Part 5: Forecast financial statements for 2007/08
Introduction
The Auditor-General’s forecast financial statements have been prepared in accordance with Part 4 of the Public Finance Act 1989, and are consistent with generally accepted accounting practice.1 The purpose of the forecast financial statements is to facilitate Parliament’s consideration of the appropriations for, and planned performance of, the Auditor-General. Use of this information for other purposes may not be appropriate. Readers are cautioned that actual results are likely to vary from the information presented here, and that the variations may be material.
These forecast financial statements have been prepared on the basis of assumptions as to future events that the Auditor-General reasonably expects to occur, associated with the actions he reasonably expects to take, as at the date that this information was prepared.
It is not intended that this published material will be updated.
Statement of significant underlying assumptions
The forecast financial statements on pages 42-56 have been compiled on the basis of existing Government policies and after the Auditor-General consulted with the Speaker and the Officers of Parliament Committee. The main assumptions are that:
- The Auditor-General’s portfolio of entities will remain substantially the same as for the previous year.
- The Auditor-General will continue to deliver the range of products currently provided and will also be in a position to deliver new products, or existing products in new ways, to cope with changing demands.
- The scale of annual audits will remain substantially the same.
- The balance of activity associated with inquiries and with advice to Parliament and others will continue to vary because of increases in demand and the effects of the Public Audit Act 2001.
- The Auditor-General will continue to use audit expertise from both Audit New Zealand and the private sector.
These assumptions are adopted as at 3 April 2007.
Statement of accounting policies
Reporting entity
These are the prospective financial statements of the Auditor-General, prepared in accordance with Part 4 of the Public Finance Act 1989.
The 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 purpose of the Public Finance Act 1989.
The Auditor-General’s activities include work undertaken by the Office of the Auditor-General, Audit New Zealand, and contracted audit service providers.
The financial statements have been prepared in accordance with NZ GAAP. They comply with NZ equivalents to IFRS and other applicable financial reporting standards, as for public benefit entity.
Measurement base
The prospective financial statements have been prepared on a historical cost basis. The financial statements are presented in New Zealand dollars, which is the functional and presentation currency of the entity, and values are rounded to the nearest thousand dollars.
Statement of compliance
The prospective financial statements for 2007/08 comply with the applicable financial reporting standards, which include NZ IFRS and other standards as for a public benefit entity. These are our first prospective financial statements complying with NZ IFRS, and we have applied NZ IFRS 1: First-time Adoption of NZ Equivalents to International Financial Reporting Standards.
See page 46 for an explanation of how the transition to NZ IFRS has affected our reported equity.
This Annual Plan complies with Financial Reporting Standard 42: Prospective Financial Statements.
Budgeted and estimated actual figures for 2006/07 are based on generally accepted accounting practice and policies applicable to that financial year.
Accounting policies
Revenue
Revenue is recognised to the extent that is probable that the economic benefits will flow to the Office of the Auditor-General and Audit New Zealand and the revenue can be reliably measured.
Crown operating appropriations
Revenue is derived 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 Office of the Auditor-General and Audit New Zealand is recognised as the work progresses and time is allocated within work in progress to public entities.
Income of audit service providers
Audit fee revenue from audits carried out by contracted audit service providers is also recognised as the work progresses based on advice from the contracted audit service providers. Contracted audit service providers invoice and collect audit fees directly from public entities.
Expenses
Fees paid to contracted audit service providers are recognised as the work progresses, based on advice from the contracted audit service providers. Contracted audit service providers invoice and collect audit fees directly from public entities.
Leases
Where substantially all of the risks and rewards of ownership are retained by the lessor, leases are classified as operating leases. All of our leases are operating leases.
Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.
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.
Cash and cash equivalents
The bank balance in the Statement of prospective financial position comprises cash at bank and cash in hand.
For the purpose of the Statement of prospective cash flows, cash and cash equivalents consists of cash and cash equivalents as defined above.
Work in progress
Work in progress is recognised at cost or net realisable value, whichever is lower.
Trade and other receivables
Receivables are recognised and carried at the original invoice amount less any allowable allowance for any uncollectible amounts.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. Provision for doubtful debts is determined with reference to objective evidence of impairment. Bad debts are written off when they are identified.
