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Annual Report 30 June 2013

Notes to the Financial Statements

For the year ended 30 June 2013

Note 1: Statement of Accounting Policies

Reporting entity

The Ministry of Foreign Affairs and Trade ('MFAT') is a New Zealand Government department as defined by section 2 of the Public Finance Act 1989.

In addition, MFAT has reported on Crown activities and trust monies that it administers.

MFAT manages the Government's business with foreign countries and their governments, and with international organisations. The primary objective of MFAT is to provide services to the Government rather than making a financial return.

Accordingly, MFAT has designated itself as a public benefit entity for the purposes of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The reporting period for these financial statements is the year ended 30 June 2013. The financial statements were authorised for issue by the Chief Executive on 30 September 2013.

Basis of preparation

Statement of compliance

These financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989, and with New Zealand generally accepted accounting practice (NZ GAAP) and Treasury Instructions.

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

Measurement base

These financial statements have been prepared on a historical cost basis, modified by the revaluation of certain assets and liabilities including land and buildings and derivative financial instruments to fair value.

Functional and presentation currency

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

Accounting policies

Standards, amendment, and interpretation issued that are not yet effective and have not been early adopted.

There is one standard amendment or interpretation issued but not yet effective that has not been early adopted, and that is relevant to the Ministry. NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following three main phases: Phase 1 Classification and Measurement, Phase 2 Impairment Methodology, and Phase 3 Hedge Accounting. Phase 1 has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial assets (its business model) and the contractual cash flow characteristics of the financial assets. The financial liability requirements are the same as those of NZ IAS 39, except for when an entity elects to designate a financial liability at fair value through the surplus or deficit. The new standard is required to be adopted for the year ended 30 June 2016. However, as a new Accounting Standards Framework will apply before this date, there is no certainty when an equivalent standard to NZ IFRS 9 will be applied by public benefit entities.

The Minister of Commerce has approved a new Accounting Standards Framework (incorporating a Tier Strategy) developed by the External Reporting Board (XRB). Under this Accounting Standards Framework, MFAT is classified as a Tier 1 reporting entity and it will be required to apply full Public Benefit Entity Accounting Standards (PAS). These standards are being developed by the XRB based on current International Public Sector Accounting Standards. The effective date for the new standards for public sector entities is expected to be for reporting periods beginning on or after 1 July 2014. This means we expect to transition to the new standards in preparing its 30 June 2015 financial statements. As the PAS are still under development, we are unable to assess the implications of the new Accounting Standards Framework at this time.

Due to the change in the Accounting Standards Framework for public benefit entities, it is expected that all new NZ IFRS and amendments to existing NZ IFRS will not be applicable to public benefit entities. Therefore, the XRB has effectively frozen the financial reporting requirements for public benefit entities up until the new Accounting Standard Framework is effective. Accordingly, no disclosure has been made about new or amended NZ IFRS that exclude public benefit entities from their scope.

The following significant accounting policies, which materially affect the measurement of financial results and financial position, have been applied consistently to all periods presented in these financial statements.

Judgements and estimations

The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates, and assumptions that affect the application of policies and reported amounts of assets and liabilities, income, and expenses67. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Revenue

Revenue is measured at the fair value of consideration received or receivable.

Revenue Crown

Revenue earned from supply of outputs to the Crown is recognised as revenue when earned.

Revenue from services to third parties

Services to third parties is recognised at balance date on a straight-line basis over the specified period for the services unless an alternative method better represents the stage of completion of the transaction.

Sales of publications

The sale of publications is recognised when the publication is sold to the customer. The recorded revenue is the gross amount of the sale.

Interest

Interest income is accrued using the effective interest rate method. The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income each period.

Rental income

Rental receipts are recognised as income on a straight-line basis over the term of the lease. All rental income is derived from other government agencies at our overseas posts. No lease incentives have been granted.

Donated or subsidised assets

Where a physical asset is acquired for nil or nominal consideration the fair value of the asset received is recognised as income when control over the asset is obtained.

Expenses

Grants

Where grants are discretionary until payment, the expense is recognised when the payment is advised. Otherwise, the expense (and corresponding liability) is recognised when MFAT does not have discretion over the payment. For example, for grants with conditions attached, the expense/liability is recognised when the specified criteria have been fulfilled and notice has been given to MFAT. For grants without conditions attached, the expense/liability is recognised when MFAT has an unconditional obligation to make payment.

