Independent auditor’s report

To the readers of Inland Revenue Department’s annual report for the year ended 30 June 2021

The Auditor-General is the auditor of Inland Revenue Department (Inland Revenue). The Auditor-General has appointed me, Kelly Rushton, using the staff and resources of Audit New Zealand, to carry out, on his behalf, the audit of:

the financial statements of Inland Revenue on pages 115 to 146¹, that comprise the statement of financial position, statement of commitments, statement of contingent liabilities and contingent assets as at 30 June 2021, the statement of comprehensive revenue and expense, statement of changes in taxpayers’ funds, and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information;
the performance information prepared by Inland Revenue for the year ended 30 June 2021 on pages 65 to 99²;
the statements of expenses and capital expenditure of Inland Revenue for the year ended 30 June 2021 on pages 108 to 112³; and
the schedules of non-departmental activities which are managed by Inland Revenue on behalf of the Crown on pages 150 to 186⁴ that comprise:
- the schedules of assets; liabilities; commitments; and contingent liabilities and assets as at 30 June 2021;
- the schedules of expenses; and revenue for the year ended 30 June 2021;
- the statement of trust monies for the year ended 30 June 2021; and
- the notes to the schedules that include accounting policies and other explanatory information.

Opinion

In our opinion:

the financial statements of Inland Revenue on pages 115 to 146¹:
- present fairly, in all material respects:
  - its financial position as at 30 June 2021; and
  - its financial performance and cash flows for the year ended on that date; and
- comply with generally accepted accounting practice in New Zealand in accordance with the Public Benefit Entity Reporting Standards.
the performance information of Inland Revenue on pages 65 to 99²:
- presents fairly, in all material respects, for the year ended 30 June 2021:
  - what has been achieved with the appropriation; and
  - the actual expenses or capital expenditure incurred compared with the appropriated or forecast expenses or capital expenditure; and
- complies with generally accepted accounting practice in New Zealand.
the statements of expenses and capital expenditure of Inland Revenue on pages 108 to 112³ are presented fairly, in all material respects, in accordance with the requirements of section 45A of the Public Finance Act 1989.
the schedules of non-departmental activities which are managed by Inland Revenue on behalf of the Crown on pages 150 to 186⁴ present fairly, in all material respects, in accordance with the Treasury Instructions:
- the assets; liabilities; commitments; and contingent liabilities and assets as at 30 June 2021; and
- expenses; and revenue for the year ended 30 June 2021; and
- the statement of trust monies for the year ended 30 June 2021.

Our audit was completed on 29 September 2021. This is the date at which our opinion is expressed.

The basis for our opinion is explained below, and we draw attention to the significant uncertainties with some transactions and balances that are included in the schedules of non-departmental activities. In addition, we outline the responsibilities of the Commissioner and our responsibilities relating to the information to be audited, we comment on other information, and we explain our independence.

Emphasis of matter - Significant uncertainties

Without modifying our opinion, we draw attention to the following matters in the non-departmental statements and schedules.

Estimation of income tax revenue for companies and other persons

Note 2 on page 163⁵ and note 3 on page 166⁶ outline the significant uncertainties, assumptions, and sensitivities in estimating income tax 189 revenue for companies and other persons for the year ended 30 June 2021. The methodology used to estimate income tax revenue for companies and other persons is based on uncertain macroeconomic forecasts about how the economy will perform in the future, the impact of Covid-19 on the economy, and how those forecasts relate to income tax revenue for companies and other persons.

Tax receivables

Note 2 on page 163⁵ and note 4 on page 169⁷ outline the significant uncertainties, assumptions, and sensitivities in estimating the value of tax receivables and associated impairment as at 30 June 2021. The impairment of tax receivables is calculated based on expected future repayments, which is uncertain and volatile due to economic factors. As noted by Inland Revenue’s external valuer, it is not possible to assess with any certainty the implications of Covid-19 on the value of tax receivables or the economy as a whole.

Small Business Cashflow (loan) Scheme

Note 2 on page 163⁵ and note 6 on page 176⁸ outline the significant uncertainties, assumptions and sensitivities in estimating the fair value of the Small Business Cashflow (loan) Scheme (the Scheme) loan portfolio as at 30 June 2021. As noted by Inland Revenue’s external valuer, there are significant uncertainties in estimating the fair value of the Scheme because there is limited data to determine likely repayment default experience, and how Covid-19 will impact the businesses receiving loans.

