Part 6: Forecast financial statements for 2008/09
Introduction
The Auditor-General’s forecast financial statements have been prepared in accordance with sections 38, 41(1), and 45G of the Public Finance Act 1989, and are consistent with generally accepted accounting practice. 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 40-54 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. However, in 2008/09 there will be additional fee revenue and cost associated with the audit of LTCCPs.
- 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 private sector accounting firms.
These assumptions are adopted as at 15 April 2008.
Statement of accounting policies
Reporting entity
These are the prospective financial statements of the Auditor-General, prepared in accordance with sections 41(1) and 45F 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.
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 2008/09 comply with the applicable financial reporting standards, which include NZ IFRS and other applicable financial reporting standards, as for a public benefit entity.
This Annual Plan complies with Financial Reporting Standard No. 42: Prospective Financial Statements.
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.
Crown revenue 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 balance sheet 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 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 prospective 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 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 prospective 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 to 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 prospective financial performance.
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 Statement of prospective financial performance when the asset is derecognised.
Impairment
All assets are assessed for impairment at least annually. Where there are indicators of impairment for those assets, the asset’s recoverable amount will be determined. Where the recoverable amount is lower than carrying amount, an impairment loss will be recognised and the asset written down to recoverable amount.
Goods and Services Tax (GST)
Amounts in the financial statements are reported exclusive of GST, except for payables 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 we have 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 flows 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 presented in the income statement.
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.
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
There have been no changes in accounting policies from those contained in the Annual Plan for 2007/08.
Since our last audited financial statements (30 June 2007), 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 in the Statement of prospective financial position.
Statement of prospective financial performance
for the year ending 30 June 2009
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 59.
| 2007/08 | 2008/09 | ||
|---|---|---|---|
| Budgeted* | Estimated actual** | Forecast | |
| $000 | $000 | $000 | |
| Revenue | |||
| Crown | 9,620 | 9,620 | 9,896 |
| Departments | 10,494 | 10,494 | 9,680 |
| Income of contracted audit service providers | 23,506 | 23,506 | 23,918 |
| Other | 24,708 | 24,708 | 27,734 |
| Total revenue | 68,328 | 68,328 | 71,228 |
| Expenses | |||
| Personnel costs | 32,367 | 32,367 | 33,760 |
| Operating costs | 11,137 | 11,137 | 11,999 |
| Depreciation and amortisation | 1,198 | 1,198 | 1,431 |
| Fees charged by contracted audit service providers | 23,506 | 23,506 | 23,918 |
| Capital charge | 120 | 120 | 120 |
| Total expenses | 68,328 | 68,328 | 71,228 |
| Surplus | - | - | - |
* Budgeted figures incorporated both the Main Estimates and Supplementary Estimates appropriations for 2007/08.
** The amounts in this column reflect actual results to 29 February 2008 and the forecast results for the remaining four months to 30 June 2008.
Statement of prospective movements in taxpayers’ funds (equity)
for the year ending 30 June 2009
This statement combines information about the surplus with other aspects of our financial performance to give a comprehensive measure of income.
| 2007/08 | 2008/09 | ||
|---|---|---|---|
| Budgeted* | Estimated actual** | Forecast | |
| $000 | $000 | $000 | |
| Taxpayers’ funds brought forward at 1 July | 3,521 | 3,521 | 3,521 |
| Movements during the year | |||
| Surplus | - | - | - |
| Total recognised revenues and expenses for the year | - | - | - |
| Flows to and from the Crown | |||
| Provision for payment to the Crown | - | - | - |
| Taxpayers’ funds at 30 June | 3,521 | 3,521 | 3,521 |
Statement of prospective financial position
as at 30 June 2009
This statement reports the total assets and liabilities. The difference between the assets and liabilities is called taxpayers’ funds.
| Budgeted as at 30 June 2008 |
Estimated Actual as at 30 June 2008 |
Forecast as at 30 June 2009 |
|
|---|---|---|---|
| $000 | $000 | $000 | |
| Taxpayers’ funds | |||
| General funds | 3,521 | 3,521 | 3,521 |
| Total taxpayers’ funds | 3,521 | 3,521 | 3,521 |
| Represented by: Current assets |
|||
| Cash and cash equivalents | 3,800 | 3,800 | 3,979 |
| Prepayments | 389 | 389 | 397 |
| Work in progress | 1,556 | 1,556 | 1,587 |
| Trade and other receivables | 4,233 | 4,233 | 4,275 |
| Total current assets | 9,978 | 9,978 | 10,238 |
| Non-current assets | |||
| Plant and equipment | 1,628 | 1,628 | 1,529 |
| Intangible assets | 412 | 412 | 490 |
| Total non-current assets | 2,040 | 2,040 | 2,019 |
| Total assets | 12,018 | 12,018 | 12,257 |
| Current liabilities | |||
| Trade Payables | 5,190 | 5,190 | 5,296 |
| Provision for employee entitlements | 2,567 | 2,567 | 2,670 |
| Total current liabilities | 7,757 | 7,757 | 7,966 |
| Term liabilities | |||
| Provision for employee entitlements | 740 | 740 | 770 |
| Total term liabilities | 740 | 740 | 770 |
| Total liabilities | 8,497 | 8,497 | 8,736 |
| Net assets | 3,521 | 3,521 | 3,521 |
Statement of prospective cash flows
for the year ending 30 June 2009
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 Statement of prospective financial performance.
