Part 3: Financial Statements 2005-06

Annual report 2005-06.

Contents

Audit Report

Audit report: To the readers of the Controller and Auditor-General's financial statements for the year ended 30 June 2006 [PDF 523kB]

page top

Statement of Responsibility

As Controller and Auditor-General, I am responsible for the accuracy and judgements used in the preparation of the Financial Statements, and the establishment and maintenance of systems of internal control designed to provide ongoing assurance of the integrity and reliability of financial reporting.

Appropriate systems of internal control have been employed to ensure that:

  • all transactions are executed in accordance with authority
  • all transactions are correctly processed and accounted for in the financial records; and
  • the assets of the organisation are properly safeguarded.

In my opinion, the information set out in the Financial Statements and attached notes to those statements fairly reflects our service performance, financial activities, and cash flows for the year ended 30 June 2006, and our financial position as at that date.

K B Brady
Controller and Auditor-General
29 September 2006

(Countersigned)
M J Reid
Assistant Auditor-General
Corporate Business Services
(Chief Financial Officer)
29 September 2006

Statement of Objectives and Service Performance for the year ended 30 June 2006

We set out our statement of objectives and service performance for each output class in our Annual Plan 2005-06. Our performance during 2005-06 in each output class is set out below:

Output class D1 – Reports and advice arising from the exercise of the function of legislative auditor

Description

  • Reports to Parliament and other constituencies on matters arising from annual audits, performance audits and special studies, and inquiries.
  • Reports and advice to select committees – to assist in their reviews of performance, Estimates examinations, or other inquiries for which our assistance is sought.
  • Reports to portfolio Ministers on the results of annual financial report audits.
  • Responses to enquiries from taxpayers, ratepayers, and members of Parliament.
  • Advice to government bodies and other agencies – on auditing, accountability, and financial management in the public sector.
  • Administration of the provisions of the Local Authorities (Members' Interests) Act 1968.
  • Development of a written history of the Audit Office.

1 Reports to Parliament and other constituencies (reports on the results of annual audits, performance audits, major inquiries, and other activities)

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Reports on the results of annual audits 3 At least 2 2
Other reports (performance audits, major inquiries, other) 22 19 to 21 15
Hours undertaking performance audits 22,441 At least 20,500 17,159
Cost ($000) 4,261 5,331 3,914
Timeliness
All reports provided within the deadlines agreed in the terms of reference for inquiries or performance audit plans Partly achieved Achieve measure Partly achieved
Quality
Complete two independent reviews of performance audits and special studies Completed Complete review Completed
Conduct a stakeholder feedback study to ascertain the quality, relevance, and responsiveness of our reporting and advice Study undertaken (see pages 42-43) Undertake sample study Pilot survey undertaken

Comments

We produced reports on 22 performance audits and inquiries. A full list is presented in Appendix 3 on pages 99-100. Some performance audits took longer to complete than initially planned. This was primarily due to staff movement within the Performance Audit Group, and because in some instances it took longer than anticipated to receive comments from entities on draft reports. However, on average, it took us 11.5 months to produce each performance audit (compared to 12.3 months last year). The improvement in timeliness is due to better scoping and planning of performance audits, and an increased focus on timeliness.

External reviews of two performance audit reports were carried out by Marilyn Waring, Alex Matheson, and the Office of the Canadian Auditor-General. Generally, the reviews made favourable comments about the two reports.

2 Reports and advice to select committees and Ministers (on financial reviews, Estimates examinations, annual financial audits, and other matters)

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Financial reviews 81 80-90 70
Estimates examinations 42 40-50 49
Reports to portfolio Ministers 146 120-130 128
Other reports 5 20-30 6
Cost ($000) 1,129 874 794
Timeliness
All reports provided at least two days before an examination, unless otherwise agreed with a committee 100% 100% 97%
All reports provided to Ministers before select committee scrutiny of departmental and Crown entity performance 100% 100% 100%
All other reports provided in accordance with the terms of reference 100% 100% 100%
Quality
Conduct a stakeholder feedback study to ascertain the quality, relevance, and responsiveness of our reporting and advice Study undertaken (see pages 42-43) Undertake sample study Pilot survey undertaken

Comments

Two factors have contributed to the variances between forecast and actual performance in 2005-06, and between actual performance in 2004-05 and that in 2005-06.

While select committees consider all the entities and Votes allocated to them, only a selection are subjected to a full financial review or Estimates examination each year. The select committees decide which, and how many, entities and Votes receive such scrutiny, and therefore how many reports we have to prepare. The yearly variation that arises from this approach contributes to the difference between the number of reports provided in 2005-06, and the target number of reports for that year. The variation is also reflected in the difference between the number of reports provided in 2005-06, and the number provided in 2004-05.

