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Notes to the financial statements for the year ended 30 June 2011

Notes to the financial statements for the year ended 30 June 2011

Note 1: Statement of accounting policies

Reporting entity

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

The Ministry has also reported on Crown activities and trust monies that it administers.

The primary objective of the Ministry is to provide services to the public rather than make 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 2011. The financial statements were authorised for issue by the Chief Executive of the Ministry on 30 September 2011.

Basis of preparation

Statement of compliance

The financial statements of the Ministry have been prepared in accordance with the requirements of the Public Finance Act 1989, which include the requirement to comply with New Zealand generally accepted accounting practices (NZ GAAP) and Treasury Instructions.

These financial statements comply with NZ IFRS, and other applicable financial reporting standards, as appropriate for public benefit entities.

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

Measurement base

The financial statements have been prepared on a historical cost basis. Some assets and liabilities are recorded at ‘fair value’, the amount for which an item could be exchanged or a liability settled between knowledgeable and willing parties in an arm’s-length transaction.

Functional and presentation 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.

Changes in accounting policies

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

Early adoption of accounting standards

The Ministry has early adopted NZ IAS 24 Related Party Disclosures (Revised 2009). The effect of early adopting
the revised NZ IAS 24 is:

i)  more information is required to be disclosed about transactions between the Ministry and entities controlled, jointly controlled or significantly influenced by the Crown;

ii)commitments with related parties require disclosure; and

iii)information is required to be disclosed about any related party transactions with Ministers of the Crown with portfolio responsibility for the Ministry. An exemption is provided from reporting transactions with other Ministers of the Crown.

Significant accounting policies

Revenue

Revenue is measured at the fair value of consideration received or receivable.

Revenue Crown

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

Other revenue

Other departmental and third-party revenue is predominantly derived from the undertaking of historical projects on a full cost-recovery basis, and from the State Services Commission, which funds the State Sector Retirement Savings Scheme and Kiwisaver. Revenue is recognised when earned and is reported in the financial period to which it relates.

Capital charge

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

Foreign currency transactions

Foreign currency transactions are converted into New Zealand dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in the Statement of Comprehensive Income.

Leases

Operating leases

An operating lease is a lease that does not transfer the risks and rewards incidental to ownership of an asset to the lessee. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the term of the lease.

The Ministry leases office premises. As the lessor retains all the risks and rewards of ownership, these leases are classified
as operating leases.

Financial instruments

The Ministry is party to financial instruments as part of its normal operations. These include cash and bank balances, and accounts receivable and payable.

Financial assets and financial liabilities are initially measured at fair value plus transaction costs, unless they are carried at fair value through surplus or deficit. In the latter case the transaction costs 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. They are measured at face value.

Debtors and other receivables

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

Impairment of a receivable is established when there is objective evidence that the Ministry will not be able to collect amounts due according to the original terms of the receivable.

Indicators that the debtor is impaired include significant financial difficulties, the probability that it will enter into bankruptcy, and default in payments. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Statement of Comprehensive Income. Overdue receivables that have been renegotiated are reclassified as current (ie, not past due).

Property, plant and equipment

Property, plant and equipment consist of leasehold improvements, furniture and fittings, office equipment and motor vehicles.

Property, plant and equipment are shown at cost, less accumulated depreciation and impairment losses.

Individual assets or groups of assets are capitalised if their cost is greater than $2,000 and recorded at historical cost
less accumulated depreciation.

The initial cost of an asset is the value of the consideration given to acquire or create the asset plus any directly attributable costs of bringing the asset to working condition for its intended use, less accumulated depreciation and accumulated impairment losses.

Leasehold improvement costs include significant project management and related fees.

Additions

An item of property, plant or equipment is recognised as an asset only if it is probable that future economic benefits or service potential associated with the item will flow to the Ministry and the cost of the item can be measured reliably.

In most instances, an item of property, plant or equipment is recognised at its cost. Where an asset is acquired at no or nominal cost, it is recognised at fair value as at the date of acquisition.

