Part 2: Performance information - Notes to the financial statements for the year ended 30 June 2008

Note 1: Statement of Accounting Policies for the year ended 30 June 2008

Reporting Entity

The Department of Building and Housing is a government department as defined by section 2 of the Public Finance Act 1989 and is domiciled in New Zealand.

In addition, the Department of Building and Housing has reported on the Crown activities and trust monies that it administers.

The primary objective of the Department is to provide services to the public rather than making a financial return. Accordingly, the Department has designated itself as a public entity for the purpose of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The financial statements of the Department are for the year ended 30 June 2008. The financial statements were authorised for issue by the Chief Executive of the Department on 30 September 2008.

Basis of preparation

The financial statements of the Department have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP).

These financial statements have been prepared in accordance with, and comply with, NZ IFRS as appropriate for public benefit entities.

This is the first set of financial statements prepared using NZ IFRS. The comparatives for the year ended 30 June 2007 have been restated to NZ IFRS accordingly. Reconciliations of equity and net surplus/(deficit) for the year ended 30 June 2007 under NZ IFRS to the balances reported in the 30 June 2007 financial statements are detailed in note 21.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS statement of financial position as at 1 July 2006 for the purpose of the transition to NZ IFRS.

The financial statements have been prepared on a historical cost basis.

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

Accounting policies

The following particular accounting policies which materially affect the measurement of financial results and financial position have been applied.

Budget figures

The budget figures are those presented in the Main Estimates, and those amended by the 2007/08 Supplementary Estimates, and any transfer made by Order in Council under the Public Finance Act 1989.

Revenue

The Department derives revenue through the provision of outputs to the Crown, for services to third parties and interest from the Residential Tenancies Trust Account. Revenue is recognised when earned and is reported in the financial period to which it relates.

Residential Tenancies Trust Account: In accordance with the Residential Tenancies Act 1986, the Department administers a trust account for tenancy bond investments. Interest is payable to the Department and interest income is recognised on an accrual basis.

Revenue is measured at the fair value of consideration received.

Capital charge

The capital charge is recognised as an expense in the period to which the charge relates.

Cost allocation

The Department has determined the cost of outputs using a cost allocation system outlined below.

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

Criteria for direct and indirect costs: ‘Direct costs' are those costs directly attributable to an output. ‘Indirect costs' are those costs that cannot be identified, in an economically feasible manner, with a specific output.

Assignment of costs to outputs: Direct costs are charged directly to outputs. Indirect costs are assigned to outputs based on a number of cost drivers. Depreciation and capital charge are charged on the basis of asset utilisation. Personnel and indirect costs are charged on the basis of estimated time incurred on each output. Property and other premises costs, such as maintenance, are charged on the basis of floor area occupied for the production of each output.

Foreign currency

Foreign currency transactions are recorded at the date of settlement of the transaction.

Leases

Operating leases: The Department leases office premises and office equipment. These leases are operating leases and the costs are expensed in the period in which they are incurred.

Cash and cash equivalents

Cash includes cash on hand and funds on deposit with bank.

Debtors and receivables

Debtor and receivables are stated at their estimated realisable value, after providing for doubtful and uncollectible debts.

Property, plant and equipment

Fixed assets costing more than $2,000 are capitalised and recorded at historical cost. Any write-down of an item to its recoverable amount is recognised in the statement of financial performance. No revaluations have been performed on any class of fixed assets.

Depreciation of property, plant and equipment

Depreciation is provided on a straight-line basis on all property, plant and equipment, which will write-off the cost of the assets to their estimated residual value over their useful lives.

The depreciation rates of major classes of assets have been estimated as follows.

Office equipment 20% per annum
Leasehold improvements 10-20% per annum
Furniture and fittings 10% per annum
Computer hardware 25% per annum
Motor vehicles 16% per annum

The cost of leasehold improvements is capitalised and amortised over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. The depreciation rate for motor vehicles is based on rates that will write down the cost of vehicles to their estimated residual value (40 percent of retail value at time of purchase) over four years.