Plant and equipment
Motor vehicles, office equipment, furniture and fittings, and computer hardware are stated at cost less accumulated depreciation and any accumulated impairment in value. All items of plant and equipment costing more than $1,000 are capitalised.
Depreciation
Depreciation of plant and equipment is provided on a straight-line basis to allocate the cost of the assets, less their residual value, over their expected useful lives. The depreciation is charged to the statement of financial performance.The estimated useful lives are:
- Furniture and fittings 4 years
- Office equipment 2.5-5 years
- Computer hardware 2.5-5 years
- Motor vehicles 3-4 years.
An item of plant and or equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net sale proceeds and the carrying amount of the item, is included in the statement of financial performance in the year the item is derecognised.
Intangible assets
Computer software is a non-monetary asset without physical substance, and is therefore classified as an intangible asset. The useful life of the software has been assessed as being finite, and between 2.5 and 5 years.
Computer software is capitalised at cost, and the capitalised cost is amortised on a straight line basis over 2.5 to 5 years. After initial recognition, it is carried at cost less any accumulated amortisation and any accumulated impairment losses. The amortisation is taken to the statement of financial performance.
Computer software is tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Gains and losses arising from derecognition of computer software is measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Impairment
All assets are assessed for impairment at least annually. Where there are indicators of impairment for these assets, the asset’s recoverable amount will be determined. Where the recoverable amount is lower than the carrying amount, an impairment loss will be recognised and the asset written down to the recoverable amount.
Goods and Services Tax (GST)
Amounts in the financial statements are reported exclusive of GST, except forpayables and receivables in the Statement of prospective financial position, which include GST.
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).
Provisions
Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Annual leave and time off in lieu for overtime worked are recognised as they accrue to employees, based on current rates of pay. The present value of the estimated future cash loss relating to long service leave and retiring or resigning leave are recognised on an actuarial basis, annually.
Where sick leave balances accrue, a liability is recognised according to the portion of unutilised sick leave entitlements that are expected to be utilised in future periods.
The expense relating to the provision is recognised in the Statement of prospective financial performance.
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.
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 operating and capital 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 prospective financial position.
Contingent liabilities
Contingent liabilities are disclosed at the point at which the contingency is evident.
Impact of the adoption of NZ IFRS – treatment of sick leave
The impact of adopting NZ IFRS on the total equity is the recognition of a liability for sick leave (a provision of $21,000 that has accrued from past services at transition) on 1 July 2007.
Explanation of material adjustments to the Statement of prospective cash flows
There are no material differences between the cash flow statement presented under NZ IFRS and the cash flow statement presented under previous NZ GAAP.
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 the output class for the provision of audit and assurance services.
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.
Changes in accounting policies
We have changed our accounting policies to align with the adoption of NZ IFRS from 1 July 2007. We now accrue for non-vesting employee liabilities - that is, sick leave. Formerly, sick leave was not recognised until the period in which it was taken. Under NZ IFRS, sick leave is accrued when it is earned, as a liability to the Statement of financial position.
Statement of prospective financial performance for the year ending 30 June 2008
This statement reports the revenue and expenses relating to all outputs (goods and services) that we produce. A supporting statement showing the revenue and expenditure of each output class is on page 50.
| 2006/07 | 2007/08 | ||
|---|---|---|---|
| Budgeted* $000 |
Estimated actual** $000 |
Forecast $000 |
|
| Revenue | |||
| Crown | 9,335 | 9,335 | 9,599 |
| Departments | 10,147 | 10,147 | 9,177 |
| Income of audit service providers | 27,665 | 27,665 | 22,603 |
| Other | 21,884 | 21,884 | 22,201 |
| Total revenue | 69,031 | 69,031 | 63,580 |
| Expenses | |||
| Personnel costs | 28,353 | 28,353 | 29,045 |
| Operating costs | 11,711 | 11,711 | 10,499 |
| Depreciation and amortisation | 1,175 | 1,175 | 1,313 |
| Fees charged by contract auditors | 27,665 | 27,665 | 22,603 |
| Capital charge | 120 | 120 | 120 |
| Total expenses | 69,024 | 69,024 | 63,580 |
| Surplus | 7 | 7 | - |
* Budgeted figures incorporated both the Main Estimates and Supplementary Estimates appropriations for 2006/07.