Foreign currency

Foreign currency transactions (including those for which forward exchange contracts are held) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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 surplus or deficit.

Non-monetary assets and liabilities measured at historical cost in a foreign currency are translated into New Zealand dollars at a foreign exchange rate that materially represents the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies and measured at fair value are translated into New Zealand dollars at the exchange rate applicable at the fair value date. The associated foreign exchange gains or losses follow the fair value gains directly to an asset revaluation reserve in equity.

Financial instruments

Financial assets

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method (refer interest revenue policy). Loans and receivables issued with a duration of less than 12 months are recognised at their nominal value, unless the effect of discounting is material. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the asset is impaired. Interest, impairment losses, and foreign exchange gains and losses are recognised in the surplus or deficit.

Impairment of a receivable is established when there is objective evidence that MFAT will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired.

Cash and cash equivalents include cash on hand, cash in transit, bank accounts, and deposits with a maturity of no more than three months from date of acquisition.

Financial liabilities

Financial liabilities are recognised initially at fair value less transaction costs and material liabilities are subsequently measured at amortised cost using the effective interest rate method. Financial liabilities entered into with a duration of less than 12 months are recognised at their nominal value. Amortisation and, in the case of monetary items, foreign exchange gains and losses, are recognised in the surplus or deficit as is any gain or loss when the liability is derecognised.

Derivatives

MFAT uses derivative financial instruments to hedge its exposure to foreign exchange movements. In accordance with its foreign exchange management policy, MFAT does not hold or issue derivative financial instruments for trading purposes. We have not adopted hedge accounting.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value on each balance date. They are reported as either assets or liabilities depending on whether the derivative is in a net gain or net loss position respectively. Movements in the fair value of derivative financial instruments are recognised in the surplus or deficit.

The full fair value of a foreign exchange derivative is classified as current if the contract is due for settlement within 12 months of balance date. Otherwise, foreign exchange derivatives are classified as non-current.

Goods and services tax (GST)

All items in the financial statements, including appropriation statements, are stated exclusive of GST except for creditors and payables, and debtors and receivables, which are stated on a GST-inclusive basis. Where GST is not recoverable as input tax, then it is recognised as part of the related asset or expense.

The amount of GST owing to or owed by Inland Revenue at balance date, being the difference between output GST and input GST, is included in creditors and payables or debtors and receivables (as appropriate).

Commitments and contingencies are disclosed exclusive of GST.

Budget figures

The budget figures are those included in the information supporting the estimates of appropriations for the Government of New Zealand for the year ended 30 June 2013, which are consistent with the financial information in the main estimates. In addition, the financial statements also present the updated budget information from the supplementary estimates and the estimated actuals in the 2013/14 estimates of appropriation. The budget figures have been prepared in accordance with NZ GAAP, using accounting policies that are consistent with those in preparing these financial statements.

The main estimates are the original forecast for the financial year, as tabled in Parliament on 16 May 2012. The supplementary estimates are the forecast as tabled in Parliament on 23 May 2013.

Income tax

As a Government department, MFAT is exempt from the payment of income tax (Income Tax Act 2007) and no charge for income tax has been provided for.

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. Commitments relating to employment contracts are not disclosed.

Property, plant and equipment

Items of property, plant, and equipment are initially recorded at cost. Where an asset is acquired for nil or nominal consideration the asset will be recognised initially at fair value, where fair value can be reliably determined. The fair value of the asset received, less costs incurred to acquire the asset, is also recognised as revenue in the surplus or deficit.

Unrealised gains and losses arising from changes in the value of property, plant, and equipment are recognised as at balance date. To the extent that a gain reverses a loss previously charged to the surplus or deficit for the asset class, the gain is credited to the surplus or deficit. Otherwise, gains are credited to an asset revaluation reserve for that class of asset. To the extent that there is a balance in the asset revaluation reserve for the asset class any loss is debited to the reserve. Otherwise, losses are reported in the surplus or deficit.