Disposals

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the Statement of Comprehensive Income.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Ministry and the cost of the item can be measured reliably.

Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment, at rates that will write down the cost (or valuation) of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

Office furniture

5 years

20%

Office equipment

5 years

20%

Computer equipment – PC-based

3 years

33%

Computer equipment – other than PCs

4 years

25%

Motor vehicles

3 years

33%

Works of art

100 years

1%

 

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful life of the improvements, whichever is shorter.

The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year-end.

Items under construction are not depreciated. The total cost of a capital project is transferred to the appropriate asset class on its completion and then depreciated.

Revaluation

All asset classes are carried at depreciated historical cost.

Intangible assets

Software acquisition

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Software is capitalised if its cost is greater than $2,000.

Costs associated with maintaining computer software are recognised as expenses when incurred.

Staff training costs are recognised as expenses 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 that the asset is derecognised.

The amortisation charge for each period is recognised in the Statement of Comprehensive Income.

The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows:

Acquired computer software

3 years

33%

Annual software licences

1 year

100%

Impairment of property, plant and equipment, and intangible assets

Property, 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 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 its value in use.

Creditors and other payables

Creditors and other payables are non-interest bearing and are normally settled on 30-day terms. The carrying value of creditors and other payables therefore approximates their fair value.

Employee entitlements

Short-term employee entitlements

Employee entitlements that the Ministry expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay.

These include: salaries and wages accrued up to balance date; annual leave and time off in lieu earned but not yet taken at balance date; retiring and long service leave entitlements expected to be settled within 12 months; and sick leave.

The Ministry recognises a liability and an expense for bonuses where it is obliged to pay them, or where there is a past practice that has created a constructive obligation.

Long-term employee entitlements

Entitlements that are payable beyond 12 months, such as long service leave and retiring leave, have been calculated on an actuarial basis. The calculations are based on a model for use by government entities that was developed by the Treasury during 2008/09 in consultation with a firm of actuaries.

The calculations are based on: likely future entitlements accruing to staff based on years of service; years to entitlement; the likelihood that staff will reach the point of entitlement; contractual entitlements information; and the present value of the estimated future cash flows.

The discount rate is based on New Zealand government bond data at 30 June 2011.

Presentation of employee entitlements

Annual leave, long service leave and retirement gratuities expected to be settled within 12 months of balance date are classified as current liabilities. All other employee entitlements are classified as non-current liabilities.

Superannuation schemes

Defined contribution schemes

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

Taxpayers’ funds

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

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. Commitments relating to employment contracts are not disclosed.

Commitments that will incur penalty or exit costs if an option to cancel is exercised are included in the statement of commitments at the value of that penalty or exit cost.

Goods and services tax (GST)

Most items in the financial statements, including appropriation statements, are stated exclusive of GST. The only exceptions are receivables and payables, which are stated on a GST-inclusive basis (in 2010/11 the GST rate changed from 12.5% to 15%). Where GST is not recoverable as input tax, it is recognised as part of the related asset or expense.

The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the Statement of Financial Position.

The net GST paid to, or received from the IRD, including the GST relating to investing and financing activities, is classified as an operating cash flow in the Statement of Cash Flows.

Commitments and contingencies are disclosed exclusive of GST.

Income tax

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

Budget figures

The budget figures are consistent with the financial information in the Main Estimates. These 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.

Statement of cost accounting policies

The Ministry has determined the cost of outputs using the cost allocation system outlined below.

Direct costs are those directly attributed to an output. Indirect costs are those that cannot be identified with a specific output in an economically feasible manner.

Direct costs are charged directly to outputs. Indirect costs are allocated to outputs through a two-stage process. The costs are assigned to cost centres within the Ministry, and then allocated to outputs on the basis of the direct staff costs attributable to the outputs of that cost centre.

Depreciation and capital charge are allocated on the basis of asset utilisation. Personnel costs are charged directly to the cost centre within the output to which they belong and at the time they were incurred.

There have been no changes in cost accounting policies, since the date of the last audited financial statements.