Capital work in progress is not depreciated. The total cost of the work is transferred to the relevant asset category on its completion and then depreciated.

Intangible assets - Software acquisition and development

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Costs associated with maintaining computer software are recognised as an expense when incurred.

Amortisation

The carrying value of an intangible asset with a finite life is amortised on a straight line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. The amortisation charge for each period is recognised in the statement of financial performance.

The amortisation rates of intangible assets have been estimated as follows.

Acquired computer software 12.5-33% per annum

Creditors and payables

Payments due to suppliers for goods and services received at balance date but not paid for are included in the financial statements. They are recorded at the estimated obligation to pay.

Employee entitlements

Liabilities for annual leave are recognised as they accrue to employees. Provision is also made for payments of long-service leave, retirement leave and sick leave obligations to employees. Annual leave provisions, retirement leave and sick leave have been calculated on an actual entitlement basis at current rates of pay. Long-service leave is calculated on a present value basis.

Taxpayers' funds

This is the Crown's net investment in the Department.

Financial instruments

The Department is party to financial instruments as part of its normal operations. These financial instruments include accounts payable and receivable, cash and short-term deposits. Revenues and expenses in relation to all financial instruments are recognised in the statement of financial performance.

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 they are equally unperformed obligations.

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 stated inclusive of GST. All other statements are GST-exclusive.

Taxation

Government departments are exempt from the payment of income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax has been provided for.

Statement of cash flows

Cash means cash balances on hand and held in bank accounts. Operating activities include cash received from all income sources of the Department and record the cash payments for the supply of goods and services. Investing activities are those activities relating to the acquisition and disposal of non-current assets. Financing activities comprise capital injections by, or repayment of capital to, the Crown.

Critical accounting estimates and assumptions

In preparing these financial statements the Department has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Changes in accounting policies

There were no changes in accounting policies since the date of the last audited financial statements.

All policies have been applied on a basis consistent with the previous year.  

Note 2: Other Revenue

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
22,028	Building levies	20,202	18,135	19,284
16,977	Interest from tenancy bonds	21,003	16,274	20,187
825	Tenancy Tribunal fees	857	800	800
3,178	Electrical workers' levy and fees	5,291	4,078	5,363
-	Licensed building practitioners' levy and fees	181	2,798	230
124	Other	338	1	150
43,132	Total revenue - other	47,872	42,086	46,014

Note 3: Gains

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
36	Net gain on disposal of property, plant and equipment	7	-	-
36	Total gains	7	-	-

During the year the Department disposed of motor vehicles in accordance with the Department's vehicle replacement policy

Note 4: Personnel Costs

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
27,829	Salaries and wages	29,713	27,713	27,708
912	Recruitment costs	760	696	680
418	Superannuation	453	428	449
130	ACC levy	151	114	114
52	Fringe benefit tax	26	49	49
854	Other	963	428	553
30,195	Total personnel costs	32,066	29,428	29,553

The salaries and wages figure includes payments to employment agencies for temporary staff and staff contractors.

Note 5: Capital charge

The Department pays a capital charge to the Crown on taxpayers' funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2008 was 7.5%. (2007: 7.5%).

Note 6: Other operating Costs

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
4,378	Administration	5,297	5,187	6,013
1,159	Communications	1,086	723	722
2,606	Computer costs	1,348	1,443	1,368
474	Premises costs	485	492	474
3,633	Rental and leasing costs	3,433	3,630	3,630
1,611	Tenancy Tribunal	1,625	1,715	1,715
2,016	Consultancy	2,599	2,738	3,225
1,469	Travel - domestic and overseas	1,984	2,090	2,130
77	Audit fees for the audit of financial statements	82	70	89
10	Audit fees for the audit of Residential Tenancies Trust Account statements	9	10	10
10	Audit fees for audit of NZ IFRS transition	5	5	5
-	Audit fees for other services	4	-	-
-	Net loss on disposal of property, plant and equipment	9	-	-
5	Bad debts written off	-	-	-
17,393	Other	14,081	15,491	23,001
34,841	Total operating costs	32,047	33,594	42,382

Premises costs include insurance, rates, electricity, cleaning services and security.