| 2007/08 | 2008/09 | ||
|---|---|---|---|
| Budgeted | Estimated actual | Forecast | |
| $000 | $000 | $000 | |
| Operating activities | |||
| Cash received from: | |||
| The Crown | 9,620 | 9,620 | 9,896 |
| Departments | 10,494 | 10,494 | 9,680 |
| Others | 24,554 | 24,554 | 27,653 |
| Cash disbursed on: | |||
| Operating costs* | 10,970 | 10,970 | 11,832 |
| Personnel costs | 32,304 | 32,304 | 33,688 |
| Capital charge | 120 | 120 | 120 |
| Net cash flow from operating activities | 1,274 | 1,270 | 1,589 |
| Investing activities | |||
| Cash received from: | |||
| Sale of plant equipment & intangible assets | 94 | 94 | 132 |
| Cash disbursed on: | |||
| Purchase of plant equipment & intangible assets | 943 | 943 | 1,542 |
| Net cash flow from investing activities | (849) | (849) | (1,410) |
| Financing activities | |||
| Cash disbursed on: | |||
| Payment to the Crown | 469 | 469 | - |
| Net cash flow from financing activities | (469) | (469) | - |
| Total net increase/(decrease) in cash held | (44) | (44) | 179 |
| Add Opening cash balance at 30 June | 3,844 | 3,844 | 3,800 |
| Closing cash balance at 30 June | 3,800 | 3,800 | 3,979 |
* The Statement of prospective cash flows does not include the contracted audit service provider audit fees because these do not involve any cash transactions within our organisation.
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 2009
This reconciliation discloses the non-cash adjustments applied to the surplus reported in the Statement of prospective financial performance on page 51 to arrive at the net cash flow from operating activities disclosed in the Statement of prospective cash flows on page 54.
| 2007/08 | 2008/09 | ||
|---|---|---|---|
| Budgeted | Estimated actual | Forecast | |
| $000 | $000 | $000 | |
| Surplus | - | - | - |
| Non-cash items | |||
| Depreciation and amortisation | 1,198 | 1,198 | 1,431 |
| Total non-cash items | 1,198 | 1,198 | 1,431 |
| Investing activity items | |||
| Profit on disposal of assets | - | - | - |
| Total investing activity items | - | - | - |
| Working capital movements | |||
| (Increase)/decrease in prepayments | - | - | (12) |
| (Increase)/decrease in receivables | (123) | (123) | (38) |
| (Increase)/decrease in work in progress | (31) | (31) | (31) |
| Increase/(decrease) in payables | 103 | 103 | 106 |
| Increase/(decrease) in current employee entitlements | 99 | 99 | 103 |
| Total net working capital movements | 48 | 48 | 128 |
| Movements in non-current liabilities | |||
| Increase/(decrease) in employee entitlements | 28 | 28 | 30 |
| Net cash flow from operating activities | 1,274 | 1,274 | 1,589 |
Statement of forecast capital expenditure
for the year ending 30 June 2009
This statement discloses the forecast capital expenditure for the 2008/09 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 2004 |
Actual June 2005 |
Actual June 2006 |
Actual June 2007 |
Budget June 2008 |
Estimated Actual* June 2008 |
Forecast June 2009 |
|
|---|---|---|---|---|---|---|---|
| $000 | $000 | $000 | $000 | $000 | $000 | $000 | |
| Plant and Equipment | |||||||
| Furniture and fittings | 69 | 401 | 484 | 77 | 94 | 94 | 0 |
| Office equipment | 29 | 104 | 11 | 17 | 16 | 16 | 70 |
| Motor vehicles | 283 | 512 | 507 | 429 | 382 | 382 | 616 |
| Computer hardware | 623 | 214 | 373 | 445 | 212 | 212 | 306 |
| Intangible Assets | |||||||
| Computer software | 188 | 288 | 176 | 254 | 239 | 239 | 550 |
| Total | 1,192 | 1,519 | 1,551 | 1,222 | 943 | 943 | 1,542 |
* Actual for the 8 months to 29 February 2008 plus budget for the period March-June 2008.