Critical accounting estimates and assumptions

In preparing these financial statements, estimates and assumptions have been made that may differ from the subsequent actual results. Where appropriate, the judgment or assumption made is provided in the relevant accounting policy or in the relevant note.

Estimates and assumptions are reviewed on an ongoing basis. They are based on historical experience and other factors that are believed to be reasonable under the circumstances. Where revisions to accounting estimates are made, these are recognised in the period to which the estimate is revised.

Retirement and long service leave

An analysis of the exposure in relation to estimates and uncertainties surrounding retirement and long service leave liabilities is disclosed in Note 11 (see page 37).

Note 2: Revenue

Actual 2009/10

$000

 

Actual
2010/11

$000

127

Contract history projects (Royal New Zealand Air Force)

96

196

State Sector Retirement Savings Scheme and Kiwisaver recoveries

219

22

Publication sales/royalties

16

54

Other revenue

34

399

Total revenue other

365

Note 3: Personnel costs

Actual 2009/10

$000

 

Actual
2010/11

$000

8,329

Salaries and wages

9,262

181

Training and development

174

242

Employer contributions to superannuation funds

299

136

Other personnel costs

155

8,888

Total personnel costs

9,890


Employer contributions to defined contribution plans include contributions to the State Sector Retirement Savings Scheme, Kiwisaver, Global Retirement Trust Superannuation and Government Superannuation Fund. The Ministry had 123 full-time equivalent (FTE) positions (including vacancies) at 30 June 2011 (2010: 112).

Note 4: Other operating expenses

Actual 2009/10

$000

 

Actual
2010/11

$000

44

Audit fees for financial statement audit (Audit New Zealand)

46

11

Other fees paid to the auditor

519

Rental and leasing expenses

544

201

Other occupancy expenses

188

178

Publicity and research

3,051

952

Professional and specialist services

1,256

234

Travel and associated expenses

390

795

Information communication technology

817

969

Transfer to agencies*

1,983

Digital television extension

5,104

764

Other operating expenses

715

4,667

Total operating expenses

14,094

 

* Transfers to agencies includes Cultural Diplomacy International Programme agencies.

Note 5: Property, plant and equipment

Computer
equipment

$000

Office equipment

$000

Office furniture

$000

Leasehold improvements
$000

vehicles

$000

Works
of art

$000

Total

$000

Cost

 

 

 

 

 

 

 

Balance at 1 July 2009

681

165

409

1,385

21

2,661

Additions

210

7

7

43

267

Disposals

(115)

(2)

(117)

Other asset adjustment (rounding)

1

(1)

(1)

(1)

Balance at 30 June and
1 July 2010

776

171

415

1,427

21

2,810

Additions

94

18

2

53

291

458

Disposals

(85)

(85)

Balance at 30 June 2011

785

189

417

1,480

291

21

3,183

Accumulated depreciation and impairment losses

 

 

 

 

 

Balance at 1 July 2009

536

116

214

882

1,748

Depreciation expense

105

20

51

219

1

396

Elimination on disposal

(115)

(2)

(117)

Other asset adjustment (rounding)

(1)

2

(1)

Balance at 30 June and
1 July 2010

525

134

267

1,100

1

2,027

Depreciation expense

114

20

52

191

21

398

Elimination on disposal

(85)

(85)

Balance at 30 June 2011

554

154

319

1,291

21

1

2,340

Carrying amounts

 

 

 

 

 

 

 

At 1 July 2009

145

49

195

503

21

913

At 30 June and 1 July 2010

251

37

148

327

20

783

At 30 June 2011

231

35

98

189

270

20

843


The amount of property, plant and equipment in the course of construction is nil (2010: nil).