The Department pays costs associated with the management of the Residential Tenancies Trust Account and audit of the financial statements.

Note 7: Debtors and Receivables

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
4,018	Trade debtors and other receivables	3,511	1,790	2,560
(60)	Less provision for doubtful debts	(60)	(60)	(60)
3,958	Net trade and other receivables	3,451	1,730	2,500
18,338	Tenancy bond current account	20,142	10,000	13,412
871	GST receivable	439	300	-
23,167	Total debtors and receivables	24,032	12,030	15,912

The carrying value of debtors and other receivables approximates their fair value.

The carrying amount of receivables that would otherwise be past due, but not impaired, is $23.380 million (2007: $20.938 million).

As at 30 June 2008 and 2007, all overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below.

	Gross	2007 Impairment	Net	Gross	2008 Impairment	Net
Not past due	23,136	-	23,136	24,000	-	24,000
Past due 1-30 days	-	-	-	-	-	-
Past due 31-60 days	-	-	-	-	-	-
Past due 61-90 days	-	-	-	-	-	-
Past due > 91 days	91	(60)	31	92	(60)	32
Total	23,227	(60)	23,167	24,092	(60)	24,032

The provision for doubtful debts has been calculated based on the expected losses for the Department's pool of electrical workers debtors.

Expected losses have been determined based on a review of specific debtors.

Movements in the provision for doubtful debts are as follows.

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
60	Balance at 1 July	60	60	60
-	Additional provisions made during the year	-	-	-
-	Receivables written off during period	-	-	-
60	Balance at 30 June	60	60	60

Note 8: Property, Plant and Equipment

	Office equipment $000	Leasehold improvements $000	Furniture and fittings $000	Computer hardware $000	Vehicles $000	Total $000
Cost or valuation
Balance at 1 July 2006	299	6,585	245	3,129	397	10,655
Additions	12	472	219	287	335	1,325
Disposals	(20)	(219)	(12)	-	(189)	(440)
Balance at 30 June 2007	291	6,838	452	3,416	543	11,540
Balance at 1 July 2007	291	6,838	452	3,416	543	11,540
Additions	24	423	13	526	42	1,028
Disposals	(37)	-	-	(128)	(45)	(210)
Balance at 30 June 2008	278	7,261	465	3,814	540	12,358
Accumulated depreciation
Balance at 1 July 2006	214	1,014	144	1,793	267	3,432
Depreciation expense	33	658	31	376	46	1,144
Eliminate on disposal	(20)	(219)	(11)	4	(189)	(435)
Balance at 30 June 2007	227	1,453	164	2,173	124	4,141
Balance at 1 July 2007	227	1,453	164	2,173	124	4,141
Depreciation expense	29	717	36	576	101	1,459
Eliminate on disposal	(31)	-	-	(125)	(40)	(196)
Balance at 30 June 2008	225	2,170	200	2,624	185	5,404
Carrying amounts
At 1 July 2006	85	5,571	101	1,336	130	7,223
At 30 June and 1 July 2007	64	5,385	288	1,243	419	7,399
At 30 June 2008	53	5,091	265	1,190	355	6,954

Property, plant and equipment includes work in progress of $337,000.