Secondly, while 44 Votes were subjected to full examination by select committees in 2005-06, we provided reports on 42 Votes. Votes Education and Maori Affairs were examined the week after the Estimates were tabled. The time available before examination - three days - was not sufficient to allow reports of requisite quality to be prepared for use by the examining select committees. The Auditor-General therefore advised the Finance and Expenditure Committee that reports on these Votes could not be provided.

Under the code of practice for the provision of assistance by the Auditor-General to select committees and members of Parliament, the Auditor-General (unless otherwise directed by a select committee) is to provide a written brief for every financial review conducted, and every Vote examined, as directed by a select committee.

In 2005-06, we met this expectation, with the exception of the two instances discussed above.

3 Responses to enquiries from taxpayers, ratepayers, and members of Parliament

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Taxpayer enquiries 70 60 59
Ratepayer enquiries 144 180 157
Member of Parliament enquiries 14 30 22
Cost ($000) 1,734 1,216 1,315
Timeliness
Provide initial response within 5 working days 81% 100% 82%
Complete within 30 working days 72% 80% 57%
Advise if the response will take longer than 30 working days 73% 100% 95%
Quality
Conduct a stakeholder feedback study to ascertain the quality, relevance, and responsiveness of our reporting and advice Study undertaken (see pages 42-43) Undertake sample study Pilot survey undertaken

Comments

The overall number of enquiries that we received was slightly down from last year, although we received more enquiries from taxpayers than the previous year.

We completed a response to substantially more enquiries within the measure of 30 days than in the previous year, although we advised less where the response was to take more than 30 working days. During the year, we reviewed how we manage enquiries, and recruited additional staff to better facilitate the management, conduct, and timeliness of our response to enquiries.

As part of implementing the inquiries strategy, we have revised the performance measures that we will be reporting against for the 2006-07 year.

4 Advice to government bodies and other agencies

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Provide advice on demand * * *
Cost ($000) 1,446 1,221 1,351
Timeliness
We will deliver the advice in accordance with any terms of reference agreed, and meet the deadline in the terms of reference Achieved Achieve measure Substantially achieved
Quality
Conduct a stakeholder feedback study to ascertain the quality, relevance, and responsiveness of our reporting and advice Study undertaken (see pages 42-43) Undertake sample study Pilot survey undertaken

* This is a demand-driven activity for which there are no wholly satisfactory quantity measures. All reasonable requests for information and participation were met, including requests from:

  • the State Services Commission and the Treasury;

  • local government sector groups;
  • the Financial Reporting Standards Board, and various other committees;
  • the International Federation of Accountants – International Public Sector Accounting Standards Board;
  • delegations from other countries; and
  • INTOSAI Working Group on Environmental Auditing Professional Standards Committee (Steering Committee).

Comments

During 2005-06, we undertook significant work in this activity both domestically and internationally. We acted as advisors to select committees, provided comments on draft legislation and policy proposals, and worked with various sector groups on improvements to public sector accountability and reporting. In addition, the Performance Audit Group conducted two international peer reviews - one on two reports of the Australian National Audit Office and the other on four reports of the New South Wales Performance Audit Group.

A full description of the activities is detailed on page 35. We intend to maintain our future involvement at similar levels.

5 Administration of the provisions of the Local Authorities (Members' Interests) Act 1968

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Enquiries 49 80 106
Cost ($000) 52 99 70
Timeliness
Provide initial response within 5 working days 81% 100% 92%
Complete within 30 working days 86% 80% 96%
Advise if the response will take longer than 30 working days 57% 100% 100%
Quality
Conduct a stakeholder feedback study to ascertain the quality, relevance, and responsiveness of our reporting and advice Study undertaken (see pages 42-43) Undertake sample study Pilot survey undertaken

Comments

The number of enquiries was significantly lower than in previous years. We consider that elected members' overall levels of awareness and understanding of the statutory rules about pecuniary interests are increasing. We believe that our published guidance about the Act, and training seminars that we have undertaken in recent years, have contributed to this.

We are pleased to report that we did not become aware of any significant breaches of the Act during the year, and did not have to undertake any formal investigations with a view to prosecution.

6 History of the Audit Office

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Produce a written history of the Audit Office, in conjunction with the Ministry for Culture and Heritage


Cost ($000) 44 44 25
Timeliness
Project milestones achieved 100% 100% 100%
Quality
Use people with appropriate professional skills Achieved Achieved Achieved

Comments

We have made good progress in preparing a written history of the Audit Office. While we had originally intended to complete the project over a three-year period, we have extended it to five years after discussions with the Ministry for Culture and Heritage. Phase two of the project has been completed according to schedule during 2005-06, including:

  • completing draft chapters one (1840 to 1866) and seven (the Shailes era);
  • researching chapter two (1866 to the 1890s);
  • starting to draft chapter eight (the Tyler era);
  • undertaking further oral interviews of former Audit Office staff ; and
  • completing transcripts of all oral interviews previously undertaken.