** The amounts in this column reflect actual results to 28 February 2007 and the forecast results for the remaining four months to 30 June 2007.
The 2006/07 budgeted and estimated actual financial statements have been prepared under New Zealand Generally Accepted Accounting Practice, and the 2007/08 forecast financial statements have been prepared under New Zealand International Financial Reporting Standards.
Statement of prospective movements in taxpayers’ funds (equity) for the year ending 30 June 2008
This statement combines information about the surplus with other aspects of our financial performance to give a comprehensive measure of income.
| 2006/07 | 2007/08 | ||
|---|---|---|---|
| Budgeted* $000 |
Estimated actual** $000 |
Forecast $000 |
|
| Taxpayers’ funds brought forward to 1 July | 3,586 | 3,586 | 3,565 |
| Movements during the year | |||
| Surplus | 7 | - | - |
| Total recognised revenues and expenses for the year | 7 | - | - |
| Flows to and from the Crown | |||
| Provision for payment to the Crown | (7) | - | - |
| Taxpayers’ funds at 30 June | 3,586 | 3,586 | 3,565 |
The 2006/07 budgeted and estimated actual financial statements have been prepared under New Zealand Generally Accepted Accounting Practice, and the 2007/08 forecast financial statements have been prepared under New Zealand International Financial Reporting Standards.
Statement of prospective financial position as at 30 June 2008
This statement reports the total assets and liabilities. The difference between the assets and liabilities is called taxpayers’ funds.
| Budgeted as at 30 June 2007 $000 |
Estimated Actual as at 30 June 2007 $000 |
Forecast as at 30 June 2008 $000 |
|
|---|---|---|---|
| Taxpayers’ funds | |||
| General funds* | 3,586 | 3,586 | 3,565 |
| Total taxpayers’ funds | 3,565 | 3,565 | 3,565 |
| Represented by:
Current assets |
|||
| Cash and cash equivalents | 2,928 | 2,928 | 2,966 |
| Prepayments | 350 | 350 | 350 |
| Work in progress | 1,158 | 1,158 | 1,158 |
| Trade and other receivables | 3,500 | 3,500 | 3,500 |
| Total current assets | 7,936 | 7,936 | 7,974 |
| Non-current assets | |||
| Plant and equipment | 1,916 | 1,983 | 1,807 |
| Intangible assets | 384 | 317 | 455 |
| Total non-current assets | 2,300 | 2,300 | 2,262 |
| Total assets | 10,236 | 10,236 | 10,236 |
| Current liabilities | |||
| Trade payables | 3,693 | 3,393 | 3,700 |
| Provision for payment to the Crown | 7 | 7 | - |
| Provision for employee entitlements | 2,500 | 2,500 | 2,521 |
| Total current liabilities | 6,200 | 6,200 | 6,221 |
| Term liabilities | |||
| Provision for employee entitlements | 450 | 450 | 450 |
| Total term liabilities | 450 | 450 | 450 |
| Total liabilities | 6,650 | 6,650 | 6,671 |
| Net assets | 3,586 | 3,586 | 3,565 |
* The decrease in taxpayers’ funds between the 2006/07 closing balance and the 2007/08 opening balance represents the expected eff ect of adopting NZ IFRS. This arises from the expected liability adjustment relating to employee benefits.
The 2006/07 budgeted and estimated actual financial statements have been prepared under New Zealand Generally Accepted Accounting Practice, and the 2007/08 forecast financial statements have been prepared under New Zealand International Financial Reporting Standards.
Statement of prospective cash flows for the year ending 30 June 2008
This statement summarises the cash movements in and out during the year. It takes no account of money owed to us or owing by us, and therefore differs from the Satement of prospective financial performance.
