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Statement of Intent 2007

6 Part Three: Financial statements

6.1 Statement of responsibility

The Statement of Intent of the New Zealand Food Safety Authority (NZFSA) presented in this

report for the year ending 30 June 2008 has been prepared in accordance with sections 38-42

of the Public Finance Act 1989.

The Acting Chief Executive Officer of NZFSA acknowledges in signing this statement that he is responsible for the information contained in this report.

The financial performance to be achieved by NZFSA for the year ending 30 June 2008, specified in the Statement of Intent, is as agreed with the Minister for Food Safety, who is the Minister responsible for the financial performance of NZFSA.

The performance to be achieved by NZFSA for each output expense for the year ending 30 June 2008, specified in the

Statement of Intent, is as agreed with the Minister for Food Safety.

Signed

Andrew McKenzie

Acting Chief Executive Officer

Countersigned

Sandra Daly

DEPUTY CHIEF EXECUTIVE

6.2 Financial overview

The Acting Chief Executive of NZFSA is responsible for administering Vote Food Safety. The total sum appropriated for 2007/08 through the Estimates and Cabinet Decisions up to 1 July 2007 is $93.186 million.

Summary of 2007/08 expenditure appropriations

	Total $(000)
Department output expenses	91,396
Non-departmental other expenses	1,790
Total	93,186

Departmental output expenses

	Total $(000)
Consultation and food safety information	3,432
Food Safety Policy Advice	3,126
Regulatory programmes	37,759
Regulatory standards	42,404
Response to food safety emergencies	383
Systems audit and enforcement	4,292
Total	91,396

Services to be supplied under each output expense are detailed in the Statement of Service Performance.

6.3 Statement of accounting policies

6.3.1 The reporting entity

NZFSA is a government department as defined by section 2 of the Public Finance Act 1989, and qualifies as a public benefit entity under the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. NZFSA has not applied any of the optional exemptions allowed on transition to NZ IFRS.

6.3.2 Purpose of forecast financial statements

The Statement of Intent is a public document that sets out the Government’s expectations of NZFSA for the next three years. The Statement of Intent outlines the strategic context of NZFSA’s role and the outcomes to which it is expected to contribute. The forecast financial statements form part of the Statement of Intent. The forecast financial statements form the basis for end-of-year reporting in the financial statements contained in the Annual Report and the basis on which these statements are audited. It is likely that the actual financial statements presented in the Annual Report will vary from the forecast financial statements, these variances may be material.

6.3.3 Significant underlying assumptions

The forecast financial statements have been compiled on the basis of existing Government policies and the Output Plan agreed with the Minister for Food Safety at the time the statements were finalised. The statements have been prepared on a going concern basis. The measurement base adopted is that of historical cost modified by the revaluation of certain fixed assets.

The Statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). The functional currency of the Ministry is New Zealand dollars.

The users of these forecast financial statements should note that no unwarranted credibility should be attached to the forecast financial statements as a number of assumptions have been made in their compilation. NZFSA does not intend to update the forecast financial statements subsequent to presentation of the Statement of Intent.

6.3.4 Accounting policies

6.3.4.1 Revenue

NZFSA derives revenue through the provision of outputs to the Crown and for services to third parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.

6.3.4.2 Unearned revenue

Unearned revenue is revenue received in the current accounting period that relates to services that NZFSA will provide in future accounting periods.

6.3.4.3 Cost allocation

NZFSA has determined the cost of outputs using the cost allocation system as outlined below.

Direct costs are costs charged directly to significant activities. Indirect costs are charged to significant activities based on cost drivers and related activity/usage information.

Direct costs are those costs directly attributed to an output. Indirect costs are those costs that cannot be identified in an economically feasible manner, with a specific output.

Direct costs are charged directly to outputs. Indirect costs are assigned to outputs based on various cost drivers including assessed charges and usage, personnel numbers and estimated allocation of time.

6.3.5 Debtors and receivables

Receivables are recorded at estimated realisable value after providing for doubtful and uncollectible debts.

6.3.6 Leases

Leases that effectively transfer to NZFSA substantially all the risks and benefits incidental to ownership of the leased items are classified as finance leases. These are capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments. The leased assets and the corresponding lease liabilities are recognised in the Statement of Financial Position. The leased assets are depreciated over the period NZFSA is expected to benefit from their use. The interest expense component of finance lease payments is recognised in the Statement of Financial Performance. Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease expenses are recognised on a systematic basis over the period of the lease.

6.3.7 Property, plant and equipment

Land and buildings are stated at fair value as determined by an independent registered valuer. Fair value is determined using market-based evidence. Land and buildings are revalued at least every five years. Additions between revaluations are recorded at cost.

The results of revaluing land and buildings are credited or debited to an asset revaluation reserve for that class of asset. Where a revaluation results in a debit balance in the revaluation reserve, the debit balances will be expensed in the Statement of Financial Performance.