Note 9: Intangible assets

	Acquired software $000	Internally generated software $000	Total $000
Cost
Balance at 1 July 2006	1,636	-	1,636
Additions	149	-	149
Disposals	-	-	-
Balance at 30 June 2007	1,785	-	1,785
Balance at 1 July 2007	1,785	-	1,785
Additions	86	-	86
Disposals	-	-	-
Balance at 30 June 2008	1,871	-	1,871
Accumulated amortisations
Balance at 1 July 2006	838	-	838
Amortisation expense	339	-	339
Disposals	-	-	-
Balance at 30 June 2007	1,177	-	1,177
Balance at 1 July 2007	1,177	-	1,177
Amortisation expense	224	-	224
Disposals	-	-	-
Balance at 30 June 2008	1,401	-	1,401
Carrying amounts
At 1 July 2006	798	-	798
At 30 June and 1 July 2007	608	-	608
At 30 June 2008	470	-	470

Intangible assets includes work in progress of $69,000.

Note 10: Creditors and Payables

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
3,668	Trade creditors	4,738	4,075	6,200
3,968	Accrued expenses	1,834	2,000	2,000
660	GST payable	-	300	-
-	Other	2,616	-	-
1,236	Deferred revenue	1,184	1,000	1,200
9,532	Total creditors and payables	10,372	7,375	9,400

Creditors and other payables are non-interest bearing and are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates their fair value.

Note 11: Repayment of Surplus

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
3,777	Net surplus/(deficit)	4,463	1,442	(1,967)
(126)	Less NZ IFRS adjustments	-	-	-
5,541	Adjustment for memorandum account deficit(s)	4,826	2,016	4,826
9,192	Net surplus payable to Crown	9,289	3,458	2,859

The repayment of surplus is required to be paid by 31 October each year.

Note 12: Provisions

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
	Current provisions are represented by:
33	Lease make-good	10	4	10
111	One off payments	67	-	100
162	Staff training and development	411	-	240
306	Total current portion	488	4	350
	Non-current provisions are represented by:
50	Lease make-good	29	22	30
50	Total non-current portion	29	22	30
356	Total provisions	517	26	380

	Leasehold make-good $000	One-off payments $000	Restructuring $000	Staff training and development $000	Regional rent $000	Total $000
2007
Opening balance at 1 July	-	101	175	200	25	501
Additional provisions made	83	80		-	-	163
Amounts used	-	(70)	(175)	(38)	(25)	(308)
Closing balance at 30 June	83	111	-	162	-	356
2008
Opening balance at 1 July	83	111	-	162	-	356
Additional provisions made	14	77	-	280	-	371
Amounts used	-	(90)	-	(31)	-	(121)
Unused amounts reversed	(58)	(31)	-	-	-	(89)
Closing balance at 30 June	39	67	-	411	-	517

Lease make-good

In respect of a number of its leased premises, the Department is required at the expiry of the lease terms to make good any damage caused to the premises and to remove any fixtures or fittings installed by the Department. In many cases the Department has the option to renew these leases, which impacts on the timing of the expected cash outflows to make good the premises.

One-off payments

One-off payments are awarded to some staff as part of their annual performance review by the Department.

Staff training and development

Staff training and development awards are made to staff to undertake a variety of development activities including leadership accountabilities. These may include full-time or part-time tertiary or postgraduate study, leadership and management development programmes, specific skills development programmes, carrying out a research project, secondments etc, here in New Zealand and internationally.

Note 13: Employee Entitlements

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
	Current
1,215	Annual leave	1,368	996	1,356
44	Sick leave	28	44	44
1,259	Total current	1,396	1,040	1,400
	Non-current
244	Retirement and sick leave	236	483	275
111	Long-service leave	170	200	125
355	Total non-current	406	683	400
1,614	Total employee entitlements	1,802	1,723	1,800

The present value of the retirement and long service leave obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Two key assumptions used in calculating this liability include the discount rate and the salary inflation factor. Any changes in these assumptions will impact on the carrying amount of the liability.

