Notes to the Financial Statements continued 

for the year ended 30 June 2006

Note 16: Explanation of Major Budget Variance in 2006 and Variances to 2005

Statement of financial performance
Operating expenditure is $6.590 million or approximately 11 percent below that forecast in the Main Estimates primarily due to the following:

1   $1.786 million reduction in appropriations approved in the Supplementary Estimates, comprising:

• an expense transfer of $1.286 million from 2005/06 to 2006/07 for projects under the Building Act 2004 Implementation output expense
• $0.600 million saving in expenditure identified against the Building Regulation and Control output expense
• $0.100 million lower than expected expenditure on employer contributions to the State Sector Retirement Savings Scheme
• offset by a $0.200 million increase for an expense transfer from 2004/05 to 2005/06 for the implementation of changes associated with the Residential Tenancies Amendment Bill under the Sector and Regulatory Policy output expense.

2   Approval is being sought for the following expense transfers from 2005/06 to 2006/07.

• $0.100 million for building officials' education, an output under the Building Act 2004 Implementation output expense.
• $1.261 million for post-regulatory phases of the Building Practitioners Licensing Scheme, a project under the Occupational Licensing output expense.

3   $2.018 million or approximately 11 percent underspend against the Weathertight Homes Resolution Service output expense as a result of the number of claims being lower than expected.

Revenue Crown is $5.831 million or approximately 19 percent below that forecast in the Main Estimates primarily as a consequence of the following:

1   Revenue Crown funding requirements were reduced in the Supplementary Estimates by $5.394 million to recognise:

• $4.822 million increase in tenancy bond interest income to finance the cost of the Residential Tenancy Services output expense
• $0.658 million increase in building levies income to finance the Building Regulation and Control output expense
• $0.114 million increase in mediation and adjudication fees income to finance the Weathertight Homes Resolution Service output expense.
• offset by an increase of $0.200 million associated with an expense transfer from 2004/05 to 2005/06 (refer above).

2   Recognition that the $0.187 million remaining Revenue Crown was not needed to finance the Occupational Licensing output expense.

Revenue Other is $5.408 million or approximately 19 percent above that forecast in the Main Estimates as a consequence of the following.

1   $4.468 million adjustments in the Supplementary Estimates for:

• $1.374 million forecast increase in tenancy bond interest income
• $2.980 million forecast increase in the building levies income
• $0.114 million forecast income from mediation and adjudication fees.

2   Actual Revenue Other being $0.940 million or approximately 3 percent greater than forecast in the Supplementary Estimates (refer to Note 1 above).

The significant increase in building levies income (refer to Note 1) reflects the prevailing level of building activity and increase in the building levy from $0.65 to $1.97 per $1,000 with effect from 31 March 2005. The levy applies to building consents of $20,000 or more.

The operating baseline for the Department increased from 2005 to 2006 primarily from the transfer of the Weathertight Homes Resolution Service from the Department of Internal Affairs ($17.689 million) and $3.592 million in funding to increase the capability of the newly established Department of Building and Housing. The transfer of the funding for the licensed building practitioners regime from the Ministry of Economic Development took place on 1 November 2004. Consequently, the increase in expenditure under the occupational licensing output expense reflects that only 8 months' expenditure was incurred in 2005 as against a full year of expenditure in 2006. The Building Industry Authority and its functions and personnel were transferred to the Department on 30 November 2004, and funding for the balance of the 2005 financial year was entered in two newly established output expenses, Building Act 2004 Implementation and Building Regulation and Control. The increase in expenditure between 2005 and 2006 under these output expenses reflects that 7 months' operating costs were incurred in 2005, as against a full year's operating costs in 2006.

Statement of financial position
The main factors for the $7 million variation between the Main Estimates forecast and actual financial position are as follows.

- Capital expenditure on the relocation of the national office being brought to charge sooner than anticipated.
- Generation of third-party operating surplus through operating expenditure being lower than expected and revenue being higher than expected to the extent that a surplus was generated under the Building Controls memorandum account rather than the forecast deficit.
- Recognition as surplus excess Revenue Crown funding over expenditure incurred primarily under the Weathertight Homes Resolution Service output expense.

Note 17: Transition to New Zealand Equivalents to International Financial Reporting Standards

The financial statements for the year ended 30 June 2006 have been prepared under current New Zealand generally accepted accounting practice (GAAP). The Department will be adopting New Zealand International Financial Reporting Standards (NZ IFRS) for the first time in its audited financial statements for the year ending 30 June 2008 (although comparative information will be collected throughout the 2006/07 financial year). This timetable is in line with the adoption of New Zealand equivalents to IFRS in the consolidated financial statements of the Government reporting entity. The Department will be adopting the accounting policies of the financial statements of the Government. The Department has set up an NZ IFRS work programme to ensure the Department is NZ IFRS compliant. At this stage no material issues have been identified. However, the actual impact of adopting NZ IFRS may vary from this initial assessment, and the variation may be material.

Note 18: Discontinued Activities

There were no discontinued activities for the 2005/06 financial year (2004/05: Nil).

Note 19: Events after Balance Date

No events have occurred between the balance date and date of signing these financial statements that materially affect the financial statements.