Financial performance of Output Class D1

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Revenue
Crown 8,822 8,822 7,914
Other 8 - 2
Expenditure (8,666) (8,785) (7,469)
Surplus 164 37 447

Comments

Our expenditure is largely consistent with forecast levels. The small variance from forecast relates to general savings in operational overheads, including staff vacancies.

Output Class D2 - The Controller function

Description

This output class relates to the Controller function under sections 65Y to 65ZA of the Public Finance Act 1989.

The Controller function exists to provide independent assurance to Parliament that expenses and capital expenditure of departments and Offices of Parliament have been incurred for purposes that are lawful, and within the scope, amount, and period of the appropriation or other authority.

Performance against Output Class D2 Targets

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Monthly statements examined 10 12 -
Quality
The Controller and Auditor-General will examine monthly statements from the Treasury to ensure that expenses or capital expenditure have been incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other statutory authority 100% 100% -
Where there is reason to believe that a breach of appropriation or unlawful action has or may occur, drawn the matter to the attention of the Vote Minister, or considered exercising his powers under the Act 100% 100% -
Timeliness
Monthly statements reviewed and provided to the Approved Auditor within five days 100% 100% -
Where a breach has occurred or may occur, the relevant Minister informed within two days of it being verified 100% 100% -
Cost ($000)
Value of resources applied 53 91 83

Comments

The measures under this output class were new for 2005-06 because of the changes to the Controller function arising from the Public Finance Amendment Act 2004. No comparisons to previous years are therefore possible.

We carried out our work in accordance with our statutory responsibilities under the Public Finance Act 1989, the Auditor-General's auditing standards, and the memorandum of understanding with the Treasury.

We examined the monthly statements provided by the Treasury for the period September 2005 to June 2006. Under the Public Finance Act 1989, the Treasury does not have to provide statements for the months of July and August. We provided advice to the Treasury of the issues arising, including actual or potential breaches of appropriation, and the action required to address the issues identified.

Financial performance of Output Class D2

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Revenue
Crown 91 91 83
Expenditure (53) (91) (83)
Surplus 38 Nil Nil

Output Class D3 - Provision of audit and assurance services

Description

This output class relates to the conduct of the annual audits of public entity financial reports. These audits are undertaken by either Audit New Zealand or private sector auditors. Output class D3 is funded mainly by fees paid by the entities being audited or to which assurance services are being provided.

Annual audits result in:

  • audit reports - on whether the financial statements fairly reflect the financial and non-financial performance of these entities; and
  • management reports - to the management and governing bodies of these entities, on issues arising from the audit.

From 1 July 2005, two output classes (previously D3 and D4) were merged. The comparative figures for 2004-05 in the table following are the combined figures for the two previous classes.

Performance – in quantity and timeliness – against Output Class D3 targets


 Audit status Timely issue of audit reports Timely issue of management reports
Group Entities in group1 Audits carried out Arrears at year end Target2 Actual Target3 Actual
Government departments and Offices of Parliament 44 45 0 100% 98% 100% 100%
2004-05 45 45 0 100% 100% 100% 100%
Major statutory bodies4 112 113 6 100% 93% 100% 90%
2004-05 115 118 6 100% 91% 100% 93%
Regional, City, and District Councils 86 85 1 100% 98% 100% 80%
2004-05 86 86 0 100% 98% 100% 95%
Other local authorities5 436 426 73 100% 74% 100% 83%
2004-05 441 462 44 100% 74% 100% 90%
School Boards of Trustees 2474 2633 94 50% 19% 100% 99%
2004-05 2548 2645 155 50% 20% 100% 98%
Miscellaneous public bodies6 573 607 90 75% 59% 100% 92%
2004-05 575 605 89 75% 58% 100% 95%
Audits for which fees will not be charged7 145 154 51 75% 33% 100% 98%
2004-05 146 160 49 75% 33% 100% 100%
Totals 3870 4063 315



2004-05 3956 4121 343



  1. Figures may not balance exactly, or may vary from those presented in the Annual Plan 2005-06, because of in year changes to the audit portfolio.
  2. Audits will be completed and audited financial statements will be available within statutory deadlines or within five months of balance date.
  3. Management reports and letters will be issued within six weeks of the date of the audit report.
  4. State-owned enterprises, tertiary education institutions, producer boards, District Health Boards, Crown Research Institutes, and other major Crown entities.
  5. Licensing trusts, airports, council-controlled organisations, council-controlled trading organisations, energy companies, port companies, and Sinking Fund Commissioners.
  6. Mainly Maori Trust Boards, smaller Crown entities, and subsidiaries of major Crown entities.
  7. Entities where there is no statutory right to charge an audit fee or no realistic possibility of obtaining a fee - Cemetery Trustees, Hall and Reserve Boards, Racecourse Trustees, and Patriotic Funds. (From 2004-05, the Crown funded up to $190,000 of the cost of these audits.)