Revaluations are carried out for the following classes of property, plant, and equipment to reflect the service potential or economic benefit obtained through control of the asset. Revaluation is based on the fair value of the asset, with changes reported by class of asset. Accumulated depreciation at revaluation date is eliminated against the gross carrying amount so that the carrying amount after revaluation equals the revalued amount.

Land and buildings

Land and buildings are recorded at fair value less impairment losses and, for buildings, less depreciation accumulated since the assets were last revalued. Valuations undertaken in accordance with standards issued by the New Zealand Property Institute are used where available. Additions between revaluations are recorded at cost. A revaluation for all land and buildings was last completed on 31 October 2011. Land and buildings are revalued every three years, or whenever the carrying amount differs materially to fair value.

Works of art

Works of art are recorded at cost less impairment losses.

Other property, plant and equipment – at cost

Other property, plant, and equipment – which includes leasehold improvements, furniture and fittings, computer equipment, motor vehicles, and office equipment – are recorded at cost less accumulated depreciation and accumulated impairment losses.

Realised gains and losses arising from disposal of property, plant, and equipment are recognised in the surplus or deficit in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.

For each property, plant, and equipment asset project, borrowing costs incurred during the period required to complete and prepare the asset for its intended use are expensed.

The carrying amounts of property, plant, and equipment are reviewed at least annually to determine if there is any indication of impairment. Where an asset's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the surplus or deficit, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease.

Depreciation

Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant, and equipment over its estimated useful life. Typically, the estimated useful lives of different classes of property, plant, and equipment are as follows:

Buildings

– Structure

35 to 60 years

– Fit out

3 to 20 years

– Services

3 to 20 years

Plant and machinery

10 years

Computer equipment (excluding computer software)

3 to 5 years

Equipment

5 to 20 years

Leasehold improvements

5 to 15 years

Motor vehicles

8 years

Furniture and fittings

6 years 8 months

The cost of leasehold improvements is capitalised and depreciated over the unexpired period of the lease with a maximum period of 15 years.

Intangible assets

Intangible assets are initially recorded at cost. The cost of an internally generated intangible asset represents expenditure incurred in the development phase of the asset only. The development phase occurs after the following can be demonstrated: technical feasibility; ability to complete the asset; intention and ability to sell or use; and development expenditure can be reliably measured. Expenditure incurred on research of an internally generated intangible asset is expensed when it is incurred. Where the research phase cannot be distinguished from the development phase, the expenditure is expensed when it is incurred.

Intangible assets with finite lives are subsequently recorded at cost less any amortisation and impairment losses. Amortisation is charged to the surplus or deficit on a straight-line basis over the useful life of the asset. Typically, the estimated useful lives of these assets are as follows:

Computer software

3 to 8 years

Where there is an active market for an intangible asset, the asset is recorded at a revalued amount, being fair value less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Unrealised gains and losses arising from changes in the value of intangible assets are recognised as at balance date. To the extent that a gain reverses a loss previously charged to the surplus or deficit, the gain is credited to the surplus or deficit. Otherwise, gains are credited to an asset revaluation reserve for that asset. To the extent that there is a balance in the asset revaluation reserve for the intangible asset, any loss is debited to the reserve. Otherwise, losses are reported in the surplus and deficit.

Realised gains and losses arising from disposal of intangible assets are recognised in the surplus and deficit in the period in which the transaction occurs.

Intangible assets with finite lives are reviewed at least annually to determine if there is any indication of impairment. An intangible asset with an indefinite life is tested for impairment annually. Where an intangible asset's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the surplus or deficit, unless the asset is carried at a revalued amount in which case the impairment loss is treated as a revaluation decrease.

Non-current assets held for sale and discontinued operations

Non-current assets or disposal groups are separately classified where their carrying amount will be recovered through a sale transaction rather than continuing use; that is, where such assets are available for immediate sale and where sale is highly probable. These assets are recorded at the lower of their carrying amount and fair value less costs to sell.

Creditors and other payables

Short-term creditors and other payables are recorded at their face value.

Employee benefits

Short-term employee entitlements

Employee benefits expected 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 accrued up to balance date, annual leave earned but not yet taken at balance date, retiring and long service leave entitlements expected to be settled within 12 months, and sick leave.

A liability for sick leave is recognised to the extent that absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent that it will be used by staff to cover those future absences.

A liability and an expense are recognised for bonuses where MFAT has a contractual obligation or where there is a past practice that has created a constructive obligation.