All other fixed assets, or groups of assets forming part of a network that are material in aggregate, costing more than $5,000 are capitalised and recorded at cost. Any write-down of an item to its recoverable amount is recognised in the Statement of Financial Performance.

All property, plant and equipment is reviewed annually for impairment. Losses resulting from impairment are recognised in the Statement of Financial Position unless they reverse a prior revaluation.

6.3.8 Depreciation

Depreciation is provided on a straight-line basis on all fixed assets, other than freehold land and items under construction, at a rate that will write off the cost (or valuation) of the assets to their estimated residual value over their useful lives.

The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

Buildings	5-50 years	(2% - 20%)
Leasehold improvements	2-10 years	(10-50%)
Plant and equipment	3-10 years	(10-33%)
Lease plant and equipment	3 years	(33%)
Motor vehicles	4-8 years	(12-25%)

The cost of lease improvements is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful life of the improvements, whichever is shorter.

Items under construction are not depreciated. The total cost of a capital project is transferred to the appropriate asset class on its completion and then depreciated.

6.3.9 Inventories

Inventories held for distribution are valued at the lower of cost and current replacement value. Inventories acquired for use in the provision of goods and services are valued at the lower of cost (assigned to inventory quantities on hand at balance date using the first in, first out (FIFO) basis) or net realisable value. Full provision is made for obsolescence where applicable.

6.3.10 Intangible assets

Computer software is initially recorded at cost and then amortised on a straight-line basis over the useful life of the asset (3 to 7 years). Computer software is reviewed annually for impairment. Losses resulting from impairment are recognised in the Statement of Financial Position.

6.3.11 Provisions

Provisions are recognised for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that expenditures will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

ACC Partnership Programme:

NZFSA belongs to the ACC Partnership Programme whereby NZFSA accepts the management and financial responsibility of work-related illnesses and accidents of employees. Under the ACC Partnership Programme NZFSA is effectively providing accident insurance to employees and this is accounted for as an insurance contract. The future cost of ACC claim liabilities are revalued annually at balance date. Movements of the liability are reflected in the Statement of Financial Performance.

6.3.12 Employee entitlements

6.3.12.1 Short-term benefits

Employee benefits that NZFSA expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave earned to, but not yet taken at balance date, retiring and long-service leave entitlements expected to be settled within 12 months, and sick leave.

A sick leave liability is recognised to the extent that absences in the coming year are expected to be greater than sick leave entitlements earned in the coming year.

6.3.12.2 Long-term benefits

Entitlements that are payable beyond 12 months, such as long-service leave and retiring leave, are calculated on an actuarial basis. The calculations are based on likely future entitlements accruing to staff, based on years of service, years to entitlement, the likelihood that staff will reach the point of entitlement and contractual entitlements information, and the present value of future estimated cash flows.

6.3.13 Foreign currencies

Transactions in foreign currencies are initially translated at the foreign exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Financial Performance.

6.3.14 Financial instruments

NZFSA is party to financial instrument arrangements as part of its normal operations. These financial instruments include bank accounts, debtors, creditors, and finance leases. All financial instruments are recognised in the Statement of Financial Position and all revenues and expenses in relation to financial instruments are recognised in the Statement of Financial Performance. Except for those items covered by a separate accounting policy all financial instruments are shown at their estimated fair value.

6.3.15 Goods and Services Tax (GST)

The Statement of Financial Position is exclusive of GST, except for Creditors and Payables and Debtors and Receivables which are GST inclusive. All other statements are GST exclusive. The amount of GST owing to or from Inland Revenue Department at balance date is included in Creditors and Payables or Debtors and Receivables (as appropriate).

6.3.16 Taxation

Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax is provided for.

6.3.17 Commitments

Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.

6.3.18 Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident. Contingent liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.

6.3.19 Changes in accounting policies

No changes to accounting policies, including cost allocation policies, are anticipated over the forecast period.

6.4 Forecast statement of financial performance

For the year ending 30 JUNE 2008

The forecast statement of financial performance details the revenue and expenses relating to all outputs (goods and services) to be produced by the New Zealand Food Safety Authority.

	Forecast 2007/2008 $(000)
Revenue
Crown	31,505
Departments	1,019
Other	58,872
Total revenue	91,396

	Forecast 2007/2008 $(000)
Expenses
Personnel	44,000
Operating	44,266
Depreciation and amortisation	2,880
Capital charge	250
Total output expenses	91,396
Net surplus / (deficit)	-

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.

6.5 Forecast statement of financial position

As at 30 June 2008

The forecast statement of financial position reports the assets and liabilities of NZFSA.

	Forecast 30 June 2008 $(000)
Taxpayers’ funds	7,139
Represented by:
Current assets
Cash and bank	8,224
Debtors and receivables	8,750
Inventory	100
Prepayments	100
	100
Total current assets	17,174
Non-current assets
Property, plant and equipment	2,239
Intangible assets	6,877
Total non-current assets	9,116
Total assets	26,290
Current liabilities
Creditors and payables	3,500
Employee entitlements	3,310
Unearned revenue	8,200
Provisions	121
Total current liabilities	15,131
Non-current liabilities
Employee entitlements	3,720
Provisions	300
Total non-current liabilities	4,020
Total liabilities	19,151
Net assets	7,139

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP an comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.