Performance - in quality - against Output Class D3 targets Measure 2005-06

Measure 2005-06
actual		 2005-06
forecast		 2004-05
actual
Quantity
Audit reports Work will be conducted with due professional care, ensuring measure adherence to standards of appropriateness, quality, efficiency, and independence as set out in the NZICA standards which the Auditor-General deems appropriate for the public sector Achieved Achieve measure Achieved
Management reports Achieved Achieve measure Achieved
Quality assurance reviews A quality assurance programme will be carried out on all audit arrangements and work undertaken Reviewed work of 45 auditors (see page 11) Review work of 40-50 auditors Programme undertaken
Stakeholder satisfaction Audit New Zealand will survey a range of its clients to ascertain satisfaction with the quality of work completed Not undertaken (see page 16) Undertaken report on survey Completed
Effectiveness We will report on the trend in non-standard audit reports issued up to and including the current year 9.1% (see pages 40-42) Report on trend 7.7% (see pages 11-12 of the Annual Report 2004-05)

Financial performance of Output Class D3


 2005-06
actual
$000		 2005-06
forecast
$000		 2004-05
actual
$000
Revenue
Crown 190 190 186
Other 42,729 44,115 35,300
Expenditure (42,981) (44,098) (35,157)
Surplus/(Deficit) (62) 207 329

Comments

From 1 July 2005, two output classes (previously D3 and D4) were merged. Comparative results for the previous year are therefore the combined figures for the two previous classes.

The variances to forecast revenue and expenditure largely relate to less audit fees being accounted for by contracted audit service providers (excluding Audit New Zealand). This audit service provider revenue is matched by expenditure of the same amount.

Financial performance indicators for the year ended 30 June 2006

Details of our performance against measures established in the Annual Plan 2005-06 are summarised below.

Measure 2005-06
actual
$000		 2005-06
forecast
$000		 Annual Plan
2005-06
$000		 2004-05
actual
$000
Operating results
Revenue: other than Crown 42,737 44,115 34,849 35,302
Output expenses 51,700 52,974 43,510 42,709
Surplus before capital charge 263 354 531 863
Surplus 140 244 244 776
Working capital management
Current assets less current liabilities 1,538 1,782 2,443 1,693
Current ratio 123% 130% 154% 124%
Average receivables and work in progress 42 days 35 days 57 days 42 days
Resource use
Physical assets:
Total physical assets at year-end 2,505 2,304 2,089 2,347
Additions as % of physical assets 60% 58% 64% 65%
Taxpayers' funds
Level at year-end 3,586 3,586 3,586 3,586
Net cash flows
Surplus/(Deficit) on operating activities 984 1,031 (326) 3,005
Surplus/(Deficit) on investing activities (1,368) (1,170) (1,170) (1,310)
Surplus/(Deficit) on financing activities (937) (938) (947) (422)
Net increase/(decrease) in cash held (1,321) (1,077) (2,443) 1,273

Statement of Accounting Policies for the year ended 30 June 2006

Reporting entity

These are the financial statements of the Controller and Auditor-General, prepared in accordance with sections 45A, 45B, and 45F of the Public Finance Act 1989.

The Controller and Auditor-General is a corporation sole established by section 10(1) of the Public Audit Act 2001, and is an Office of Parliament for the purposes of the Public Finance Act 1989.

The Controller and Auditor-General's activities include work undertaken by the Office of the Auditor-General (OAG) and Audit New Zealand (referred to collectively as "the Office"), and contracted audit service providers.

Measurement base

The financial statements have been prepared on a historical cost basis.

Accounting policies

Revenue

he Office derives revenue from the Crown for outputs provided to Parliament, from audit fees for the audit of public entities' financial statements, and from other assurance work carried out by Audit New Zealand at the request of public entities.

Revenue Crown is recognised in the period to which it relates. Audit fee and other assurance revenue earned by the OAG and Audit New Zealand is recognised as the work progresses and time is allocated within work in progress to public entities.

Audit fee revenue from audits carried out by contracted audit service providers is recognised in the period that the OAG is notified of the audits' completion. Contracted audit service providers invoice and collect audit fees directly from public entities.

Expenses

The remuneration of the Auditor-General and the Deputy Auditor-General, which is a charge against a permanent appropriation in terms of clause 5 of Schedule 3 of the Public Audit Act 2001, is recognised as an expense of the Office.

Revenue in advance

Revenue in advance is recognised where invoiced audit fees exceed the value of time allocated within work in progress to public entities.

Output cost allocation

Direct costs are those costs that are directly attributable to a single output.

Direct costs that can readily be identified with a single output are assigned directly to the relevant output class. For example, the cost of audits carried out by contracted audit service providers is charged directly to Output Class D3.

Indirect costs are all other costs. These costs include: payroll costs; variable costs such as travel; and operating overheads such as property costs, depreciation, and capital charges.

Indirect costs are allocated according to the time charged to a particular activity.