Long-term employee entitlements

Employee benefits that are due to be settled beyond 12 months after the end of the reporting period in which the employee renders the related service, such as long service leave and retiring leave, are calculated on an actuarial basis. The calculations are based on:

Expected future payments are discounted using market yields on government bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows for entitlements. The inflation factor is based on the expected long-term increase in remuneration for employees.

Defined contribution schemes

Obligations for contributions to the State Sector Retirement Savings Scheme, KiwiSaver, and the Government Superannuation Fund are accounted for as defined contribution schemes and are recognised as an expense in the surplus or deficit as incurred.

Termination benefits

Termination benefits are recognised in the surplus or deficit only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid; otherwise they are reported as the present value of the estimated future cash outflows.

Leases

Operating leases, where the lessor substantially retains the risks and rewards of ownership, are recognised in a systematic manner over the term of the lease.

Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

Other liabilities and provisions

Other liabilities and 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 an outflow of future economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.

Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are recorded in the Statement of Contingent Liabilities and Contingent Assets 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.

Taxpayers' funds

Taxpayers' funds are the Crown's investment in MFAT and are measured as the difference between total assets and total liabilities. Taxpayers' funds are disaggregated and classified as general funds and property revaluation reserves.

Property revaluation reserves

These reserves relate to the revaluation of land and buildings to fair value.

Changes in accounting policies

Accounting policies are changed only if the change is required by a standard or interpretation or otherwise provides more reliable and more relevant information.

These accounting policies have been applied consistently to all periods presented in these financial statements.

Comparatives

When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.

Related parties

MFAT transacts with other government agencies on a regular basis: for example, for the purchase of postage stamps or the registration of vehicles. These transactions are conducted on an arm's length basis.

Cost allocation

Our policy is to directly charge costs to outputs wherever possible. This is done using the following activity based principles: i) total corporate costs are allocated to operational cost centres based on head, and ii) operating costs are accumulated in operational cost centres and attributed to outputs on the basis of pre-established ratios. Output allocation factors are based on estimates of the time that staff intend to spend on producing various outputs. They are reviewed annually as part of an operational planning and evaluation exercise to ensure they provide an accurate measure of resource consumption.

To summarise, MFAT has determined the cost of outputs using the cost allocation system outlined below.

Definition of terms

'Operational cost centre' is a unit that produces outputs. All overseas posts and regional and functional divisions in Wellington are operational cost centres.

'Support service cost centre' is a unit that provides support services to operational cost centres.

'Output allocation factor' is a ratio calculated from an estimate of time each officer spends on producing specified outputs.

'Direct costs' are those costs directly attributed to outputs.

'Indirect costs'are those costs directly attributed to operational cost centres.

'Corporate costs'are those costs of support service cost centres attributed to operational cost centres as overhead. Corporate costs account for approximately 22 percent (2012: 24 percent) of MFAT's output costs.

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Note 2: Other revenue

Services for other New Zealand Agencies: Recovery of costs for a range of support services provided to other New Zealand agencies with overseas interests and rental income from sub-let office and residential accommodation.

Services include general office services; access to communications and courier systems; operational support to agency representatives working out of our overseas posts; and fees for work performed on behalf of other agencies.

Consular services: Notarial and legal charges, diplomatic passports, and authentication of document charges.

Miscellaneous:Sale of publications including the UN Handbook and miscellaneous service charges.

30/06/12
Actual
$000

30/06/13
Actual
$000

15,416

Total other revenue

14,423

Services for other New Zealand Agencies

10,633

437

Consular services

470

556

Miscellaneous

525

 

Note 3: Personnel costs

30/06/12
Actual
$000

30/06/13
Actual
$000

160,006

Total personnel costs

131,026

Salaries and wages

131,313

6,257

Employer contributions to defined contribution plans

6,157

493

ACC levy

397

85

Increase/(decrease) in employee entitlements

(3,641)

(8)

Increase/(decrease) in sick leave liability

59

22,153

FBT

17,786

 