Note 14: Taxpayers' funds

Actual 2007 $000		Actual 2008 $000	Main Estimates 2008 $000	Supplementary Estimates 2008 $000
	General funds
10,050	Balance at 1 July	11,220	9,244	11,220
3,777	Net surplus/(deficit)	4,463	1,442	(1,967)
6,446	Capital contribution from the Crown	5,086	6,001	5,086
139	Net asset transfer from the Ministry of Economic Development in 2006/07	-	-	-
(9,192)	Provision for repayment of surplus to the Crown	(9,289)	(3,458)	(2,859)
11,220	General funds at 30 June	11,480	13,229	11,480

Note 15: Reconciliation of Net Surplus/(Deficit) to Net Cash Flows from Operating Activities

Actual 2007 $000Actual 2008 $000Main Estimates 2008 $000Supplementary Estimates 2008 $0003,777 Net surplus/(deficit) from operations 4,463 1,442 (1,967)Add/(less) non-cash items1,487 Depreciation and amortisation1,683 3,412 1,710 50Increase in non-current employee entitlements30 --Add/(less) movements in working capital(200) (Increase) in prepayments(34) -(30) (67) (Increase)/decrease in inventories67 - 67 (8,259) (Increase)/decrease in debtors and receivables(1,304) (3,959) 6,665 2,993 Increase/(decrease) in creditors and payables1,408 (3,000) 548 1,236 Increase in deferred revenue52 --315 Increase in current employee entitlements137 (29) 150 Add/(less) investing activity items(36) Net gain on sale of property, plant and equipment(7) -- - Fixed asset write-offs10 -- 1,296 Net cash flows from operating activities 6,505 (2,134) 7,143

Note 16: Related Party Transactions and Key Management Personnel

The Department of Building and Housing is a wholly owned entity of the Crown. The government significantly influences the roles of the Department as well as being a major source of revenue.

The Department enters into numerous transactions with other government departments, Crown agencies and state-owned enterprises on an arm's length basis. No contracts have been entered into by the Department where the supplier had any connection to senior management of the Department. One relative of a member of the Strategic Leadership Team is employed by the Department on the same terms and conditions as any other employee.

Salary with post-employment benefits

Actual 2007* $000Actual 2008 $0001,098Salaries and other short-term employment benefits1,5393Post-employment benefits161,101Total key management personnel compensation 1,555

*Structural change with effect from November 2006. Implemented 1 March 2007.

Other long-term benefits and termination benefits: nil (2007: nil).

Key management personnel include the Chief Executive and the six members of the Strategic Leadership Team (2007: Chief Executive and the six members of the Strategic Leadership Team).

Note 17: Events after the balance sheet date

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

Note 18: Financial instruments risks

The Department is party to financial instruments as part of its normal operations. These include bank balances, investments and accounts receivable and payable.

Credit risk

Credit risk is the risk that a third party will default on its obligations to the Department, causing the Department to incur a loss. In the normal course of its business, the Department incurs credit risk from trade debtors, and transactions with financial institutions.

The Department does not require any security to support financial instruments with financial institutions that the Department deals with as these entities have high credit ratings.

The Department is party to a letter of credit with ANZ National Bank of $650,000 (2007: $650,000).

Fair value

The fair value of all financial instruments is equivalent to the carrying amount disclosed in the statement of financial position.

Currency risk

Currency risk is the risk that the value of debtors and creditors due in foreign currency will fluctuate because of changes in foreign exchange rates.

The Department has no currency risk with regard to cash and accounts receivable, as the financial instruments it deals with are in New Zealand dollars. The Department has no significant exposure to currency risk on accounts payable.

Interest rate risk

Interest rate risk is the risk that the Department's return on the funds it has invested will fluctuate due to changes in market interest rates. The Department had no interest rate risk as no money was invested in this financial year apart from that which is recorded in the financial statements relating to the Residential Tenancies Trust Account.

Note 19: Memorandum accounts

Memorandum accounts are notional accounts to record the accumulated balance of surpluses and deficits incurred for outputs operating on a full cost recovery basis. They are intended to provide a long-run perspective on the pricing of outputs.

