Statement of Accounting Policies for the Year Ended 30 June 2008
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.
In addition, the Ministry has reported on Crown activities and trust monies 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 2008. The financial statements were authorised for issue by the Chief Executive of the Ministry on 26 September 2008.
Basis of Preparation
The financial statements of the Ministry have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirements to comply with New Zealand generally accepted accounting practices (NZ GAAP).
These financial statements have been prepared in accordance with, and comply with, NZ IFRS as appropriate for public benefit entities.
This is the first set of financial statements prepared using NZ IFRS. The comparatives for the year ended 30 June 2007 have been restated to NZ IFRS accordingly. Reconciliations of equity and net surplus/(deficit) for the year ended 30 June 2007 under NZ IFRS to the balances reported in the 30 June 2007 financial statements are detailed in note 17.
The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS statement of financial position as at 1 July 2006 for the purposes of the transition to NZ IFRS.
The financial statements have been prepared on a historical cost basis, modified by the revaluation of certain assets and liabilities as identified in this statement of accounting policies.
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.
Standards, amendments and interpretations issued but not yet effective that have not been early adopted, and which are relevant to the Ministry include:
·NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (issued 2004) and is effective for reporting periods beginning on or after 1 January 2009. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in equity resulting from transactions with the Crown in its capacity as ‘owner’ separately from ‘non-owner’ changes. The revised standard gives the Ministry the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The Ministry expects it will apply the revised standard for the first time for the year ended 30 June 2010, and is yet to decide whether it will prepare a single statement of comprehensive income or a separate income statement followed by a statement of comprehensive income.
Revenue is measured at the fair value of consideration received.
Revenue earned from the supply of outputs to the Crown is recognised as revenue when earned.
Other departmental and third party revenue is predominantly derived through the undertaking of historical projects on a full cost-recovery basis and from the State Services Commission which funds the State Sector Superannuation Retirement Savings Scheme. Revenue is recognised when earned and is reported in the financial period to which it relates.
In 2006/07 the Ministry’s Crown activities included collection of commercial tenancies income and recovery of rates. There was no such activity in 2007/08.
The capital charge is recognised as an expense in the period to which the charge relates.
An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight line basis over the lease term. The Ministry leases office premises. As the lessor retains all the risks and rewards of ownership, these leases are classified as operating leases.
The Ministry is party to financial instruments as part of its normal operations. These financial instruments include bank accounts, debtors and creditors. Revenue and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance. All financial instruments are recognised in the Statement of Financial Position at their estimated fair value.
Cash and Cash Equivalents
Cash includes cash on hand and held in bank accounts.
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.
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. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using 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 financial performance. Overdue receivables that are renegotiated are reclassified as current (i.e. not past due).
Property, Plant and Equipment
Property, plant and equipment consists of leasehold improvements, furniture and fittings and office equipment.
Property, plant and equipment is shown at cost or valuation, less accumulated depreciation and impairment losses.
Individual assets or groups of assets are capitalised if their cost is greater than $1,000 (except for computing equipment where the threshold has been set at $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 and 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.
The cost of an item of property, plant and equipment is recognised as an asset if, and 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 and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value as at the date of acquisition.
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 financial performance. When revalued assets are sold, the amounts included in the property, plant and equipment revaluation reserves in respect of those assets are transferred to general funds.
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 is provided on a straight-line basis on all property, plant and equipment, at rates that will write off 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:
Other Computer Equipment
Works of Art
Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. Consequently, the depreciation rate for each asset will vary depending upon the lease period or useful life of the improvements when the work is completed.
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.
Asset classes are carried at depreciated historical cost. The carrying values of revalued items are reviewed at each balance date to ensure that those values are not materially different to fair value. Additions between revaluations are recorded at cost.
Accounting for Revaluations
The Ministry accounts for revaluations of property, plant and equipment on a class of asset basis.
The results of revaluing are credited or debited to an asset revaluation reserve for that class of asset. Where this results in a debit balance in the asset revaluation reserve, this balance is expensed in the statement of financial performance. Any subsequent increase on revaluation that offsets a previous decrease in value recognised in the statement of financial performance will be recognised first in the statement of financial performance up to the amount previously expensed, and then credited to the revaluation reserve for that class of asset.
Software is capitalised if its cost is greater than $5,000. Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs associated with maintaining computer software are recognised as an expense when incurred.
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 financial performance.
The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows:
Acquired Computer Software
Annual software licences
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.
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 earned but not yet taken at balance date, and retiring and long service leave entitlements expected to be settled within 12 months.
The Ministry recognises a liability and an expense for bonuses where it is contractually 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:
·likely future entitlements based on years of service, years to entitlement, the likelihood that staff will reach the point of entitlement and contractual entitlements information; and
·the present value of the estimated future cash flows. A weighted average discount rate of 5.75% and a salary inflation factor of 2.75% were used. The discount rate is based on the weighted average of government bonds with terms to maturity similar to those of the relevant liabilities. The inflation factor is based on the expected long-term increase in remuneration for employees.
Defined Contribution Schemes
Obligations for contributions to the State Sector Retirement Savings Scheme, Kiwisaver, the Government Superannuation Fund, and Global Retirement Trust Superannuation are accounted for as defined contribution schemes and are recognised as an expense in the statement of financial performance as incurred.
Taxpayers’ funds is the Crown’s investment in the Ministry and is measured as the difference between total assets and total liabilities. Taxpayers’ funds is disaggregated and classified as general funds and property, plant and equipment revaluation reserves.
Expenses yet to be incurred on non-cancellable contracts that have been entered into on or before balance date are disclosed as commitments to the extent that there are equally unperformed obligations. Commitments relating to employment contracts are not disclosed.
Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the statement of commitments at the value of that penalty or exit cost.
Goods and Services Tax (GST)
All items in the financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as input tax, then 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.
Government Departments are exempt from income tax as public authorities. Accordingly, no charge for income tax has been provided for.
The budget figures are those included in the Ministry’s Statement of Intent for the year ended 30 June 2008, 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.
Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transaction.
Statement of Cost Accounting Policies
The Ministry has determined the cost of outputs using the cost allocation system outlined below.
Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities based on cost drivers and related activity/usage information.
Direct costs are those costs directly attributed to an output. Indirect costs are those costs that cannot be identified, in an economically feasible manner, with a specific output.
Direct costs are charged directly to outputs. Personnel costs are charged directly to the business unit within the output to which they belong.
For the year ended 30 June 2008, direct costs accounted for 70% of the Ministry’s costs (2007: 78%).
Indirect costs are assigned to business units based on the proportion of staff in the unit.
For the year ended 30 June 2008, indirect costs accounted for 30% of the Ministry’s costs (2007: 22%).
Changes in Accounting Policies
Accounting policies are changed only if the change is required by a standard or interpretation or otherwise provides more reliable and more relevant information.
There have been no significant changes in cost accounting policies, since the date of the last audited financial statements.
Critical Accounting Estimates and Assumptions
In preparing these financial statements the Ministry has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Retirement and Long Service Leave
Note 10 provides an analysis of the exposure in relation to estimates and uncertainties surrounding retirement and long service leave liabilities.
Critical Judgements in Applying the Ministry’s Accounting Policies
Management has not exercised any critical judgements in applying the Ministry’s accounting policies for the period ended 30 June 2008
Updated on 23rd July 2015