Note 4: Operating costs

79,466

Total operating costs

30/06/12
Actual
$000

30/06/13
Actual
$000

330

Audit fees for financial statement audit

378

20

Audit fees other

15

53,438

Other operating

39,660

8,423

Travel

14,854

11,758

Professional services and contractors

11,946

3,469

Staff training

3,260

1,992

Representation

2,475

20

Asset/debt write-offs

219

16

Loss on sale of assets

54

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Note 5: Accommodation costs

30/06/12
Actual
$000

30/06/13
Actual
$000

48,046

Total accommodation and operating lease costs

34,911

Rentals and operating leases

30,218

5,096

Maintenance

5,243

2,673

Rates, taxes & communal charges

2,558

4,269

Utilities

4,551

1,097

Other

2,200

 

Note 6: Depreciation and impairment on property, plant and equipment

30/06/12
Actual
$000

30/06/13
Actual
$000

23,465

Total depreciation charge

7,534

Freehold buildings

6,646

2,563

Plant and equipment

2,095

6,423

Furniture and fittings

4,605

913

Motor vehicles

894

6,032

Computer equipment

4,662

 

Note 7: Amortisation on intangible assets

30/06/12
Actual
$000

30/06/13
Actual
$000

2,520

2,520

Computer software

2,297

 

Note 8: Capital charge

MFAT pays a capital charge to the Crown on its taxpayers' funds balance as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2013 was 8.0 percent (2012: 8.0 percent).

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Note 9: Taxpayers’ funds

30/06/12
Actual
$000

30/06/13
Actual
$000

158,104

General funds

403,759

Balance at 1 July

404,195

19,253

Net operating surplus/ (deficit)

23,942

(18,817)

Return of operating surplus to the Crown

(17,386)

404,195

General funds as at 30 June

410,751

Property revaluation reserves

98,066

Balance at 1 July

158,104

60,038

Revaluation gains / (losses)

-

158,104

Revaluation reserves as at 30 June

158,104

562,299

Total taxpayers' funds

568,855

Property revaluation reserve consists of:

145,170

Land revaluation reserve

145,170

12,934

Buildings revaluation reserve

12,934

158,104

Total property revaluation reserve

158,104

General funds

403,759

Balance at 1 July

404,195

19,253

Net operating surplus/ (deficit)

23,942

(18,817)

Return of operating surplus to the Crown

(17,386)

404,195

General funds as at 30 June

410,751

Property revaluation reserves

98,066

Balance at 1 July

158,104

60,038

Revaluation gains / (losses)

-

158,104

Revaluation reserves as at 30 June

158,104

562,299

Total taxpayers' funds

568,855

Property revaluation reserve consists of:

145,170

Land revaluation reserve

145,170

12,934

Buildings revaluation reserve

12,934

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Note 10: Debtors and receivables

30/06/12
Actual
$000

30/06/13
Actual
$000

5,865

Total debtors and receivables

Current

2,343

Trade debtors

1,810

169

Receivables

348

133

GST receivable

39

28

Post establishment loans

15

2,673

Total current

2,212

Non-current

147

Deposit bonds

301

3,001

Lease deposits

3,597

44

Post establishment loans

12

3,192

Total non-current

3,910

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

As at 30 June 2013 and 2012, all receivables have been assessed for impairment and no provision was required.

Aged debtors

30/06/12
$000

30/06/13
$000

Total

2,343

Not past due

-

133

Past due 1-30 days

1,794

1,418

Past due 31-60 days

170

178

Past due 61-90 days

175

35

Past due >91 days

204

46

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Note 11: Prepayments

Current prepayments include expenditure paid in advance for property leases. Non-current prepayments include our Beijing Embassy land lease which is being amortised over the remaining life of the lease.

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Note 12: Property, plant, equipment

Freehold land
$000

Freehold buildings
$000

Furniture & fittings
$000

Plant & equipment
$000

Motor vehicles
$000

Computer equipment
$000

Total
$000

At 30 June 2013

Cost or valuation

Balance at 1 July 2011

246,119

114,362

68,635

25,607

7,673

34,998

497,394

Additions

40

5,608

4,141

939

1,683

3,318

15,729

Asset class adjustment – reclassification

-

2

10

1,248

35

(1,295)

-

Revaluation

61,041

(19,981)

-

-

-

-

41,060

Disposals

-

-

(2,577)

(688)

(1,688)

(974)

(5,927)