Receivables and work in progress

Receivables and work in progress are stated at estimated realisable value, after providing for non-recoverable amounts.

Leases

Leases which effectively transfer to the Office 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. Each lease payment is allocated between the liability and the finance expense, and the leased assets are depreciated on the same basis as other assets.

Where substantially all of the risks and rewards of ownership are retained by the lessor, leases are classified as operating leases. Operating lease costs are expensed on a systematic basis over the period of the lease.

Physical assets

Physical assets are recorded at cost, which is the value of the consideration given to acquire or create the asset, plus any directly attributable costs of bringing the asset into working condition for its intended use.

All physical assets costing more than $500 are capitalised.

Depreciation

Depreciation of physical assets is provided on a straight-line basis to allocate the cost of the assets, less their residual value, over their expected useful lives. The estimated useful lives are:

Furniture and fittings 4 years
Office equipment 2.5-5 years
IT hardware 2.5-5 years
IT software 2.5-5 years
Motor vehicles 3-4 years

Provision for employee entitlements

Annual leave and time off in lieu of overtime worked are recognised as they accrue to employees, based on current rates of pay. Long service leave and retiring or resigning leave are recognised on an actuarial basis. In calculating the present value of the estimated future cash outflows, the assumptions used in valuing the Government Superannuation Fund liability have been adopted.

Statement of Cash Flows

Cash means cash balances on hand, held in bank accounts, and deposits with the New Zealand Debt Management Office.

Operating activities include cash received from all income sources, and record 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.

Foreign currency

Foreign currency transactions, relating primarily to subscriptions and travel, are recorded at the New Zealand dollar exchange rate at the date of the transaction.

Financial instruments

Financial instruments primarily comprise bank balances, receivables, and payables, which are recognised in the Statement of Financial Position. Revenue and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance.

Goods and Services Tax (GST)

Amounts in the financial statements are reported exclusive of GST, except for:

  • payables and receivables in the Statement of Financial Position, which include GST; and
  • figures in the Statement of Appropriations, which include GST unless noted.

The amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between Output GST and Input GST, is included in payables or receivables (as appropriate).

Income tax

The organisation is exempt from paying income tax in terms of section 43 of the Public Audit Act 2001. Accordingly, no charge for income tax has been provided for.

Commitments

Future payments are disclosed as commitments at the point at which a contractual obligation arises. Commitments relating to employment contracts are not disclosed unless they had vested at balance date, in which case they are reflected in the item "Provision for employee entitlements" in the Statement of Financial Position.

Contingent liabilities

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

Changes in accounting policies

There have been no changes in accounting policies from those contained in the last audited financial statements.

Statement of Financial Performance for the year ended 30 June 2006

This statement reports the revenue and expenses relating to all outputs (goods and services) produced by the Office. Supporting statements showing the revenue and expenditure of each output class are on pages 70, 72, and 74.


 Notes 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Continuing activities
Revenue
Crown 2 9,103 9,103 8,183
Other 3 42,737 44,115 35,302
Total revenue
51,840 53,218 43,485
Expenses
Personnel costs
26,401 26,409 20,143
Operating costs 4 23,956 25,242 21,357
Depreciation 5 1,220 1,213 1,122
Capital charge 6 123 110 87
Total expenses
51,700 52,974 42,709
Surplus
140 244 776

*See Note 1 on page 88.

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Movements in Taxpayers' Funds (Equity) for the year ended 30 June 2006

This statement combines information about the surplus with other aspects of the financial performance of the Office, to give a measure of comprehensive income.


 Notes 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Taxpayers funds brought forward at 1 July
3,586 3,586 3,586
Movements during the year
Surplus
140 244 776
Total recognised revenues and expenses for the year
140 244 776
Flows to and from the Crown
Surplus payment due to the Crown 7 (140) (244) (776)
Taxpayers' funds at 30 June
3,586 3,586 3,586

*See Note 1 on page 88.

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Financial Position as at 30 June 2006

This statement reports total assets and liabilities. The difference between the assets and liabilities is called taxpayers' funds.


 Notes 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Taxpayers funds
General funds
3,586 3,586 3,586
Total taxpayers' funds
3,586 3,586 3,586
Represented by:
Current assets
Cash and bank balances 8 2,992 3,236 4,313
Prepayments
362 290 388
Work in progress
1,378 550 430
Receivables 9 3,510 3,650 3,633
Total current assets
8,242 7,726 8,764
Non-current assets
Physical assets 10 2,505 2,304 2,347
Total non-current assets
2,505 2,304 2,347
Total assets
10,747 10,030 11,111
Current liabilities
Payables and accruals 11 3,613 3,200 3,531
Surplus payment due to the Crown 7 140 244 776
Provision for employee entitlements 12 2,951 2,500 2,491
Property lease liabilities 13 - - 111
Finance lease liabilities 14 - - 162
Total current liabilities
6,704 5,944 7,071
Term liabilities
Provision for employee entitlements 12 457 500 454
Property lease liabilities 13 - - -
Finance lease liabilities 14 - - -
Total term liabilities
457 500 454
Total liabilities
7,161 6,444 7,525
Net assets
3,586 3,586 3,586

*See Note 1 on page 88.