6.6 Forecast statement of movements in taxpayers’ funds

For the year ending 30 June 2008

	Forecast 30 June 2008 $(000)
Taxpayers’ funds at start of period	-
Net surplus / (deficit)	-
Total recognised revenues and expenses for the period	-
Capital contributions for
1.1.1 Establishment of NZFSA as a separate government department	7,500
1.1.2 Wine export electronic certification capability	2,000
1.1.3 Transfer of net liabilities from Ministry of Agriculture and Forestry	(2,361)
Taxpayers’ funds at the end of the project	7,139

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures and an opening balance of Taxpayers’ funds are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.

6.7 Forecast statement of cash flows

For the year ending 30 June 2008

The forecast statement of cash flows summarises the cash movements in and out of the New Zealand Food Safety Authority for the financial year.

	Forecast 2007/2008 $(000)
Cash flows form operating activities
Cash provided from:
Supply of outputs to:
Receipts from Crown revenue	31,505
Receipts from department revenue	1,019
Receipts from other revenue	58,572
Cash disbursed to:
Cost of producing outputs:
Payments to suppliers and employees	(88,097)
Capital charge paid	(250)
Net cash flows from operating activities	2,749
Cash flows from investing activities
Cash provided from:
Sale of property, plant and equipment	200
Cash disbursed to:
Purchase of property, plant and equipment	(1,165)
Purchase in intangible assets	(3,060)
Net cash flows from investing activities	(4,025)
Cash flows from financing activities
Cash provided from:
Capital contribution from Crown	9,500
Net cash flows from financing activities	9,500
Net increase / decrease in cash held	8,224
Add opening cash	-
Closing total cash balance as at 30 June	8,224

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures and an opening cash balance are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.

6.8 Forecast reconciliation of net cash flows from operating activities

For the year ending 30 June 2008

This reconciliation discloses the non-cash adjustments applied to the surplus/(deficit) reported in the forecast statement of financial performance to arrive at the net cash flows from operating activities disclosed in the forecast statement of cash flows.

Forecast 30 June 2008

	Forecast 30 June 2008 $(000)
Operating surplus / (deficit)	-
Add / (less) non cash items
Depreciation and amortisation	2,880
Add / (less) non-cash working capital movements:
Increase / (decrease) in deferred revenue	(300)
Increase / (decrease) in provisions	(59)
Increase / (decrease) in employee entitlements	228
Total working capital movements	(131)
Net cash flows from operating activities	2,749

6.9 Forecast details of property, plant and equipment

As at 30 June 2008

	Forecast 2007/2008 $(000)
Leasehold improvements
Cost	1,430
Accumulated depreciation	(720)
Net book value	710
Plant and equipment
Cost or revaluation	177
Accumulated depreciation	(150)
Net book value	27
Motor vehicles
Cost or revaluation	2,512
Accumulated depreciation	(1,010)
Net book value	1,502
Total property, plant and equipment
Cost or revaluation	4,119
Accumulated depreciation	(1,880)
Total net book value	2,239

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.

6.10 Forecast departmental capital expenditure

For the year ending 30 June 2008

Forecast departmental capital expenditure to be incurred in accordance with section 24 of the Public Finance Act 1989.

	Forecast 2007/2008 $(000)
Leasehold improvements	275
Computer software	3,060
Motor vehicles	890
Total	4,225

The forecast capital expenditure for the 2007/08 financial year is primarily for the development of wine export electronic certification capability and routine replacement and upgrade of NZFSA information technology and motor vehicle fleet.

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.

6.11 Forecast output expense operating statements

For the year ending 30 June 2008

Vote Food Safety Departmental Output Expenses	Crown Revenue ($000)	Revenue Department ($000)	Revenue Other ($000)	Total Revenue ($000)	Voted expenses($000)	Surplus/ (deficit) ($000)
Consultation and Food Safety Information	2,749	19	664	3,432	3,432	-
Food safety Policy advice	3,105	21	-	3,126	3,126	-
Regulatory programmes	2,165	650	34,944	35,759	37,759	-
Regulatory standards	20,311	269	21,824	42,404	42,404	-
Response to food safety emergencies	383	-	-	383	383	-
Systems audit and enforcement	2,792	60	1,440	4,292	4,292	-
Total	31,505	1,019	58,872	91,396	91,396	-

The forecast financial statements for 2007/08 have been prepared in accordance with NZ GAAP and comply with NZ IFRS and other applicable financial reporting standards, as appropriate for public benefit entities. Comparative figures are not presented because prior to 1 July 2007 NZFSA was an operating division of the Ministry of Agriculture and Forestry and financial statements were consolidated.

The Statement of Accounting Policies should be read in conjunction with these financial statements.