Balance at 30 June 2012

307,200

99,991

70,209

27,106

7,703

36,047

548,256

Balance at 1 July 2012

307,200

99,991

70,209

27,106

7,703

36,047

548,256

Additions

-

3,296

3,237

837

690

1,555

9,615

Disposals

(1,191)

(1,401)

(2,215)

(245)

(1,012)

(2,934)

(8,998)

Balance at 30 June 2013

306,009

101,886

71,231

27,698

7,381

34,668

548,873

Accumulated depreciation
and impairment losses

Balance at 1 July 2011

-

16,338

40,810

19,318

4,328

21,225

102,019

Depreciation expense

-

7,534

6,470

2,563

913

6,032

23,512

Eliminate on disposal

-

-

(2,526)

(681)

(1,557)

(961)

(5,725)

Asset class adjustment – reclassification

-

1

14

(33)

-

18

-

Eliminate on revaluation

-

(18,978)

-

-

-

-

(18,978)

Impairment adjustment

-

-

(47)

-

-

-

(47)

Balance at 30 June 2012

-

4,895

44,721

21,167

3,684

26,314

100,781

Balance at 1 July 2012

-

4,895

44,721

21,167

3,684

26,314

100,781

Depreciation expense

-

6,646

4,648

2,095

894

4,662

18,945

Eliminate on disposal

-

(106)

(2,153)

(227)

(924)

(2,874)

(6,284)

Impairment adjustments

-

-

(43)

-

-

-

(43)

Balance at 30 June 2013

-

11,435

47,173

23,035

3,654

28,102

113,399

Carrying amounts

At 1 July 2011

246,119

98,024

27,825

6,289

3,345

13,773

395,375

At 30 June and
1 July 2012

307,200

95,096

25,488

5,939

4,019

9,733

447,475

Movements in values

Land and Buildings were revalued at fair value as at 31 October 2011. This valuation was conducted by an independent registered valuer, S N Dean, Director – Valuation and Advisory Services, Colliers International New Zealand Limited, FNZIV, AREINZ and FPINZ, on MFAT's behalf. Land and buildings have been translated into New Zealand dollars at the exchange rate prevailing as at that date.

Buildings purchased or capitalised on or after 1 November 2011 are recorded at cost.

The total amount of property, plant, and equipment in the course of construction is $2.341 million (2012: $2.945 million).

As at 30 June 2013 MFAT had no properties intended for sale (30 June 2012: nil).

Restrictions on sale of land and buildings

MFAT owns property in 14 locations globally that have restrictions on their sale, mostly in relation to their use, or requiring that country's Government's approval to sell. The carrying amount of the property is $159.722 million (2012: $160.379 million).

There are conditions that apply to the land leased by MFAT in New Delhi. The following restrictions in relation to the sale and treatment of sale proceeds apply:

Based on the above restrictions our valuer has valued the New Delhi land at 20 percent of the fair value, which is $59.36 million.

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Note 13: Intangible assets

Computer software
$000

At 30 June 2013

Cost

Balance at 1 July 2011

17,697

Additions

1,499

Disposals

(2,361)

Balance at 30 June 2012

16,835

Balance at 1 July 2012

16,835

Additions

1,385

Disposals

(393)

Balance at 30 June 2013

17,827

Accumulated amortisation and impairment losses

Balance at 1 July 2011

11,264

Amortisation expense

2,520

Eliminate on disposal

(2,361)

Balance at 30 June 2012

11,423

Balance at 1 July 2012

11,423

Amortisation expense

2,297

Eliminate on disposal

(274)

Balance at 30 June 2013

13,446

Carrying amounts

At 1 July 2011

6,433

At 30 June and 1 July 2012

5,412

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Note 14: Creditors and payables

30/06/12
Actual
$000

30/06/13
Actual
$000

12,547

Total creditors and payables

2,798

Trade creditors

3,189

4,391

Accrued expenses

6,646

5,358

FBT payable

4,595

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.

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Note 15: Return of operating surplus

30/06/12
Actual
$000

30/06/13
Actual
$000

18,817

19,253

Net surplus/ (deficit)

23,942

Add/(less)

936

Movement in discount rate for long service leave and retirement leave

(1,172)

(1,372)

Net loss/(gain) on derivative financial instruments

(5,384)

The operating surplus is required to be paid to the Crown by 31 October.