| 2006/07 | 2007/08 | ||
|---|---|---|---|
| Budgeted* $000 |
Estimated actual* $000 |
Forecast $000 |
|
| Operating activities | |||
| Cash received from: | |||
| The Crown | 9,335 | 9,335 | 9,599 |
| Departments | 10,127 | 10,127 | 9,226 |
| Others | 21,913 | 21,913 | 22,443 |
| Cash disbursed on: | |||
| Operating costs* | 12,003 | 12,003 | 10,790 |
| Personnel costs | 28,353 | 28,353 | 29,045 |
| Capital charge | 120 | 120 | 120 |
| Net cash flow from operating activities | 899 | 899 | 1,313 |
| Investing activities | |||
| Cash received from: | |||
| Sale of plant equipment & intangibles | 278 | 278 | - |
| Cash disbursed on: | |||
| Purchase of plant equipment & intangibles | 1,241 | 1,241 | 1,275 |
| Net cash flow from investing activities | (963) | (963) | (1,275) |
| Financing activities | |||
| Cash disbursed on: | |||
| Payment to crown | - | - | - |
| Net cash flow from financing activities | - | - | - |
| Total net increase/(decrease) in cash held | (64) | (64) | 38 |
| Add Opening cash balance at 30 June | 2,992 | 2,992 | 2,928 |
| Closing cash balance at 30 June | 2,928 | 2,928 | 2,966 |
* The Statement of prospective cash flows does not include the audit service provider audit fees because these do not involve any cash transactions within the organisation.
The 2006/07 budgeted and estimated actual financial statements have been prepared under New Zealand Generally Accepted Accounting Practice, and the 2007/08 forecast financial statements have been prepared under New Zealand International Financial Reporting Standards.
Reconciliation of surplus in the Statement of prospective financial performance to the prospective net cash flow from operating activities for the year ending 30 June 2008
This reconciliation discloses the non-cash adjustments applied to the surplus reported in the Statement of prospective financial performance on page 47 to arrive at the net cash flow from operating activities disclosed in the Statement of prospective cash flows on page 50.
| 2006/07 | 2007/08 | ||
|---|---|---|---|
| Budgeted* $000 |
Estimated actual** $000 |
Forecast $000 |
|
| Surplus | 7 | 7 | - |
| Non-cash items | |||
| Depreciation and amortisation | 1,175 | 1,175 | 1,313 |
| Total non-cash items | 1,175 | 1,175 | 1,313 |
| Investing activity items | |||
| Profit on disposal of assets | (7) | (7) | - |
| Total investing activity items | (7) | (7) | - |
| Working capital movements | |||
| (Increase)/decrease in prepayments | 12 | 12 | - |
| (Increase)/decrease in receivables | 10 | 10 | - |
| (Increase)/decrease in work in progress | 220 | 220 | - |
| Increase/(decrease) in payables | (60) | (60) | - |
| Increase/(decrease) in current employee | (458) | (458) | - |
| Decrease in property lease liabilities | - | - | - |
| Decrease in finance lease liabilities | - | - | - |
| Total net working capital movements | (276) | (276) | - |
| Net cash flow from operating activities | 899 | 899 | 1,313 |
The 2006/07 budgeted and estimated actual financial statements have been prepared under New Zealand Generally Accepted Accounting Practice, and the 2007/08 forecast financial statements have been prepared under New Zealand International Financial Reporting Standards.
Statement of forecast capital expenditure for the year ending 30 June 2008
This statement discloses the forecast capital expenditure for the 2006/07 financial year (incurred in accordance with section 24 of the Public Finance Act 1989) that is primarily routine replacement and upgrade of the Office’s information technology, office equipment, and furniture and fittings.
| Actual June 2003 |
Actual June 2004 |
Actual June 2005 |
Actual June 2006 |
Budget June 2007 |
Estimated Actual* June 2007 | Forecast June 2008 |
|
|---|---|---|---|---|---|---|---|
| $000 | $000 | $000 | $000 | $000 | $000 | $000 | |
| Plant and Equipment | |||||||
| Furniture and fittings | 61 | 69 | 401 | 484 | 204 | 204 | 200 |
| Office equipment | 94 | 29 | 104 | 11 | 17 | 17 | 10 |
| Motor vehicles | 366 | 283 | 512 | 507 | 228 | 228 | 210 |
| Computer hardware | 80 | 623 | 214 | 373 | 409 | 409 | 460 |
| Intangible Assets | |||||||
|
Computer software |
164 | 188 | 288 | 176 | 383 | 383 | 396 |
| Total | 765 | 1,192 | 1,519 | 1,551 | 1,241 | 1,241 | 1,276 |
* Actual for the 8 months to 28 February 2007 plus budget for the period March-June 2007.