Building Controls

Actual 2006/07 $000		Actual 2007/08 $000	Budget 2007/08 $000
1,685	Opening balance at 1 July	2,874	2,874
23,471	Revenue (primarily from building levies)	20,480	19,514
(17,148)	Expenses	(14,766)	(17,034)
(5,134)	Transfer of expenses from Occupational Licensing - Building Practitioners	(88)	(64)
2,874	Closing balance at 30 June	8,500	5,290

The transfer of expenses from the Occupational Licensing Building Practitioners memorandum account is to allocate expenses incurred since 2004/05 to the correct memorandum account.

Occupational Licensing - Building Practitioners

Actual 2006/07 $000		Actual 2007/08 $000	Budget 2007/08 $000
(4,346)	Opening balance at 1 July	(3,625)	(3,625)
29	Revenue	181	243
(5,623)	Expenses	(5,477)	(6,054)
5,134	Transfer of expenses to Building Controls	88	64
1,181	Removal of non-chargeable expenses	-	-
(3,625)	Closing balance at 30 June	(8,833)	(9,372)

The transfer of expenses to the Building Controls memorandum account is to allocate expenses incurred since 2004/05 to the correct memorandum account. Expenses that are not chargeable against the Licensed Building Practitioner Scheme have been removed.

Occupational Licensing - Electrical Workers

Actual 2006/07 $000		Actual 2007/08 $000	Budget 2007/08 $000
-	Opening balance at 1 July	(21)	2,692
3,185	Revenue	4,055	4,104
(3,206)	Expenses	(3,415)	(3,482)
-	Transfer from Ministry of Economic Development - 2006/07	2,585	-
(21)	Closing balance at 30 June	3,204	3,314

The transfer for 2006/07 is the carried forward balance for the memorandum account when the account was transferred from the Ministry of Economic Development.

Note 20: Explanation of Major Budget Variations

Statement of financial performance

Revenue Crown funding requirements were reduced by $3.393 million or approximately 13 percent to the Supplementary Estimates.

The reduction in Crown revenue is an adjustment for approved-in-principle transfers from 2007/08 to 2008/09. These in-principle transfers were:

• $2.0 million for the Weathertight Homes Resolution Services to ensure the 2008/09 appropriation is sufficient to cover the cost of assessments, which is highly dependent on claim volumes
• $253,000 under the Residential Tenancy Services output for work associated with the implementation of the Residential Tenancies Amendment Bill
• $72,000 under the Residential Tenancy Services output for work associated with the Unit Titles Amendment Bill
• $468,000 under the Building Regulation and Control output for deferred work relating to the Building Energy End Use Study and Energy Efficiency campaign
• $367,000 under the Sector and Regulatory Policy output for reprioritisation of work programme activity
• $100,000 for the Sector and Regulatory Policy for work associated with the Plumbers, Gasfitters and Drainlayers Act 1976
• $500,000 for Weathertight Homes Resolution Services consumer awareness and education programme.

Revenue Other is $1.858 million or approximately 4 percent above that forecast in the Supplementary Estimates as a consequence of the following.