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Note 16: Provisions

30/06/12
Actual
$000

30/06/13
Actual
$000

10,081

Total

Current portion

1,125

Onerous contracts

805

640

Lease make good

1,080

4,568

Restructuring

-

198

Other

265

6,531

Total current

2,150

Non-current portion

2,211

Onerous contracts

46

1,339

Lease make good

1,260

3,550

Total non-current

1,306

 

Onerous
$000

Make good
$000

Restructuring
$000

Other
$000

Total
$000

Balance as at 30 June 2013

851

2,340

-

265

Balance as 1 July 2011

4,473

2,233

-

-

6,706

Additional provisions made

-

-

4,568

198

4,766

Amounts used

(291)

(35)

-

-

(326)

Unused amounts reversed

(846)

(219)

-

-

(1,065)

Balance as at 30 June 2012

3,336

1,979

4,568

198

10,081

Balance as 1 July 2012

3,336

1,979

4,568

198

10,081

Additional provisions made

-

560

-

67

627

Amounts used

(1,125)

(199)

(4,568)

-

(5,892)

Unused amounts reversed

(1,379)

-

-

-

(1,379)

Discount unwind

19

-

-

-

19

Lease make good

In respect of a number of its leased premises, MFAT is required at the expiry of the lease term to make good any damage caused to the premises and to remove any fixtures or fittings installed by us. In many cases, we have the option to renew these leases, which affects the timing of the expected cash outflows to make good the premises.

Onerous contracts

The provision for onerous contracts arises from a non-cancellable lease where the unavoidable costs of meeting the lease contract exceed the economic benefits to be received from it. Due to decisions to consolidate staff into one building and reduce accommodation costs, three floors located in one building became vacant from 1 January 2013 with two years remaining on the lease. Tenants have not yet been found for the vacant floors. No sublease cash inflows on the vacant floors have been included in measuring the provision as there is not sufficient certainty that these floors will be sublet.

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Note 17: Provision for employee entitlements

30/06/12
Actual
$000

30/06/13
Actual
$000

29,589

Total provision for employee entitlements

Current liabilities

9,385

Annual leave

9,233

1,008

Long service leave

955

1,215

Retirement leave

752

1,070

Retirement gratuities

980

154

Posting-related leave

157

4,168

Salaries and allowances

4,189

161

Sick leave liability

220

620

ACC levy

499

17,781

Total current

16,985

Non-current liabilities

1,261

Long service leave

1,182

8,577

Retirement leave

6,322

1,656

Retirement gratuities

1,441

314

Posting-related leave

319

11,808

Total non-current

9,264

An independent actuarial valuation was undertaken by AON Consulting New Zealand Limited as

The key assumptions used in discounting to present value were:

2012/13

Project year

1

2

3

4

5

6

7

8

9

10

11

Discount rate %

2.71

3.14

3.58

4.02

4.46

4.79

4.99

5.11

5.18

5.22

5.24

Project year

12

13

14

15

16

17

18

19

20

21+

2011/12

Project year

1

2

3

4

5

6

7

8

9

10

11

12

Discount rate %

2.43

2.47

2.77

3.25

3.66

3.93

4.07

4.17

4.25

4.29

4.32

4.43

Project year

13

14

15

16

17

18

19

20

21

22

23+

Salary growth

Projection year

2012/13
%

2011/12
%

1

2.90

3.10

2

3.30

3.40

3

3.30

3.50

4

3.40

3.50

5

3.40

3.50

6

Note 18: Reconciliation of net surplus to net cash flow from operating activities

30/06/12
Actual
$000

30/06/13
Actual
$000

44,759

Operating activities net cash flows

19,253

Net operating surplus/ (deficit)

23,942

Add/(less) non-cash Items

26,043

Depreciation and amortisation

21,199

(1,372)

Net (gains)/loss on derivatives and foreign exchange

(5,384)

936

Movement in discount rate for long service leave and retirement leave

(1,172)

25,607

Total non-cash items

14,643

Add/(less) items classified as investing or financing activities

(214)

(Gains) / losses on disposal property, plant and equipment

(193)

(214)

Total Items classified as investing or financing activities

(193)

Add/(less) working capital movements

(1,756)

(Inc)/dec in debtors and receivables

(23,199)