Student loans

Note 2 on page 163⁵ and note 7 on page 179⁹ outline the significant uncertainties, assumptions, and sensitivities in estimating the fair value of the student loan portfolio as at 30 June 2021. The fair value is based on expected future income levels and debt repayments, which is uncertain due to macroeconomic factors. As noted by Inland Revenue’s external valuer, it is not possible to assess with any certainty the implications of Covid-19 on the fair value of the student loan portfolio or the economy as a whole.

Basis for our opinion

We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.

We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of the Commissioner for the information to be audited

The Commissioner is responsible on behalf of Inland Revenue for preparing:

financial statements that present fairly Inland Revenue’s financial position, financial performance, and its cash flows, and that comply with generally accepted accounting practice in New Zealand.
performance information that presents fairly what has been achieved with each appropriation, the expenditure incurred as compared with expenditure expected to be incurred, and that complies with generally accepted accounting practice in New Zealand.
statements of expenses and capital expenditure of Inland Revenue, that are presented fairly, in accordance with the requirements of the Public Finance Act 1989.
schedules of non-departmental activities, in accordance with the Treasury Instructions, that present fairly those activities managed by Inland Revenue on behalf of the Crown.

The Commissioner is responsible for such internal control as is determined is necessary to enable the preparation of the information to be audited that is free from material misstatement, whether due to fraud or error.

In preparing the information to be audited, the Commissioner is responsible on behalf of Inland Revenue for assessing the Department’s ability to continue as a going concern. The Commissioner is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to merge or to terminate the activities of Inland Revenue, or there is no realistic alternative but to do so.

The Commissioner’s responsibilities arise from the Public Finance Act 1989.

Responsibilities of the auditor for the information to be audited

Our objectives are to obtain reasonable assurance about whether the information we audited, as a whole, is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts or disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers, taken on the basis of the information we audited.

For the budget information reported in the information we audited, our procedures were limited to checking that the information agreed to Inland Revenue’s Statement of Intent 2018-2022, the relevant Estimates and Supplementary Estimates of Appropriations 2020/21, and the 2020/21 forecast financial figures included in Inland Revenue’s 2019/20 Annual Report.

We did not evaluate the security and controls over the electronic publication of the information we audited.

As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also:

We identify and assess the risks of material misstatement of the information we audited, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Inland Revenue’s internal control.
We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Commissioner.
We evaluate the appropriateness of the reported performance information within Inland Revenue’s framework for reporting its performance.
We conclude on the appropriateness of the use of the going concern basis of accounting by the Commissioner and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Inland Revenue’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the information we audited or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Inland Revenue to cease to continue as a going concern.
We evaluate the overall presentation, structure and content of the information we audited, including the disclosures, and whether the information we audited represents the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Commissioner regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Our responsibilities arise from the Public Audit Act 2001.

Other information

The Commissioner is responsible for the other information. The other information comprises the information included on pages 1 to 64, 100 to 107, 114, 148, 149, 191 to 204¹⁰ but does not include the information we audited, and our auditor’s report thereon.

Our opinion on the information we audited does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon.

Our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the information we audited or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Independence

We are independent of Inland Revenue in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1: International Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board.

Other than in our capacity as auditor, we have no relationship with, or interests, in Inland Revenue.

Kelly Rushton

Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand

¹ Pages 115 to 146 refer to the 'Financial statements - Departmental' section.

² Pages 65 to 99 refer to the 'Our performance' section.

³ Pages 108 to 112 refer to the 'Appropriation statements' section.

⁴ Pages 150 to 186 refer to the 'Financial schedules - Non-departmental' section.

⁵ Page 163 refers to Note 2 under the 'Financial schedules - Non-departmental' section.

⁶ Page 166 refers to Note 3 in the 'Financial schedules - Non-departmental' section.

⁷ Page 169 refers to Note 4 in the 'Financial schedules - Non-departmental' section.

⁸ Page 176 refers to Note 6 in the 'Financial schedules - Non-departmental' section.

⁹ Page 179 refers to Note 7 in the 'Financial schedules - Non-departmental' section.

¹⁰ Pages 1 to 64, 100 to 107, 114, 148, 149, 191 to 204 refers to the following sections:

1 to 64 - Introduction through to the end of the 'Our organisational capability section'
100 to 107 - The 'Our organisational health' section.
114 - A contents page in the PDF
148 - The explanations of 'Why we include the non-departmental schedules' and 'What non-departmental schedules are and are not'.
149 - A contents page in the PDF
191 to 204 - Refers to the 'Additional information' section.