Statement of Intent 2006-09: Part Five - Forecast financial schedules for administered accounts - Crown
Statement of accounting policies and forecast assumptions
Measurement system
These schedules have been prepared on the basis of modified historical costs unless otherwise stated.
Forecast assumptions
For forecast purposes, no revaluations are projected beyond the current year.
General accounting policies
These forecast financial statements comply with generally accepted accounting practice. The following particular accounting policies, which materially affect the measurement of financial results and financial positions, have been applied.
Revenue
The Crown provides many services and benefits that do not give rise to revenue. Further, payment of tax does not, of itself, entitle a taxpayer to an equivalent value of services or benefits, as there is no direct relationshp 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[15] | When and 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[16] | Payment due date |
| Terminal tax[16] | Assessment filed date |
| Goods and services 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
Receibables and advances are recorded at the amounts expected to be ultimately collected in cash.
Liabilities
All liabilities are recorded at the estimated obligation to pay.
Specific accounting policies and forecast assumptions
Finalisation dates
The forecast financial statements were finalised on 20 April 2006.
Forecast periods
The reporting periods covered by these forecast financial schedules are the years ending 30 June 2006 and 30 June 2007. The forecast for 30 June 2006 has generally been prepared using actual data to 31 March 2006. Transactions for the remainder of the year are forecast in accordance with the Crown's accounting policies and forecast assumptions.
Changes in accounting policies
There has been a change in the accounting policy for student loans to better reflect their fair value under the new interest free policy. The accounting policy is to initally recognise student loans at their fair value and to subsequently report them at amortised cost. This accounting policy is to apply from 2005-06 and is consistent with the loans and receivables designated under New Zealand International Accounting Standard 39 (NZ IAS 39) for financial instruments.
The key changes resulting from the interest free student loan policy and adopting a new accounting policy are:
- Fair values have been calculated using a model contructed for the Ministry of Education. This model applies a number of assumptions on future income levels, repayment behaviour as well as economic assumptions such as the discount rate and inflation. As such, the estimated fair value of existing and new loans at initial recognition is sensitive to changes in these assumptions.
- There is a one-off write-down in 2005-06 of the existing stock of loans to fair value. This is recognised as an expense in 2005-06.
- The difference between the fair value and the new loans and the amount lent is recognised as an expense in the year the loan is provided.
- the initial fair value write-down will be unwound (ie recognised as income) over the maturity of the loans. The value will be adjusted for any impairment such as non-repayments caused by death or by bankruptcy of the borrowers.
- Interest write-offs are netted against interest income.
All other policies have been applied ona basis consistent with the previous year.
Adoption of New Zealand equivalents to international financial reporting standards
In August 2003 the Government announced that the Crown would apply New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) in the preparation of its financial statements from Budget 2007. To comply with this decision, Inland Revenue will apply NZ IFRS in the preparation of financial statement for the year ended 30 June 2008. However, as comparative figures must be presented on the same basis of accounting, the comparative figures for the year ending 30 June 2007, and an opening statement of forecast financial position at 1 July 2006, will need to be restated in accordance with NZ IFRS.
Inland Revenue has formed a project team to manage the transition to NZ IFRS. Where necessary, independent external advice is sought. The project is monitored by an internal project steering committee chaired by the Group Manager Finance and Planning in his capacity as Chief Financial Officer.
To date the project team has completed a high level assessment to identify key differences between current New Zealand Generally Accepted Accounting Practice (NZ GAAP) and NZ IFRS that have an impact on Inland Revenue. The project team is working towards the conversion timetable.
15 Corresponds to withholding taxes on residents' interest and dividends.
16 Provisional and terminal taxes are paid by "other persons" and companies.
Date published: 23 Aug 2006
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