Forecast details of physical assets by category as at 30 June 2008
| As at 30 June 2007 | Forecast Position as at 30 June 2008 | ||||
|---|---|---|---|---|---|
| Budgeted Net Book Value |
Estimated Actual Net Book Value |
Cost | Accumulated Depreciation |
Net Book Value |
|
| $000 | $000 | $000 | $000 | $000 | |
| Plant and Equipment | |||||
| Furniture and fittings | 803 | 803 | 2,724 | 2,108 | 616 |
| Office equipment | 41 | 41 | 211 | 182 | 29 |
| Motor vehicles | 679 | 679 | 1,453 | 893 | 560 |
| Computer hardware | 460 | 460 | 2,876 | 2,274 | 602 |
| Intangible Assets | |||||
| Computer software | 317 | 317 | 3,063 | 2,608 | 455 |
| Total | 2,300 | 2,300 | 10,327 | 8,065 | 2,262 |
Prospective appropriation statement for the year ending 30 June 2008
Description of statement
This statement breaks down the expenditure reported in the Statement of prospective financial performance (on page 47) and the Forecast output class operating statements (on the next page) with the corresponding appropriations appearing in Part B1 of Vote Audit for 2007/08 in the Estimates of Appropriations (parliamentary paper B.5 Vol. 1).
| Departmental Output Expense | $000 |
|---|---|
| Legislative auditor (multi-class output appropriation) | |
| Parliamentary services | |
|
2,364 |
|
677 |
| 3,041 | |
| Performance audits and inquiries | 6,407 |
| Legislative auditor | 9,448 |
| Provision of audit and assurance services | |
|
150 |
|
54,132 |
| 54,282 | |
| Total departmental output expense | 63,580 |
Forecast output class operating statements for the year ending 30 June 2008
| Departmental output expense |
Revenue Crown $000 |
Revenue Depts $000 |
Revenue Other $000 |
Total Revenue $000 |
Total expenses $000 |
Surplus $000 |
|---|---|---|---|---|---|---|
| Legislative auditor (multi-class output appropriation) | ||||||
| Basis – these output expenses use the same resources and contribute to the same outcome. | ||||||
| Parliamentary Services | ||||||
| Scope: Assisting Parliament in its role of encouraging accountability for resources, including advice to Select Committees and others, and undertaking the Controller function. | ||||||
| 3,042 | - | - | 3,042 | 3,042 | - | |
| Performance audits and inquiries | ||||||
| Scope: Carrying out and reporting on performance audits and inquiries. | ||||||
| 6,407 | - | - | 6,407 | 6,407 | - | |
| Provision of audit and assurance services | ||||||
| Scope: The provision of audit services to public entities by Audit New Zealand and private sector audit providers, and audit-related assurance services undertaken by Audit New Zealand at the request of audited entities. | ||||||
| 150 | 9,177 | 44,804 | 54,131 | 54,131 | - | |
| Total | 9,599 | 9,177 | 44,804 | 63,580 | 63,580 | - |
Forecast financial indicators for the year ending 30 June 2008
| 2006/07 | 2007/08 | ||
|---|---|---|---|
| Budgeted (after Supplementary Estimates) $000 |
Estimated actual $000 |
Forecast $000 |
|
| Operating results | |||
| Revenue: other than Crown | 59,689 | 59,689 | 53,981 |
| Output expenses | 69,024 | 69,024 | 63,581 |
| Surplus before capital charge | 127 | 127 | 120 |
| Surplus | 7 | 7 | 120 |
| Working capital | |||
| Net current assets* | 1,736 | 1,736 | 1,774 |
| Current ratio** | 128% | 128% | 128% |
| Average receivables and work in progress | 26 days | 26 days | 28 days |
| Resource utilisation | |||
| Physical assets | |||
|
2,300 | 2,300 | 2,262 |
|
54% | 54% | 56% |
| Taxpayers’ funds | |||
| Level at year-end | 3,586 | 3,586 | 3,586 |
| Forecast net cash flows | |||
| Surplus on operating activities | 899 | 869 | 1,313 |
| Deficit on investing activities | (963) | (963) | (1,275) |
| Deficit on financing activities | - | - | - |
| Net increase/(decrease) in cash held | (64) | (64) | 38 |
* Current assets minus current liabilities.
** Current assets as a proportion of current liabilities.
1: We will adopt NZ IFRS from 1 July 2007, in line with the programme for NZ IFRS adoption by the Crown.
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