• Building levies received were $918,000 above forecast and relate to the prior year backlog recovered from territorial authorities.
• Interest revenue from the Residential Tenancy Services output class was $816,000 higher than forecast due to increase in bond funds and higher interest rates. The funds have grown because of increases in average bond per tenancy, higher rents and landlords seeking three weeks' bond instead of two weeks'.
• Levies and fees from electrical workers, licensed building practitioners and weathertight assessment were $159,000 lower than forecast due to a decrease in these demand-driven activities.
• Actual expenditure on the Weathertight Homes Resolution Services (WHRS) was $3.998 million lower than the Supplementary Estimates. This is due to lower-than-expected claim and assessment activity. The appropriation includes an approved expense transfer of $2.0 million from 2007/08 into 2008/09 to ensure the 2008/09 appropriation is sufficient to cover costs of assessments in 2008/09.
• Actual expenditure for Building Regulation and Control was $1.722 million lower than the Supplementary Estimates. In-principle expense transfers of $1.511 million have been approved for a number of planned projects that were deferred in response to a change in government priorities, including full establishment of the Product Certification Scheme, Building Energy End Use Study and Energy Efficiency campaign.
• Actual expenditure for Sector and Regulatory Policy was $1.049 million lower than the Supplementary Estimates. Work programme for 2007/08 had to be reprioritised as a result of government decisions on reprioritisation of the work programme to address streamlining the building design and consent processes and housing affordability. A number of projects had to be deferred due to this reprioritisation and in-principle transfers of $925,000 from 2007/08 to 2008/09 have been approved. The in-principle expense transfers were for the Consumer Awareness and Education programme ($458,000), deferred policy work programme ($367,000) and administration of Plumbers, Gasfitters, and Drainlayers Act 1976 ($100,000).
• Actual expenditure for Occupational Licensing was $569,000 lower than the Supplementary Estimates. This is primarily due to lower-than-planned volume of licence applications being received for Licensed Building Practitioners and the flow-on effect this has had in terms of expenditure on the assessment work. In addition, the planned phase two communication work was not undertaken due to the need to complete the work on the restricted building work and associated policy issues. Engagement has now commenced with the Registered Master Builders Federation and Certified Builders Association of New Zealand regarding the best way to support industry to encourage the uptake of licensing.
• Actual expenditure for Residential Tenancy Services was $442,000 lower than the Supplementary Estimates. An in-principle expense transfer of $325,000 has been approved for work associated with the Residential Tenancies Amendment Bill and the Unit Titles Amendment Bill. The Bills were introduced later in the year than expected and the timetable for passage through the House has not been set.
• Actual expenditure for Building Act Implementation was $124,000 lower than the Supplementary Estimates. An in-principle expense transfer of $74,000 has been approved to 2008/09 for the Dam Safety project due to the regulations being promulgated later than originally expected.

Statement of financial position

There is no variation between the net assets forecast in the Supplementary Estimates and the actual financial position as at 30 June 2008. However, actual current assets, non-current assets and current liabilities vary when compared to the Supplementary Estimates. These are as follows.

• Cash and cash equivalents were $1.540 million higher because of a reduction in operational expenses.
• Debtors and receivables were $8.120 million higher, being largely the result of interest earned on tenancy bondholders' funds and revenue due for building levies.
• The net book value of property, plant and equipment and intangible assets was $2.153 million lower mainly as the result of capital expenditure on some infrastructure projects being deferred until 2008/09.
• Creditors and payables were $972,000 higher as the net cash drawdown by the Department includes the full entitlement for Crown revenue. $2.616 million relating to in-principle transfers from 2007/08 to 2008/09 is repayable to the Crown and therefore represents a liability. The overall underspend for the year reduced the accrued expenses and has offset the liability to the Crown.
•  

Note 21: Explanation of transition to New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS)

Transition to NZ IFRS

The Department's financial statements for the year ended 30 June 2008 are the first financial statements that comply with NZ IFRS. The Department has applied NZ IFRS 1 First-time Adoption of NZ IFRS in preparing these financial statements. The Department's transition date is 1 July 2006. The reporting date of these financial statements is 30 June 2008. The Department's NZ IFRS adoption date is 1 July 2007.

Exemptions from full retrospective application elected by the Department

In preparing these financial statements in accordance with NZ IFRS 1, the Department has not applied any optional exemptions to full retrospective application of NZ IFRS.

The only mandatory exception from retrospective application that applies to the Department is the requirement for estimates under NZ IFRS at 1 July 2006 and 30 June 2007 to be consistent with estimates made for the same date under previous NZ GAAP.

Reconciliation of equity

The following table shows the changes in equity, resulting from the transition from previous NZ GAAP to NZ IFRS as at 1 July 2006 and 30 June 2007.