Note 6: Intangible assets

 

Total

$000

Acquired computer software

 

Cost

 

Balance at 1 July 2009

207

Additions

232

Disposals

(2)

Balance at 30 June and 1 July 2010

437

Additions

7

Disposals

(2)

Balance at 30 June 2011

442

Accumulated amortisation and impairment losses

 

Balance at 1 July 2009

190

Amortisation expense

41

Elimination on disposal

(2)

Balance at 30 June and 1 July 2010

229

Amortisation expense

78

Elimination on disposal

(1)

Balance at 30 June 2011

306

Carrying amounts

 

At 1 July 2009

17

At 30 June and 1 July 2010

208

At 30 June 2011

136


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

Note 7: 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 2011 was 7.5% (2010: 7.5%).

Note 8: Debtors and other receivables

Actual 2009/10

$000

 

Actual
2010/11

$000

128

Trade creditors

179

GST receivable

227

128

Total debtors and other receivables

406


The carrying value of debtors and other receivables approximates their fair value. All debtors are current (within 30 days) and the Ministry has assessed that no provision for impairment is required as no losses are expected for the Ministry’s pool of debtors.

Note 9: Creditors and other payables

Actual 2009/10

$000

 

Actual
2010/11

$000

478

Trade creditors

923

890

Crown revenue received in advance

101

PAYE payable

101

1

GST payable

407

Accrued expenses

581

1,877

Total creditors and payables

1,605


Creditors and other payables are non-interest bearing and are normally settled on 30-day terms. The carrying value of creditors and other payables therefore approximates their fair value.

Note 10: Return of operating surplus

Any operating surplus is required to be paid to the Crown by 31 October each year. The total surplus to be returned is $2.499 million as per the Statement of Comprehensive Income.

Note 11: Employee entitlements

Actual 2009/10

$000

 

Actual
2010/11

$000

 

Current employee entitlements

 

399

Annual leave

453

61

Long service leave

47

29

Other leave entitlements

24

489

Total current portion

524

 

Non-current employee entitlements

 

43

Long service leave

61

39

Retirement leave

41

82

Total non-current portion

102

571

Total employee entitlements

626


The measurement of the long service and retirement leave obligations depends on a number of factors, including the assumptions that are made about the discount rate and the salary inflation rate. Any changes in these assumptions will affect the carrying amount of the liability.

The discount rate is based on New Zealand government bond data at 30 June 2011. The salary inflation
rate has been determined after considering historical patterns and after obtaining advice from an
independent actuary.

If the discount rate were to differ by 1% from the Ministry’s estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $5,000 higher/lower. If the salary inflation rate were to differ by 1% from the Ministry’s estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $6,000 higher/lower.

Note 12: Reconciliation of net surplus to net cash flow from operating activities

This reconciliation discloses the non-cash adjustments applied to the surplus reported in the Statement of Comprehensive Income to arrive at the net cash flow from operating activities disclosed in the Statement of Cash Flows.

Actual 2009/10

$000

 

Actual
2010/11

$000

634

Net surplus/(deficit)

2,499

 

Add/(less) non-cash items:

 

437

Depreciation and amortisation

476

(11)

Increase/(decrease) in non-current employee entitlements

20

426

Total non-cash items

496

 

Add/(less) items classified as investing or financing activities:

 

(Gains)/losses on disposal of property, plant and equipment

 

Add/(less) movements in working capital items:

 

113

(Increase)/decrease in debtors and other receivables

(278)

(691)

(Increase)/decrease in prepayments

150

738

(Increase)/decrease in creditors and other payables

(271)

31

(Increase)/decrease in current employee entitlements

35

191

Net movements in working capital items

(364)

1,251

Net cash flow from operating activities

2,631

Note 13: Related party transactions and key management personnel

All related party transactions have been entered into on an arms’ length basis. 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.

Significant transactions with government-related entities

The Ministry has received funding from the Crown of $26.7 million (2010: $14.3 million) to provide services to the public for the year ended 30 June 2011.

Collectively, but not individually, significant transactions with government-related entities

In conducting its activities, the Ministry is required to pay various taxes and levies (such as GST, FBT, PAYE, and ACC levies) to the Crown and entities related to the Crown. The payment of these taxes and levies, other than income tax, is based on the standard terms and conditions that apply to all tax and levy payers. The Ministry is exempt from paying income tax.

