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The forecast financial statements for the Department of the Prime Minister and Cabinet have been prepared in accordance with Section 39 of the Public Finance Act 1989.
The reporting entity is the Department of the Prime Minister and Cabinet. The reporting entity consists of those activities (represented by outputs) supplied by the department and related assets, liabilities and taxpayers’ funds.
The forecast financial statements show the financial performance and financial position after the elimination of all significant intra-entity transactions between output classes. Actual results for 2007/08 are likely to vary from the information presented and these variations could be material. These variations would be attributed mainly to changes in the level of demand for services produced by the department.
These financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable financial reporting standards, as appropriate for public benefit entities.
These are the department’s first financial statements complying with NZ IFRS. NZ IFRS 1 has been applied.
There are no significant differences arising on transition.
The 2006/07 budgeted and estimated actual financial statements have been prepared under New Zealand GAAP and the 2007/08 forecast financial statements have been prepared under NZ IFRS.
All statements are GST-exclusive, with the exception of the Statement of Forecast Financial Position where the entries for creditors, payables and debtors are GST-inclusive.
The amount of GST owing to or from the Department of Inland Revenue (IR) at balance date, being the difference between output GST and input GST, is included in creditors, payables and provisions or in receivables and prepayments as appropriate.
Inventories held for distribution for public benefit purposes are recorded at the lower of cost or current replacement cost.
All fixed assets have been valued on historical-cost basis. All individual assets are capitalised if their purchase cost is $2,000 or greater.
Gains and losses arising from the sale or disposal of assets have been included in the Statement of Forecast Financial Performance.
The carrying amounts of plant, property and equipment are reviewed at least annually to determine whether there is any indication of impairment. Where an asset’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.
Intangible assets are computer software with an estimated useful life of 3 years. They are initially recorded at cost less any amortisation and impairment losses. Amortisation is charged to the Statement of Financial Performance on a straight-line basis over the useful life of the asset.
All fixed assets have been depreciated on a straight-line basis that reflects the decline in service potential of the asset during the reporting period. Specific rates of depreciation used for the various classes of fixed assets are as follows:
| Fixtures and fittings | 10% |
| IT equipment | 33% |
| Office equipment | 20% |
| Furniture | 20% |
| Motor vehicles | 25% |
| Kitchen equipment e.g. domestic appliances | 20% |
| Major plant and equipment | 10% |
| Minor plant and equipment | 20% |
| Ground improvements | 14% |
The department is exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax has been provided for.
Pension liabilities
Obligations for contributions to defined contribution retirement plans are recognised in the Statement of Financial Performance 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 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.
The department is a party to financial arrangements as part of its everyday operations. These include instruments such as bank balance, sundry receivables and trade creditors.
Credit risk is the risk that a third party will default on its obligations to the department, causing the department to incur a loss. In the normal course of its operations, the department incurs credit risk from sundry debtors and from transactions with financial institutions and the New Zealand Debt Management Office (NZDMO).
The department does not require any collateral or security to support financial instruments with financial institutions it deals with, nor with NZDMO, as these entities have high credit-ratings. For other financial instruments, the department does not have significant concentrations of credit risk.
The fair value of all financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position. The department is not involved in any off-balance-sheet transactions.
Currency risk is the risk that debtors and creditors due in foreign currency will fluctuate because of changes in foreign exchange rates.
The department has no significant exposure to currency risk or interest rate risk on its financial instruments.
The department is a wholly owned entity of the Crown. The government significantly influences the roles of the department as well as its source of revenue.
The department undertakes transactions with other departments, Crown entities and state-owned enterprises. These transactions are carried out at an arm’s length basis and are not considered to be related-party transactions.
Apart from those transactions described above, the department has not entered into any related-party transactions.
Direct costs are expenses incurred from activities in producing outputs. These costs are charged directly to the related output classes. Direct costs will represent 86 per cent of total departmental appropriations for output costs in 2007/08. (This compares with 87 per cent in 2006/07.)
Indirect costs are expenses incurred by Corporate Services and by the Office of the Chief Executive. Indirect costs are allocated to each output class in proportion to the level of appropriations in relation to the total vote. Indirect costs will represent 14 per cent of total departmental appropriations for output costs in 2007/08. (This compares with 13 per cent in 2006/07.)
The department leases office premises. As all risks and ownership are retained by the lessor, these leases are classified as operating leases. Operating lease costs are expensed in the period in which they are incurred.
Future payments are disclosed as commitments at the point where a contractual obligation arises, to the extent that they are equally unperformed obligations. Commitments relating to employment agreements are not disclosed.
Contingent liabilities are disclosed at the point at which the contingency is evident.