Annual Report 2007: Part six - Financial schedules - Crown as administered by Inland Revenue
Statement of accounting policies
Reporting entity
The Crown Financial Schedules have been prepared and administered by Inland Revenue in accordance with the requirements of the Public Finance Act 1989.
The schedules represent extracts of Crown activities. The activities include elements of income, expenditure, assets, liabilities and cash flows. These form part of the consolidated Crown financial statements of the New Zealand Government.
Measurement system
The schedules have been prepared on an accrual and modified historical cost basis of accounting unless otherwise stated. In line with the Statement of Concepts, an asset is recognised in the Statement of Financial Position only when it is probable that the future economic benefits will flow to the entity and the asset has a value that can be measured reliably.
Accounting policies
These Financial Schedules comply with the New Zealand generally accepted accounting practice (NZ GAAP). Compliance with NZ GAAP in this instance means complying with New Zealand financial reporting standards (NZ FRS) with the exception of student loans. Student loan recognition is detailed in note 1. The following accounting policies that materially affect the measurement of financial results and financial position have been applied.
Budget figures
The Main Estimates are the budget figures presented in May 2006 and the Supplementary Estimates are those presented in May 2007.
Revenue
The Crown provides many services and benefits that do not give rise to revenue. Payment of tax does not entitle a taxpayer to an equivalent value of services or benefits, as there is no direct relationship between paying tax and receiving Crown services and transfers. Where possible, revenue is recognised at the time the debt to the Crown arises.
| Revenue type | Revenue recognition point |
|---|---|
| Source deductions (PAYE) | When an individual earns income that is subject to PAYE |
| Resident withholding tax | When an individual is paid interest or dividends subject to deduction at source |
| Fringe benefit tax (FBT) | When benefits are provided that give rise to FBT |
| Provisional tax | Provisional tax is recognised in the period which it is earned |
| Terminal tax | Assessment filed date |
| Goods and service tax | When the liability to the Crown is incurred |
| Stamp, cheque and credit card duties | When the liability to the Crown is incurred |
| Other indirect taxes | When the debt to the Crown arises |
Investment income
Investment income is recognised in the period in which it is earned.
Receivables and advances
Receivables and advances are recorded at the amounts expected to be ultimately collected in cash.
Student loans
Student loans are recorded at amortised cost. Student loan disclosures are recorded in note 1.
Liabilities
All liabilities are recorded at the estimated obligation to pay.
Contingent liabilities
Contingent liabilities are recorded in the Schedule of Contingent Liabilities at the point at which the contingency is evident.
Comparatives
Certain comparatives information has been reclassified to conform with the current year's presentation.
Change in accounting policies
There have been no changes in policies applicable to the preparation of financial schedules of Crown activities administered by Inland Revenue. All policies have been applied on a basis consistent with the previous year.
Adoption of New Zealand equivalents to international financial reporting standards
In line with other government entities Inland Revenue will prepare its financial statements for the year ending 30 June 2008 under New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). As part of the transition to NZ IFRS Crown - as administered by Inland Revenue has been reporting NZ IFRS information to Treasury since 1 July 2006. The following areas of the Crown schedules are impacted with the adoption of NZ IFRS.
Loans and receivables
Under NZ IAS 39 - Financial Instruments: Recognition and Measurement, financial assets (including loans and receivables) are required to be recognised initially at fair value and subsequently at amortised cost, using the effective interest rate method.
Inland Revenue has significant debtor portfolios which are designated as "Loans and Receivables". These include tax debt, child support debt and family support debt. On transition to NZ IFRS, these debtor portfolios will be recognised at fair value in the Financial Schedules for Administered Accounts.
Receivables - recognition
Receivables arising from taxes and duties meet the definition of assets under the NZ Framework, but are not within the scope of any specific standard under NZ IFRS. Such receivables are specifically excluded from the definition of financial instruments under NZ IAS 32, AG 12.
In accordance with NZ IAS 39, and the method of recognising income stated above, taxation and duties receivables should be initially measured at fair value and subsequently measured in accordance with the most similar designation of financial assets under NZ IAS 39. The most similar designation is that of loans and receivables.
The student loan debt has been recognised initially at fair value and subsequently at amortised cost in the previous and current financial years (see note 1).
Revenue recognition for taxes
Taxation and duties is accounted for as income under the NZ Framework, with an accounting treatment consistent with IPSAS 23. - Revenue from Non Exchange transactions (Taxes and Transfer). The Crown account recognised income from taxes and fines when, and only when, the following four criteria have been met:
- increases in future benefits can be measured reliably
- when the tax or duty becomes entitled
- when there is an enforceable right to the tax or duty, and
- an inflow of resources is more likely than not to occur.
Income measurements
Income from taxes and duties should be measured at fair value of the income equal the portion of the face value of tax/duty that is expected to be recovered based on past collection data for a group of similar items, discounted by applying an appropriate discount rate to the expected future cash flows.
Date published: 23 Oct 2007
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