The Ministry also purchases goods and services from entities controlled, significantly influenced, or jointly controlled by the Crown. Purchases from these government-related entities for the year ended 30 June 2011 totalled $2.8 million (2010: 1.2 million).

Key management personnel compensation

Actual 2009/10

$000

 

Actual
2010/11

$000

1,480

Salaries and other short-term employee benefits

971

4

Net movement in long-term benefits

(1)

1,484

Total key management personnel compensation

970


The key management personnel are the Chief Executive and the four members (2010: eight members) of the Ministry Leadership Team. The salary figure is lower than in 2009/10 as the Ministry undertook an internal restructure during the year and the composition of the Ministry Leadership Team changed as a result.

Key management personnel compensation excludes the remuneration and other benefits the Minister for Culture and Heritage, the Minister of Broadcasting and the Minister of Sport and Recreation receives. The Ministers’ remuneration and other benefits are not received only for their role as a member of key management personnel of the Ministry. The Ministers’ 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.

No close family members of key management personnel were employed by the Ministry during 2010/11.

Note 14: Financial instrument risks

The Ministry’s activities expose it to a low level of financial instrument risks, which include market risk, credit risk, currency risk, interest rate risk and liquidity risk. The Ministry has a series of policies to manage the risks associated with financial instruments, and it seeks to minimise its exposure to those risks. These policies do not allow any speculative transactions to be entered into.

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. Owing to the nature and limited number of foreign exchange transactions undertaken, the Ministry has no significant exposure to currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value of or the cash flows from a financial instrument will fluctuate because of changes in market interest rates. The Ministry has no interest-bearing financial instruments and so has no exposure to interest rate risk.

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 the Ministry incurs credit risk from debtors and deposits with banks. The Ministry is only permitted to deposit funds with Westpac, a registered bank, and to enter into foreign exchange forward contracts with the New Zealand Debt Management Office. These entities have high credit ratings. 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 (see Note 8: ‘Debtors and other receivables’ at page 36). There is no collateral held as security against these financial instruments, including those 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 Ministry’s financial liabilities are outlined in Note 9: ‘Creditors and other payables’ at page 36.

Contractual maturity analysis of financial liabilities, excluding derivatives

All creditors and other payables will mature within six months (2010: within six months).

Note 15: Financial instrument categories

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:

Actual 2009/10

$000

 

Actual
2010/11

$000

 

Loans and receivables

 

2,371

Cash and cash equivalents

4,218

128

Debtors and other receivables (see Note 8 at page 36)

406

 

Financial liabilities measured at amortised cost

 

1,877

Creditors and other payables (see Note 9 at page 36)

1,605

Note 16: Capital management

The Ministry’s capital is its equity (or taxpayers’ funds), represented by its 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 and liabilities, and of complying with the Government’s Budget processes, Treasury Instructions and the Public Finance Act 1989.

Equity is managed with the objective of ensuring that the Ministry effectively achieves the goals and objectives for which it was established, while remaining a going concern.

Note 17: Explanation of major variations

Significant variances from the Main Estimates for 2010/11 are explained below:

Note

Actual
2010/11

$000

Main Estimates

Variance

increase/

(decrease)

 2010/11

$000

Variance

increase/

(decrease)

 2010/11

 %

Statement of comprehensive income

 

 

 

 

Revenue Crown

a

26,679

15,676

11,003

70

Revenue from other departments

b

315

216

99

45

Revenue from third parties

c

50

50

Other operating costs

d

24,545

15,892

8,653

54

Statement of financial position

 

 

 

 

 

Debtors and other receivables

e

406

150

256

170

Prepayments

f

574

30

544

1,813

Creditors and other payables

g

1,605

1,050

555

52

Cash and cash equivalents

h

4,218

1,623

2,595

159

Intangible assets

i

136

17

119

700

Note 18: Events after the reporting period

No event has occurred since the end of the financial period (not otherwise dealt with in the financial statements) that has affected,
or may significantly affect, the Ministry’s operations or state of affairs for the year ended 30 June 2011.


Updated on 23rd July 2015