liquid funds to meet commitments as they fall due.

In meeting its liquidity requirements, the Ministry closely monitors its forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. The Ministry maintains a target level of available cash to meet liquidity requirements.

The table below analyses the Ministry’s financial liabilities that will be settled based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

  Carrying amount
$000
Contractual cash flows
$000
Less than 6 months
$000
6 months - 1 year
$000
1- 5 years
$000
More than 5 years
$000
2009            
Creditors and other payables (note 10) 6,888 6,888 6,888 0 0 0
2010            
Creditors and other payables (note 10) 4,906 4,906 4,906 0 0 0

19. Capital management

The Ministry’s capital is its equity (or taxpayers’ funds), which comprise general funds. Equity is represented by net assets.

The Ministry manages its revenues, expenses, assets, liabilities and general financial dealings prudently. The Ministry’s equity is largely managed as a by-product of managing income, expenses, assets, liabilities and compliance with the Government Budget processes and with Treasury instructions.

The objective of managing the Ministry’s equity is to ensure the Ministry effectively achieves its goals and objectives for which it has been established, whilst remaining a going concern.

20. Explanations of major variances against budget

Explanations for major variances from the Ministry’s estimated figures in the 2009/10 Main Estimates are as follows:

(i) Statement of comprehensive income
  Actual
2010
$000
Main estimates
2010
$000
Variance
$000
Crown revenue 57,133 68,475 11,342
Other revenue 2,734 4,560 1,826
Contributions and sponsorship 2,761 4,928 (2,167)
Consultancy 17,633 23,593 (5,960)
General and administration 4,248 6,555 (2,307)
Other operating cost 3,178 5,132 (1,954)

Crown revenue was lower than budgeted as the Ministry completed a baseline review and reported back to Cabinet as part of the 2010 Budget process. This led to a reprioritisation of funding from 2009/10 to 2010/11 onwards to cover a decreasing baseline profile and expanded functions such as the Environmental Protection Authority, covering the Government priorities of freshwater management and continuing progress on resource management reforms. Further, the Ministry also drew down less cash from the Crown than budgeted in its Supplementary Estimates.

The other factors relating to Crown revenue being lower are:

  • The timing of the decision to establish the expanded Environmental Protection Authority from 1 July 2011 has meant that limited establishment work was undertaken in 2009/10 and this will be a significant priority for the Ministry in 2010/11.
  • Less than expected spending in international negotiations and linkages to the Emissions Trading Scheme flowing on from the outcome of the Copenhagen Summit. It is expected that additional work will flow on from the Cancun discussions in 2010/11.
  • Transfer of aquaculture funding to the Ministry of Fisheries.
  • The timing differences in the Land Use and Carbon Analysis System. From 2010/11, this project is a multi-year appropriation reflecting the longer-term nature of the project and the difficulty in forecasting timing of workstreams.

Other revenue was lower than budget due to fewer applications of national significance under the Resource Management Act being received by the Ministry than anticipated.

Contributions and sponsorship were lower than budget mainly due to a transfer of funds from Departmental Output Expenses to Non-Departmental Output Expenses for the clean-up of the Tui Mine at Te Aroha.

Consultancy costs (including contractors’ fees), general and administration and other operating costs were lower than budget partly due to the transfer of funds from 2009/10 to 2010/11. The majority of the net variance is due to the lower number of applications (and delays in some applications) to the Environmental Protection Authority. Also several work programmes were completed using resources within the Ministry.

(ii) Statement of financial position
  Actual
2010
$000
Main estimates
2010
$000
Variance
$000
Bank 3,080 12,224 (9,144)
Debtors and other receivables 8,003 500 7,503
Creditors and other payables 4,906 8,340 3,434

The amount of cash held was lower than forecast due to a higher level of debtors and other receivables at the year end. The higher level of debtors and other receivables are related to amounts receivable from the Crown, GST receivable and invoices raised for the recovery of Resource Management Act Call-in costs, applications to Environmental Protection Authority costs and other costs at 30 June 2010.

Creditors and other payables were lower due to the transfer of funds from 2009/10 to 2010/11 and an additional creditor payment run at year end.

(iii) Statement of cash flows
  Actual
2010
$000
Main estimates
2010
$000
Variance
$000
Receipts from Crown 54,844 68,475 (13,631)
Receipts from other revenue 2,242 4,634 (2,392)
Payments to suppliers (32,871) (42,815) 9,944
Repayment of surplus (998) (5) (993)

Explanations for variances in the Statement of Cash Flows are explained above.


8  The amount of work in progress as at 30 June 2010, $70,500 relates to the Energy Efficient Project for Clean Heating (2009: $11,913 relates to the addition of servers).

9  Internally generated software (others) consists of: Online Waste levy System; Customer Relationship Management System; and Waste Intelligence Database System.

10  The amount of work in progress as at 30 June 2010 consists of: $26,219 for the upgrade of the Financial Management Information System; $48,916 for the development of the Customer Relationship Management System; $156,621 for the Waste Intelligence Database System; and $167,316 for the development of Land Use and Carbon Analysis System (2009: $590,396 – for the development of Land Use and Carbon Analysis System; development of Online Waste Levy System and an upgrade of Library Information Management System).

11  The disposals as at 30 June 2010, $10,089 relates to the write off of the fully depreciated software no longer in use (2009: $763,228 relates to the write off for the development work carried out for the Calculation and Reporting Application work not being used for the current development of Land Use and Carbon Analysis System).

12  Creditors and accruals for capital expenditure are excluded when calculating this increase or decrease.