Forecast details of physical assets by category
as at 30 June 2009
| As at 30 June 2008 | Forecast Position as at 30 June 2009 | ||||
|---|---|---|---|---|---|
| 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 | 455 | 455 | 2,497 | 2,275 | 222 |
| Office equipment | 26 | 26 | 278 | 209 | 69 |
| Motor vehicles | 730 | 730 | 1,295 | 391 | 905 |
| Computer hardware | 417 | 417 | 3,028 | 2,694 | 333 |
| Intangible Assets | |||||
| Computer software | 412 | 412 | 3,484 | 2,994 | 490 |
| Total | 2,040 | 2,040 | 10,582 | 8,563 | 2,019 |
Prospective appropriation statement
for the year ending 30 June 2009
This statement breaks down the expenditure reported in the Statement of prospective financial performance (on page 51) and the Forecast output class operating statements (on page 59) with the corresponding appropriations appearing in Part B1 of Vote Audit for 2008/09 in the Estimates of Appropriations (parliamentary paper B.5, Vol. 1).
| $000 | |
|---|---|
| Departmental output expense | |
| Statutory auditor function (multi-class output appropriation) | |
| Supporting accountability to Parliament | 2,460 |
| Performance audits and inquiries | 6,587 |
| Statutory auditor function | 9,047 |
| Audit and assurance services (revenue-dependent appropriation) | 61,332 |
| Audit and assurance services - Crown-funded small entity audits | 150 |
| Total departmental output expense | 70,529 |
| Other expenses to be incurred by the Office | |
| Permanent Legislative Authority — Auditor-General’s and Deputy Auditor-General’s remuneration | 699 |
| Total operating expenses | 71,228 |
Forecast output class operating statements
for the year ending 30 June 2009
| Revenue Crown |
Revenue Depts |
Revenue Other |
Total Revenue |
Total expenses |
Surplus | |
|---|---|---|---|---|---|---|
| $000 | $000 | $000 | $000 | $000 | $000 | |
| Departmental output expense | ||||||
| Audit and assurance services (revenue-dependent appropriation) | ||||||
| Scope: This appropriation is limited to the performance of audit and related assurance services as required or authorised by statute. The Auditor-General is required to audit the financial statements of the Government, public entities’ financial statements, and other information that must be audited. The Auditor-General is also enabled to perform other services reasonable and appropriate for an auditor to perform and to audit other quasi-public entities. | ||||||
| 9,680 | 51,652 | 61,332 | 61,332 | |||
| Audit and assurance services | ||||||
| Scope: This appropriation is limited to the performance of audit and related assurance services as required or authorised by statute for smaller entities such as cemetery trusts and reserve boards. | ||||||
| 150 | - | - | 150 | 150 | - | |
| Statutory auditor function (multi-class output appropriation) | ||||||
| Basis - these output expenses use the same resources and contribute to the same outcome. | ||||||
| Performance audits and inquiries | ||||||
| Scope: This output class is limited to undertaking and reporting on performance audits and inquiries relating to public entities under the Public Audit Act 2001 and responding to requests for approvals in relation to pecuniary interest questions regulated by the Local Authorities (Members’ Interests) Act 1968. | ||||||
| 6,587 | 6,587 | 6,587 | - | |||
| Supporting accountability to Parliament | ||||||
| Scope: This output class is limited to reporting to Parliament and others as appropriate on matters arising from annual and appropriation audits, reporting to and advising select committees, and advising other agencies on the requirements of parliamentary and related accountability systems, to support Parliament in its holding the executive to account for its use of public resources. | ||||||
| 2,460 | - | - | 2,460 | 2,460 | - | |
| Total departmental output expenses | 9,197 | |||||
| Other expenses to be incurred by the Office | ||||||
| Permanent Legislative Authority - Auditor-General’s and Deputy Auditor-General’s remuneration | 699 | - | 699 | 699 | - | |
| Total operating expenses | 9,896 | 9,680 | 51,652 | 71,228 | 71,228 | - |
Forecast financial indicators
for the year ending 30 June 2009
| 2007/08 | 2008/09 | ||
|---|---|---|---|
| Budgeted (after Supplementary Estimates) |
Estimated actual |
Forecast | |
| $000 | $000 | $000 | |
| Operating results | |||
| Revenue: other than Crown | 58,708 | 58,708 | 61,332 |
| Output expenses | 67,629 | 67,629 | 70,529 |
| Other expenses | 699 | 699 | 699 |
| Surplus before capital charge | 120 | 120 | 120 |
| Surplus | - | - | - |
| Working capital | |||
| Net current assets* | 2,221 | 2,221 | 2,272 |
| Current ratio** | 129% | 129% | 129% |
| Average receivables and work in progress | 45 days | 50 days | 45 days |
| Resource utilisation | |||
| Physical and intangible assets | |||
| Total at year-end | 2,040 | 2,040 | 2,019 |
| Additions as % of physical assets | 46% | 46% | 76% |
| Taxpayers’ funds | |||
| Level at year-end | 3,521 | 3,521 | 3,521 |
| Forecast net cash flows | |||
| Surplus on operating activities | 1,274 | 1,274 | 1,589 |
| Deficit on investing activities | (849) | (849) | (1,410) |
| Deficit on financing activities | - | - | - |
| Net increase/(decrease) in cash held | (44) | (44) | 179 |
* Current assets minus current liabilities.
** Current assets as a proportion of current liabilities.
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