Note 1: Statement of accounting policies

Reporting entity

The Controller and Auditor-General (the Office) is a corporation sole established by section 10(1) of the Public Audit Act 2001, is an Office of Parliament for the purposes of the Public Finance Act 1989, and is domiciled and operates in New Zealand. The relevant legislation governing the Office's operations is the Public Audit Act 2001. The Office's ultimate parent is the New Zealand Crown.

The Office's primary objective is to provide independent assurance to Parliament and the public about how public entities are performing, through auditing public entities, carrying out performance audits, providing reports and advice to Parliament, and carrying out inquiries and other special studies.

The Office has designated itself as a public benefit entity (PBE) for financial reporting purposes.

The financial statements of the Office are for the year ended 30 June 2018 and were authorised for issue by the Controller and Auditor-General on 28 September 2018.

Basis of preparation

The financial statements have been prepared on a going concern basis, and the accounting policies have been applied consistently throughout the year.

Statement of compliance

The financial statements of the Office have been prepared in accordance with the requirements of the Public Finance Act 1989, which include the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP) and Treasury Instructions.

The financial statements have been prepared in accordance with Tier 1 PBE Standards.

These financial statements comply with PBE Standards.

Presentation currency and rounding

The financial statements are presented in New Zealand dollars, and all values are rounded to the nearest thousand dollars ($000).

Standards issued and not yet effective and not early adopted

Standards and amendments issued but not yet effective, which have not been early adopted and which are relevant to the Office, are:

Financial Instruments

In January 2017, the External Reporting Board (XRB) issued PBE IFRS 9 Financial Instruments. This replaces PBE IPSAS 29 Financial Instruments: Recognition and Measurement. PBE IFRS 9 is effective for annual periods beginning on or after 1 January 2021, with earlier application permitted. The main changes under the standard are:

  • New financial asset classification requirements for determining whether an asset is measured at fair value or amortised cost.
  • A new impairment model for financial assets based on expected losses, which might result in the earlier recognition of impairment losses.
  • Revised hedge accounting requirements to better reflect the management of risks.

The timing of the Office adopting PBE IFRS 9 will be guided by the Treasury's decision on when the Financial Statements of the Government will adopt PBE IFRS 9. The Office has not yet assessed the effect of the new standard.

Impairment of Revalued Assets

In April 2017, the XRB issued Impairment of Revalued Assets, which now clearly scopes revalued property, plant, and equipment into the impairment accounting standards. Previously, only property, plant, and equipment measured at cost was scoped into the impairment accounting standards.

Under the amendments, a revalued asset can be treated as impaired without having to revalue the entire class-of-asset to which the asset belongs. The timing of the Office adopting this amendment will be guided by the Treasury's decision on when the Financial Statements of the Government will adopt the amendment.

Service Performance Reporting

In November 2017, the XRB issued PBE FRS 48 Service Performance Reporting, which establishes requirements for selection and presentation of service performance information. Previously, there has been no PBE standard dealing solely with performance reporting.

The Office has not yet assessed the effect of the new standard, which is required to be adopted from the 2021/22 financial year.

Budget and forecast figures

The forecast financial statements (Main Estimates 2018/19) have been prepared as required by the Public Finance Act 1989 to communicate forecast financial information for accountability purposes. The budget and forecast figures (all Estimates information) are unaudited and have been prepared using the accounting policies adopted in preparing these financial statements.

2017/18 Main Estimates and Supplementary Estimates

The 2017/18 Main Estimate forecast financial statements are consistent with the forecasts published in Budget 2017, and in the Office's 2016/17 annual report.

The 2017/18 Supplementary Estimate forecast financial statements are based on the updated forecasts published in Budget 2018.

2018/19 Main Estimates

The 2018/19 Main Estimate forecast financial statements are consistent with the forecasts published in Budget 2018. They have been prepared in accordance with PBE Financial Reporting Standard 42: Prospective Financial Statements and comply with that standard.

The 2018/19 forecast financial statements were approved for issue by the Deputy Controller and Auditor-General on 4 April 2018. The Deputy Controller and Auditor-General is responsible for the forecast financial statements, including the appropriateness of the assumptions underlying them and all other required disclosures.

While the Office regularly updates its forecasts, updated forecast financial statements for the year ending 30 June 2019 will not be published.

Significant assumptions used in preparing the forecast financial statements

The forecast figures contained in these financial statements reflect the Office's purpose and activities and are based on a number of assumptions on what might occur during the 2018/19 year. The forecast figures have been compiled on the basis of existing government policies and after the Deputy Controller and Auditor-General consulted with the Speaker and the Officers of Parliament Committee.

The main assumptions, which were adopted as at 4 April 2018, were as follows:

  • The Controller and Auditor-General's portfolio of entities will remain substantially the same as for the previous year.
  • The Controller and 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 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 Controller and Auditor-General will continue to use audit expertise from Audit New Zealand and private sector accounting firms.
  • Forecast personnel costs are based on expected staff numbers necessary to deliver the work of the Office, incorporating remuneration rates that are based on current costs adjusted for anticipated market changes.
  • Operating costs are based on estimates of costs that will be incurred under the Office's current operating model, with small allowances for price increases.
  • Forecast capital expenditure and depreciation are based on planned replacement of motor vehicles and IT equipment, plus continued investment in developing the Office's software programs.

The actual financial results achieved for 30 June 2019 are likely to vary from the forecast information presented, and the variations might be material. There are no known significant changes since the approval of the forecasts.

Summary of significant accounting policies

Significant accounting policies are included in the notes to which they relate.

Significant accounting policies that do not relate to a specific note are outlined below.

Goods and Services Tax

All items in the financial statements are presented exclusive of Goods and Services Tax (GST), except for receivables and payables, which are presented on a GST-inclusive basis. Where GST is not recoverable as input tax, it is recognised as part of the related asset or expense.

The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the Statement of financial position.

The net GST paid to or received from the IRD, including the GST relating to investing and financing activities, is classified as a net operating cash flow in the Statement of cash flows.

Commitments and contingencies are disclosed exclusive of GST.

Income tax

The Office is exempted from paying income tax by section 43 of the Public Audit Act 2001. Accordingly, no charge for income tax has been provided for.

Output cost allocation

The Office has determined the cost of outputs using allocations as outlined below.

Direct costs are those costs 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: Audit and Assurance Services RDA.

Indirect costs are those costs that cannot be identified in an economically feasible manner with a specific output. These costs include: corporate services 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.

There have been no changes in cost allocation policies since the date of the last audited financial statements.

Critical accounting estimates and assumptions

In preparing these financial statements, estimates and assumptions have been made concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are referred to below:

  • Audit fee revenue, work in progress, and income in advance – refer to Notes 3, 9, and 12.
  • Depreciation and amortisation – refer to Notes 10 and 11.
  • Retirement leave – refer to Note 14


Expenses yet to be incurred on non-cancellable contracts that have been entered into on or before balance date are disclosed as commitments to the extent that there are equally unperformed obligations.

Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the Statement of commitments at the value of that penalty or exit cost.