Introduction

This report serves two broad purposes:

• It constitutes our "annual report" on the 2005/06 audits of the Government reporting entity and its subentities – mainly as reflected in the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2006 (the Government financial statements), parliamentary paper B.11 2006.
• It brings to attention a number of other matters (related both directly and indirectly to events occurring in the financial year 2005/06) that we believe warrant consideration by Parliament.

Part 1 (pages 7-18) deals with the Government financial statements as audited and presented to the House. It discusses the significant matters arising from the 2005/06 audit.

Part 2 (pages 19-24) deals with the results of our audits of government departments for the year ended 30 June 2006. We include our usual:

• discussion of the audit opinions we issued on departments' financial reports; and
• assessments of departments' financial and service performance management, and this year note the progress made over the 13-year period that we have applied this framework.

Part 3 (pages 25-29) deals with changes we have made to our reporting to entities, Ministers, and select committees. These changes reflect our new framework for assessing departments' financial and service performance management.

Part 4 (pages 31-45) sets out details of the non-standard audit reports we issued during the period 1 January 2006 to 31 December 2006 on the annual financial reports of entities that are part of the Government reporting entity. We also report on non-standard audit reports issued on the annual financial reports of school boards of trustees.

Part 5 (pages 47-54) outlines the effect of the Public Audit Act 2001 – in particular, the identification of new public entities under the test for "control".

Part 6 (pages 55-61) outlines the public finance principles relating to the "Controller" function, summarises the unappropriated expenditure for 2005/06, and reports on some of the issues we have considered over the year.

Part 7 (pages 63-75) assesses the progress made by the Ministry of Education in reducing the incidence of unlawful expenditure by schools, which is a matter that we have reported on twice before.

Part 8 (pages 77-80) describes the work we intend to undertake in 2007/08 on service performance reporting by departments and most Crown entities, and explains how this work relates to the changes we have made to our reporting explained in Part 3.

Part 9 (pages 81-88) provides an update on progress made by the central government sector towards the transition to New Zealand equivalents to International Financial Reporting Standards.

Part 10 (pages 89-100) discusses the use of derivative financial instruments in central government.

Part 11 (pages 101-112) discusses the legislation and policy frameworks, and the activity by central and local government, relating to hazardous waste management.

Part 12 (pages 113-123) provides an overview of the Defence Sustainability Initiative, including its background, objectives, and governance, and discusses the current progress towards achieving its objectives.