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Cash Flows for the year ended 30 June 2006

This statement summarises the cash movements in and out of the Office during the year. It takes no account of money owed to the Office or owing by the Office, and therefore differs from the Statement of Financial Performance.


 Notes 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Operating activities
Cash received from:
The Crown
9,208 9,063 8,077
Others**
27,145 28,546 22,589
Cash disbursed on:
Production of outputs**
(32,181) (33,323) (24,900)
Net GST paid
(3,056) (3,145) (2,572)
Finance charges
(9) - (102)
Capital charge
(123) (110) (87)
Net cash flow from operating activities 15 984 1,031 3,005
Investing activities
Cash received from:
Sale of physical assets
142 170 209
Cash disbursed on:
Purchase of physical assets
(1,510) (1,340) (1,519)
Net cash flow from investing activities
(1,368) (1,170) (1,310)
Financing activities
Cash disbursed on:
Surplus payment to the Crown
(775) (776) (158)
Repayment of finance lease
(162) (162) (264)
Net cash flow from financing activities
(937) (938) (422)
Total net increase in cash held
(1,321) (1,077) 1,273
Add opening cash balance at 1 July
4,313 4,313 3,040
Closing cash balance at 30 June
2,992 3,236 4,313

*See Note 1 on page 88.

**The Statement of Cash Flows does not include the contracted audit service provider audit fees, as these do not involve any cash transactions within the Office.

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Commitments as at 30 June 2006

This statement records those expenditures to which the Office is contractually committed at 30 June 2006, and which will become liabilities if and when the terms of the contracts are met.

The Office has long-term leases on its premises. The annual property lease payments are subject to regular reviews, ranging from 3-yearly to 6-yearly.

Equipment lease commitments include leases of telephone exchange systems, facsimile machines, and photocopiers.


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Capital commitments
Less than one year - -
Total capital commitments - -
Operating lease commitments
Property lease commitments
Less than one year 1,670 1,600
One to 2 years 1,096 966
2 to 5 years 1,786 704
More than 5 years 472 -
Total property lease commitments 5,024 3,270
Equipment lease commitments
Less than one year 273 278
One to 2 years 220 257
2 to 5 years 18 54
Total equipment lease commitments 511 589
Total operating lease commitments 5,535 3,859

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Contingent Liabilities as at 30 June 2006

This statement discloses situations that existed at 30 June 2006, the ultimate outcome of which is uncertain and will be confirmed only on the occurrence of one or more future events after the date of approval of the financial statements.

The Office did not have any contingent liabilities as at 30 June 2006 (nil as at 30 June 2005). There is potential for claims to arise against the Office because of defalcations and other losses within entities of which the Auditor-General is the auditor. No demands for compensation have been made by any party as at the date of these financial statements. It is therefore impracticable to estimate any potential financial effect. The Office has professional indemnity insurance.

There were no contingent assets as at 30 June 2006 (nil as at 30 June 2005).

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Appropriations for the year ended 30 June 2006

This statement reports actual expenses incurred against each appropriation administered by the Office.

Operating flows Output Expenses
GST exclusive
$000		 Appropriations
GST exclusive
$000
Annual appropriations
Mode B Gross
D1 Reports and advice to Parliament 8,030 8,149
D2 Controller function 53 91
D3 Provision of audit and assurance services 42,981 44,098
Total annual appropriations 51,064 52,338
Other appropriations
Mode B Gross
D1 Reports and advice to Parliament1 636 636
Total other appropriations 636 636
Total output expenses as reported in the Statement of Financial Performance 51,700
Capital flows
Non-departmental annual appropriation
Repayment of debt
Overdraft repayment2
Total appropriations
52,974

1 Costs incurred pursuant to clause 5 of Schedule 3 of the Public Audit Act 2001.

2 Provides for the repayment of principal on an overdraft facility.

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Statement of Unappropriated Expenditure for the year ended 30 June 2006

The Office incurred no unappropriated expenditure during the year ended 30 June 2006 (nil for the year ended 30 June 2005).

Statement of Trust Money for the year ended 30 June 2006

On 1 November 1996, the Office was appointed Secretary-General of the South Pacific Association of Supreme Audit Institutions (SPASAI). SPASAI exists to encourage, promote, and advance co-operation among its public audit members.

A trust account records the financial transactions the Office undertakes on behalf of SPASAI. All trust money transactions are recorded on a cash basis.

None of the transactions associated with the SPASAI trust account are recorded within the Statement of Financial Performance or the Statement of Financial Position.


