Part 1: Introduction

Statements of corporate intent: Legislative compliance and performance reporting.

Statements of corporate intent are annual planning documents that various types of public entities are required by law to produce.

Public entities can demonstrate their accountability to shareholders and the public through their statement of corporate intent, because:

  • it outlines the entity's activities and intentions for the next three financial years;
  • it provides an opportunity for shareholders of the entity to influence the entity's direction by commenting on a draft version of the statement; and
  • the entity is required by law to report in its annual report on its performance against the targets set in the statement.

We were interested in this topic because statements of corporate intent are public accountability documents. It is important that public entities can demonstrate effective accountability by giving full and accurate reporting of their activities to their shareholders and the public.

We carried out a performance audit to examine the compliance of a range of public entities with their legislative requirements to:

  • produce a statement of corporate intent; and
  • report against the objectives and performance targets set in that statement in their annual reports.


Statements of corporate intent were first introduced as a legislative requirement for State-owned enterprises in 1986.1 The requirement to produce such a statement was later applied – with minor variations about the content – to other types of public entities, including:

  • Crown Research Institutes, under the Crown Research Institutes Act 1992;
  • energy companies, under the Energy Companies Act 1992; and
  • port companies, under the Port Companies Act 1988.

The legislative requirement to produce a statement of corporate intent also applied to local authority trading enterprises under amendments in 1989 to the Local Government Act 1974.2 Most of the provisions in the Act were repealed with the enactment of the Local Government Act 2002. The Local Government Act 2002 (the 2002 Act) removed the reference to local authority trading enterprises and introduced council-controlled organisations and council-controlled trading organisations.

A council-controlled organisation is an organisation in which one or more local authorities control half or more of the voting rights, or have the right to appoint half or more of the organisation's directors. A council-controlled trading organisation is a council-controlled organisation that trades to make a profit.

Council-controlled trading organisations and most council-controlled organisations are required by law to produce a statement of intent each year.3 Although these statements are called statements of intent, they are required by the 2002 Act to include most of the same information as statements of corporate intent. Because the requirements are so similar, we use the term statement of corporate intent to include both, and refer specifically to statements of intent only when discussing council-controlled organisations and council-controlled trading organisations.

How we carried out our audit

Our audit sample

We examined how well 54 public entities complied with their legislative requirement to produce a statement of corporate intent, and report against it in their annual reports.

Our sample of entities was chosen from council-controlled organisations and council-controlled trading organisations required to produce a statement of intent, and Crown Research Institutes, energy companies, port companies, and State-owned enterprises required to produce a statement of corporate intent.4 We included a range of small and large entities carrying out a diverse range of activities. In general, the council-controlled organisations tended to be smaller than other entities, and included a number of small non-profit trusts and incorporated societies.

More than 100 trusts and incorporated societies associated with local authorities became subject to the accountability requirements for council-controlled organisations under the 2002 Act. This is the first time that we have formally examined their compliance with the accountability requirements set out in the 2002 Act.

We applied different criteria to select our sample for each type of entity, because the number of each type of entity differs substantially:

  • for Crown Research Institutes, energy companies, and State-owned enterprises, we chose samples of statements of corporate intent from around half of each of the entity types;
  • we chose all eight of the 13 port companies (62%) that are required to produce a statement of corporate intent;5 and
  • with more than 230 council-controlled organisations and council-controlled trading organisations, we selected samples of 13% and 7% respectively. We chose entities to cover a range of entity sizes, geographical locations, and activities.

Figure 1 summarises the sample of entities we examined.

Figure 1
Sample of entities examined (by type of entity)

Entity type Sample size Total number of entities in category* Sample as % of total
Council-controlled organisations 12 92 13%
Council-controlled trading organisations 10 142 7%
Crown Research Institutes 5 9** 56%
Energy companies 10 22** 45%
Port companies 8 13** 62%
State-owned enterprises 9 18** 50%

* As at April 2007.
** Excluding subsidiaries.

What we looked at

We examined the compliance of each entity in our sample with its requirement to produce a statement of corporate intent. Appendix 2 summarises the legislative requirements that formed the basis of our examination.

The statements we examined for each entity were for the financial year beginning 1 July 2005. (The statements were therefore required to include the three years to 30 June 2008.) We selected statements for the financial year beginning 1 July 2005 so that we could see how the performance targets and measures given in the statements were later reported against in the entities' 2005/06 annual reports.

What we did not look at

We did not include government departments or "statutory" Crown entities in this performance audit. Government departments prepare statements of intent in keeping with the Public Finance Act 1989, while statutory Crown entities prepare statements of corporate intent in keeping with the Crown Entities Act 2004.

There are some differences of detail between the requirements for the entities examined in this performance audit, and the requirements imposed by the Public Finance Act on government departments and the Crown Entities Act on Crown entities. In our view, the findings and recomendations in this report provide useful lessons for all types of public entity required to produce a statement of corporate intent or statement of intent.

Our performance audit criteria

We expected public entities to comply with:

  • all applicable legislative requirements for the content of their statements; and
  • all applicable legislative requirements to report on the content of their statements in their annual reports.

We expected the performance targets and other measures used in the statements to:

  • cover a range of financial and non-financial targets, to enable a full assessment of an entity's activities;
  • be measurable;
  • be easy to understand, with any technical terms clearly explained; and
  • be clearly linked to the stated objectives of the entity.

In reporting against the statements of corporate intent and statements of intent, we expected entities' annual reports to contain:

  • relevant information to enable an informed assessment of the operation of the entity and its subsidiaries;
  • comparisons between planned and actual performance (an annual report should clearly and distinctly set out all the performance measures from the statement of corporate intent and the actual performance achieved); and
  • an explanation of variances (effective accountability requires explanations to be given for significant differences between the actual and planned performance of an entity).

1: See section 14 of the State-Owned Enterprises Act 1986.

2: Local authority trading enterprises were enabled to carry out the more commercial activities of local authorities.

3: However, a local authority can exempt a small council-controlled organisation from this and other accountability requirements, under section 7 of the 2002 Act.

4: Some reporting exemptions apply under the various pieces of legislation governing these entities. Appendix 1 summarises these exemptions.

5: We did not include four port companies that are publicly listed on the New Zealand Exchange and therefore not required to produce a statement of corporate intent under the Port Companies Act 1988, and one entity that is still classified as a port company but no longer undertakes port-related activities.

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