Statement of Accounting Policies
A. The Reporting Entity
The Ministry of Agriculture and Forestry is a government department as defined by section 2 of the Public Finance Act 1989, and qualifies as a “public benefit entity” under the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).
The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. The Ministry has not applied any of the optional exemptions allowed on transition to NZ IFRS.
The forecast financial statements for 2007/08 are the first prepared using NZ IFRS. The comparative figures for 2005/06 and 2006/07 have not been restated to NZ IFRS. A reconciliation of taxpayers' funds under current GAAP and NZ IFRS is shown on page 64.
B. Purpose of Forecast Financial Statements
The Statement of Intent is a public document setting out the Government's expectations of the Ministry for the next three years. The Statement of Intent outlines the strategic context of the Ministry's role and the outcomes to which it is expected to contribute. The forecast financial statements form part of the Statement of Intent. The forecast financial statements form the basis for end-of-year reporting in the financial statements contained in the Annual Report and the basis on which these statements are audited. It is likely that the actual financial statements presented in the Annual Report will vary from the forecast financial statements, these variances may be material.
C. Significant Underlying Assumptions
The forecast financial statements have been compiled on the basis of existing Government policies and Output Plans agreed with the Ministers of Agriculture, Biosecurity and Food Safety at the time the statements were finalised. The statements have been prepared on a going concern basis. The measurement base adopted is that of historical cost modified by the revaluation of certain fixed assets. The Statements are presented in New Zealand dollars and all values are rounded to the nearest 1000 dollars ($000). The functional currency of the Ministry is New Zealand dollars.
The users of these forecast financial statements should note that no unwarranted credibility should be attached to the forecast financial statements as a number of assumptions have been made in their compilation. Factors that could lead to material differences between the forecast financial statements and the 2007/08 actual financial statements include the “machinery of government” review of governance arrangements for the New Zealand Food Safety Authority.
The Ministry does not intend to update the forecast financial statements subsequent to presentation of the Statement of Intent.
D. Accounting Policies
1. Revenue
The Ministry derives revenue through the provision of outputs to the Crown and for services to third-parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.
2. Unearned Revenue
Unearned revenue is revenue received in the current accounting period relating to services that the Ministry will provide in future accounting periods.
3. Cost Allocation
The Ministry has determined the cost of outputs using the cost allocation system as outlined below.
Direct costs are costs 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. Indirect costs are assigned to outputs based on various cost drivers including assessed charges and usage, personnel numbers and estimated allocation of time.
4. Debtors and Receivables
Receivables are recorded at estimated realisable value after providing for doubtful and uncollectible debts.
5. Leases
Leases which effectively transfer to the Ministry substantially all the risks and benefits incidental to ownership of the leased items are classified as finance leases. These are capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments. The leased assets and the corresponding lease liabilities are recognised in the Statement of Financial Position. The leased assets are depreciated over the period the Ministry is expected to benefit from their use. The interest expense component of finance lease payments is recognised in the Statement of Financial Performance.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease expenses are recognised on a systematic basis over the period of the lease.
6. Property, Plant and Equipment
Land and buildings are stated at fair value as determined by an independent registered valuer. Fair value is determined using market-based evidence. Land and buildings are revalued at least every five years. Additions between revaluations are recorded at cost.
The results of revaluing land and buildings are credited or debited to an asset revaluation reserve for that class of asset. Where a revaluation results in a debit balance in the revaluation reserve, the debit balances will be expensed in the Statement of Financial Performance.
All other fixed assets, or groups of assets forming part of a network which are material in aggregate, costing more than $5,000 are capitalised and recorded at cost. Any write-down of an item to its recoverable amount is recognised in the Statement of Financial Performance.
All property, plant and equipment is reviewed annually for impairment. Losses resulting from impairment are recognised in the Statement of Financial Position unless they reverse a prior revaluation.
7. Depreciation
Depreciation is provided on a straight line basis on all fixed assets, other than freehold land and items under construction, at a rate which will write off the cost (or valuation) of the assets to their estimated residual value over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:
Depreciation
| Buildings | 5-50 years | (2%-20%) |
| Leasehold improvements | 2-10 years | (10-50%) |
| Plant and equipment | 3-10 years | (10-33%) |
| Lease plant and equipment | 3 years | (33%) |
| Motor vehicles | 4-8 years | (12-25%) |
The cost of leasehold improvements is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful life of the improvements, whichever is shorter.
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.
8. Inventories
Inventories held for distribution are valued at the lower of cost and current replacement value. Inventories acquired for use in the provision of goods and services are valued at the lower of cost (assigned to inventory quantities on hand at balance date using the first in, first out (FIFO) basis) or net realisable value. Full provision is made for obsolescence where applicable.
9. Intangible Assets
Computer software is initially recorded at cost and then amortised on a straight-line basis over the useful life of the asset (three to seven years). Computer software is reviewed annually for impairment. Losses resulting from impairment are recognised in the Statement of Financial Position.
10. Provisions
Provisions are 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 expenditures will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
ACC Partnership Programme
The Ministry belongs to the ACC Partnership Programme whereby the Ministry accepts the management and financial responsibility of work-related illnesses and accidents of employees. Under the ACC Partnership Programme the Ministry is effectively providing accident insurance to employees and this is accounted for as an insurance contract. The future cost of ACC claim liabilities are revalued annually at balance date. Movements of the liability are reflected in the Statement of Financial Performance.
11. Employee Entitlements
Short-term benefits
Employee benefits 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 to, but not yet taken at balance date, retiring and long service leave entitlements expected to be settled within 12 months, and sick leave.
A sick leave liability is recognised to the extent that absences in the coming year are expected to be greater than sick leave entitlements earned in the coming year.
Long-term benefits
Entitlements that are payable beyond 12 months, such as long service leave and retiring leave, are calculated on an actuarial basis. 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 and contractual entitlements information, and the present value of future estimated cash flows.
12. Foreign Currencies
Transactions in foreign currencies are initially translated at the foreign exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Financial Performance.
13. Financial Instruments
The Ministry is party to financial instrument arrangements as part of its normal operations. These financial instruments include bank accounts, debtors, creditors, and finance leases. All financial instruments are recognised in the Statement of Financial Position and all revenues and expenses in relation to financial instruments are recognised in the Statement of Financial Performance.
Except for those items covered by a separate accounting policy all financial instruments are shown at their estimated fair value.
14. Goods and Services Tax (GST)
The Statement of Financial Position is exclusive of GST, except for Creditors and Payables and Debtors and Receivables which are GST inclusive. All other statements are GST exclusive. The amount of GST owing to or from Inland Revenue Department at balance date is included in Creditors and Payables or Debtors and Receivables (as appropriate).
15. Taxation
Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax is provided for.
16. Commitments
Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.
17. Contingent Liabilities and Contingent Assets
Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident. Contingent Liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.
E. Changes in Accounting Policies
No changes to accounting policies, including cost allocation policies, are anticipated over the forecast period.
Contact for Enquiries
Strategy and Performance Group
Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: +64 4 894 0100
Fax: +64 4 894 0738
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