 2005-06
actual
$000		 2004-05
actual
$000
Opening balance at 1 July 25 36
Receipts 385 124

410 160
Payments 382 (135)
Closing balance at 30 June 28 25

The accounting policies on pages 76-79 and notes on pages 88-96 form part of these statements.

Notes to the Financial Statements for the year ended 30 June 2006

Note 1: Budget estimates

The estimate and forecast information for the year is extracted from the Estimates of Appropriations approved by Parliament, the changes made in conjunction with the Supplementary Estimates approved by Parliament, and the aggregate budget estimates, all of which are unaudited.


 2005-06
Main budget estimates
$000		 2005-06
Supplementary estimate changes
$000		 2005-06
Final forecast estimates
$000		 2005-06
Estimated actuals (forecast)
$000
Revenue
Crown 8,905 198 9,103 9,103
Other 34,849 9,266 44,115 44,115
Total revenue 43,754 9,464 53,218 53,218
Expenses
Personnel costs 21,211 5,198 26,409 26,409
Operating costs 20,782 4,460 25,242 25,242
Depreciation 1,230 (17) 1,213 1,213
Capital charge 287 (177) 110 110
Total expenses 43,510 9,464 52,974 52,974
Surplus 244 - 244 244

Forecasts represent the estimated actuals prepared in March 2006 as part of the 2006-07 Central Government budget process.

Note 2: Revenue Crown

The Crown provides revenue to meet the costs of the Office in assisting Parliament in its role of ensuring accountability for public resources. The services provided to Parliament include reports to Parliament and other constituencies, reports and advice to select committees, responding to taxpayer and ratepayer enquiries, advice to government bodies and other agencies, administering the provisions of the Local Authorities (Members' Interests) Act 1968, and writing a history of the Audit Office.

Note 3: Revenue Other


 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Audit fees - departments 7,685 6,947 7,841
Audit fees - other 35,044 37,168 27,459
Miscellaneous 8 - 2
Total revenue other 42,737 44,115 35,302

*See Note 1 on page 88.

Note 4: Operating costs

Operating costs include:


 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Loss on sale of physical assets (10) - 61
Write-off of physical assets - - -
Increase in provision for doubtful receivables (102) - 89
Fees to auditors for the audit of the Office's financial statements 79 80 73
Fees to auditors for other services provided to the Office 19 - 2
Finance lease costs 9 - 102
Equipment lease costs 63 204 69
Property lease costs 1,600 1,700 1,588
Fees paid to contracted auditors for audits of public entities 14,619 15,372 13,223

*See Note 1 on page 88.

Note 5: Depreciation charge


 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Furniture and fittings 261 185 147
Office equipment 79 123 98
IT hardware 300 246 314
IT software 333 517 365
Motor vehicles 247 142 198
Total depreciation charge 1,220 1,213 1,122

*See Note 1 on page 88.

Note 6: Capital charge

The Office pays a capital charge to the Crown on its average taxpayers' funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2006 was 8.0% (in 2005, it was 8.0%).

During the financial year, the Office continued to participate in a pilot differential capital charge scheme. Under the scheme, interest earned on cash bank balances and term deposits (at 4.8%) was off set against the capital charge. For the year ended 30 June 2006, the capital charge reduced by $157,070 (in 2005, it reduce by $206,366) because of the scheme.

Note 7: Surplus payment due to the Crown

The Office is not permitted to retain operating surpluses under the Public Finance Act 1989. Thus, the surplus for the year of $140,000 is repayable to the Crown.


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Surplus 140 776
Total provision for payment to the Crown 140 776

Note 8: Overdraft facility

The Office has the use of an overdraft facility to manage its seasonal cash flows during the second half of the financial year. The overdraft limit is $500,000, and interest is charged on the daily balance at Westpac Banking Corporation's Prime Lending Rate.

During this financial year, no funds were drawn down under the facility (and none were drawn down in 2004-05).

Note 9: Receivables


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Trade receivables 3,821 3,937
Provision for doubtful receivables (320) (422)
Net trade receivables 3,501 3,515
Crown debtor 1 106
Other receivables 8 12
Total receivables 3,510 3,633

Note 10: Physical assets


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Freehold assets
Furniture and fittings
At cost 2,678 2,543
Accumulated depreciation (1,718) (1,811)
Furniture and fittings at net carrying value 960 732
Office equipment
At cost 1,066 1,067
Accumulated depreciation (966) (899)
Office equipment at net carrying value 100 168
IT hardware
At cost 1,711 1,428
Accumulated depreciation (1,264) (1,062)
IT hardware at net carrying value 447 366
IT software
At cost 2,693 2,529
Accumulated depreciation (2,430) (2,096)
IT software at net carrying value 263 433
Motor vehicles
At cost 1,061 826
Accumulated depreciation (326) (225)
Motor vehicles at net carrying value 735 601
Leased assets
IT hardware
At cost - 426
Provision for write-down - (259)
At cost less write-down - 167
Accumulated depreciation - (120)
Leasehold office equipment at net carrying value - 47
Total physical assets at net carrying value 2,505 2,347