	Note	Previous NZ GAAP 1 July 2006 $000	Effect on transition to NZ IFRS 1 July 2006 $000	NZ IFRS 1 July 2006 $000	Previous NZ GAAP 30 June 2007 $000	Effect on transition to NZ IFRS 30 June 2007 $000	NZ IFRS 30 June 2007 $000
Assets
Current assets
Cash and cash equivalents		1,138	-	1,138	473	-	473
Debtors and other receivables		16,223	-	16,223	23,173	(6)	23,167
Prepayments		-	-	-	200	-	200
Inventories		-	-	-	67	-	67
Total current assets		17,361	-	17,361	23,913	(6)	23,907
Non-current assets
Property, plant and equipment		8,233	(1,009)	7,224	8,090	(691)	7,399
Intangible assets	a.	-	798	798	-	608	608
Total non-current assets		8,233	(211)	8,022	8,090	(83)	8,007
Total assets		25,594	(211)	25,383	32,003	(89)	31,914
Liabilities
Current liabilities
Creditors and other payables		6,442	-	6,442	8,296	-	8,296
Provision for restructuring		175	-	175	-	-	-
Repayment of surplus		7,012	-	7,012	9,192	-	9,192
Provisions	b.	326	72	398	275	31	306
Deferred revenue		-	-	-	1,236	-	1,236
Employee entitlements	c.	944	57	1,001	1,215	44	1,259
Total current liabilities		14,899	129	15,028	20,214	75	20,289
Non-current liabilities
Provision		-	-	-	-	50	50
Employee entitlements		305	-	305	355	-	355
Total non-current liabilities		305	-	305	355	50	405
Total liabilities		15,204	129	15,333	20,569	125	20,694
Net assets		10,390	(340)	10,050	11,434	(214)	11,220
Taxpayers' funds
General funds		10,390	(340)	10,050	11,434	(214)	11,220
Total taxpayers' funds		10,390	(340)	10,050	11,434	(214)	11,220

Explanatory notes - Reconciliation of equity

• a. Intangible assets - computer software
• b. Provisions - make-good for accommodation leases
• c. Employee entitlements - sick leave

Sick leave was not recognised as a liability under previous NZ GAAP. NZ IAS 19 requires the Department to recognise employees' unused sick leave entitlements that can be carried forward at balance date, to the extent that the Department anticipates it will be used by staff to cover future absences.

Reconciliation of surplus

The following table shows the changes in the Department's surplus, resulting from the transition from previous NZ GAAP to NZ IFRS for the year ended 30 June 2007.

	Note	Previous NZ GAAP 30 June 2007 $000	Effect on transition to NZ IFRS 30 June 2007 $000	NZ IFRS 30 June 2007 $000
Income
Revenue - Crown		27,842	-	27,842
Revenue - Departmental		387	-	387
Revenue - other		43,168	-	43,168
Total income		71,397	-	71,397
Expenditure
Personnel costs	a.	30,208	(13)	30,195
Depreciation and amortisation expense	b.	1,615	(128)	1,487
Capital charge		829	-	829
Other operating expenses	c.	35,094	15	35,109
Total expenditure		67,746	(126)	67,620
Net surplus/(deficit)		3,651	126	3,777

Explanatory notes - reconciliation of surplus

•    Personnel costs - sick leave
• b. Depreciation and amortisation expense
• c. Other operating expenses

This represents the make good adjustment for accommodation leases and the movement associated with the transitions as at 1 July 2006 from NZ GAAP to NZ IFRS.

Statement of cash flows

There have been no material adjustments to the statement of cash flows on transition to NZ IFRS.

Note 22: Capital Management

The Department's capital is its equity (or taxpayers' funds), which comprise general funds. Equity is represented by net assets.

The Department manages its revenues, expenses, assets, liabilities, and general financial dealings prudently. The Department's equity is largely managed as a by-product of managing income, expenses, assets, liabilities, and compliance with the Government Budget processes and with Treasury instructions.

The objective of managing the Department's equity is to ensure the Department effectively achieves its goals and objectives for which it has been established, whilst remaining a going concern.