Note 11: Payables and accruals


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Trade payables 1,977 1,964
Revenue in advance 1,240 1,282
Accruals 396 285
Total payables and accruals 3,613 3,531

Note 12: Provision for employee entitlements


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Current liabilities
Annual leave 1,292 1,237
Long service leave 58 52
Time off in lieu of overtime worked 61 63
Salary and other accruals 1,164 836
Retiring leave 376 303
Total current liabilities 2,951 2,491
Non-current liabilities
Long service leave 80 75
Retiring/resigning leave 377 379
Total non-current liabilities 457 454
Total provision for employee entitlements 3,408 2,945

Note 13: Property lease liabilities

Property lease liabilities consist of the unamortised value of lease inducements received.


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Current liabilities (payables and accruals) - 111
Non-current liabilities - -
Total property lease liabilities - 111

Note 14: Finance lease liabilities


 30 June 2006
actual
$000		 30 June 2005
actual
$000
Finance leases
Current - 162
Non-current - -
Total - 162
Repayable as follows
One to 2 years - 171
2 to 5 years - -
Future finance charges - (9)
Recognised as a liability - 162

During the 2005-06 financial year, the Office's leases of laptop computers expired. The effective interest rate was 6.5%, and ownership of the asset remained with the lessor.

Under the Public Finance Act 1989, entering into financing lease arrangements is deemed to be raising a loan, which requires the approval of the Minister of Finance under the Public Audit Act 2001. The Office had received the Minister's approval for these leases.

Note 15: Reconciliation of surplus to net cash flow from operating activities

This reconciliation discloses the non-cash adjustments applied to the surplus reported in the Statement of Financial Performance on page 80, to arrive at the net cash flow from operating activities disclosed in the Statement of Cash Flows on page 83.


 2005-06
actual
$000		 2005-06
forecast*
$000		 2004-05
actual
$000
Surplus 140 244 776
Non-cash items
Depreciation 1,220 1,213 1,122
Write-off of physical assets - - -
Write-down of leased assets - - -
Total net non-cash Items 1,220 1,213 1,122
Working capital movements
(Increase)/decrease in prepayments 26 98 147
(Increase)/decrease in receivables 123 (17) (569)
(Increase)/decrease in work in progress (948) (120) 842
(Decrease)/increase in payables 81 (331) 659
(Decrease)/increase in employee entitlements 460 9 415
(Decrease)/increase in property lease liabilities (111) (111) 3
Total net working capital movements (369) (472) 1,497
Investing activity items
Loss/(profit) on sale of physical assets (10) - 61
Total investing activity items (10) - 61
Other items
Increase/(decrease) in non-current employee entitlements 3 46 (341)
Increase/(decrease) in non-current property lease liabilities - - (110)
Total other items 3 46 (341)
Net cash flow from operating activities 984 1,031 3,005

*See Note 1 on page 88.

Note 16: Financial instruments

The Office is a party to financial instrument arrangements as part of its everyday operations. These include instruments such as bank balances, receivables, and payables.

Credit risk

In the normal course of its business, the Office incurs credit risk from receivables and from transactions with financial institutions and the New Zealand Debt Management Office of the Treasury.

The Office has no significant concentrations of credit risk. No collateral or security is held or given to support financial instruments.

Interest rate risk

The Office has no interest rate risk, as all cash funds that earn interest are managed as part of the Crown's banking arrangements.

Currency risk

The Office has no exposure to currency risk, as all financial instruments are in New Zealand dollars.

Fair values

The estimated fair values of all financial assets and liabilities are equivalent to the carrying amounts disclosed in the Statement of Financial Position.

Note 17: Related party information

The Crown provides 17.6% of the Office's revenue directly (see Note 2 on page 88), and a further 14.8% is provided indirectly through fees for the audit of Government departments (see Note 3 on page 89). Also, the Office obtains revenue through fees for the audit of other public entities included in the financial statements of the Government of New Zealand.

The revenue provided by the Crown is for the operation of the Office, including the provision of outputs to Parliament, which is provided within a normal supplier/ recipient relationship.

Fees for the audit of public entities, including Government departments, are charged on a commercial basis at "arm's-length".

There are numerous other transactions the Office enters into with entities controlled by the Crown - for example, travel with Air New Zealand and postage with New Zealand Post. All of these other transactions are carried out on a commercial basis at "arm's-length".

Note 18: Office accommodation statistics

The following statistics are provided in accordance with directives issued by the Government to chief executives in 1991 on the management of departmental accommodation.


 30 June 2006
actual		 30 June 2005
actual
Area 283m2 6522m2
Number of staff 263 244
Space allocation per person 24m2 27m2
Total costs of leased office accommodation $1,600,154 $1,707,863
Rent costs per person $5,709 $5,907
Utility costs per person $375 $376
Vacant accommodation - -
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