2,456

(Inc)/dec in prepayments

(1,059)

(4,097)

Inc/(dec) in creditors and payables

1,788

1,536

Inc/(dec) in provisions

(4,381)

3,963

Inc/(dec) in current employee entitlements

(21)

2,102

Net working capital movements

(26,872)

Add/(less) movements in non-current liabilities

(2,779)

Inc/(dec) in provisions

(2,244)

790

Inc/(dec) in employee entitlements

(2,148)

(1,989)

Net working non-current movements

(4,392)

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Note 19: Financial instrument risks

MFAT is party to financial instrument arrangements as part of its everyday operations. These include instruments such as bank balances, investments, accounts receivable, and foreign currency forward contracts.

MFAT is exposed to a variety of financial instrument risks, including market risk, credit risk, and liquidity risk. We have a series of policies to manage the risks associated with financial instruments that seek to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Market risk

Currency risk

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

MFAT uses foreign exchange forward contracts to manage foreign exchange exposures.

The notional principal amounts of outstanding forward exchange contracts in New Zealand dollar equivalents at 30 June 2013 were:

30/06/12
$000

30/06/13
$000

USD

17,551

16,138

JPY

4,366

3,502

EUR

17,834

14,244

Other

30,376

28,316

Total

70,127

Sensitivity analysis

Forward foreign exchange contracts

Derivative financial instruments include forward foreign exchange contracts in gain with a fair value totalling $1.751 million and forward foreign exchange contracts in loss with a fair value totalling $1.043 million (2012: $0.112 million and $4.790 million respectively). A movement in foreign exchange rates plus or minus 10 percent has an impact of ($7.689) million / $5.011 million on MFAT's revenue/expenditure and assets/liabilities (2012: ($2.596) million/$10.627 million) based on a derivative valuation model using balance date forward exchange rates plus or minus 10 percent.

Creditors Denominated in Foreign Currencies

As at 30 June 2013, if the New Zealand dollar had weakened/strengthened by 5 percent against the US dollar with all other variables held constant, the surplus/deficit for the year would have been $37,000 (2012: $6,900) higher/lower. This movement is attributable to the foreign exchange gains/losses on translation of US dollar denominated creditors.

As at 30 June 2013, if the New Zealand dollar had weakened/strengthened by 5 percent against the Japanese yen with all other variables held constant, the surplus/deficit for the year would have been $8,700 (2012: $6,800) higher/lower. This movement is attributable to the foreign exchange gains/losses on translation of Japanese yen denominated creditors.

As at 30 June 2013, if the New Zealand dollar had weakened/strengthened by 5 percent against the euro with all other variables held constant, the surplus/deficit for the year would have been $26,000 (2012: $10,300) higher/lower. This movement is attributable to the foreign exchange gains/losses on translation of euro denominated creditors.

Foreign exchange transaction exposure

MFAT faces large foreign exchange transaction exposure due to the inherent risk related to volatile foreign exchange markets impacting expenditure incurred in multiple currencies offshore. We use forward exchange contracts to hedge our exposure to foreign exchange movements.

Foreign currency transactions each month are translated into New Zealand dollars at an average ('spot') foreign exchange rate, regardless of whether those transactions have been hedged at a different exchange rate. When the foreign exchange contracts mature and are settled, the exchange rate difference between the New Zealand dollar amount at the forward contract rate compared with the New Zealand dollar amount at the spot rate is recognised as a realised gain or loss in the Statement of Comprehensive Income. The resulting net foreign exchange loss or gain has no impact on the bottom line as it is offset by lower or higher costs in the other expenditure lines appearing in the Statement of Comprehensive Income.

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. This could impact on the return on investments or the cost of borrowing. MFAT has no significant exposure to interest rate risk on its financial instruments.

The Public Finance Act stipulates that MFAT cannot raise a loan without ministerial approval and no such loans have been raised. Accordingly, there is no interest rate exposure as no funds were borrowed.

Credit risk

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

Our maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents, net debtors, and derivative financial instrument assets. There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired.

MFAT does not require any collateral or security to support financial instruments with financial institutions that we deal with as these entities have high credit ratings. For our other financial instruments, we do not have significant concentrations of risk.

Liquidity risk

The liquidity risk is the risk that MFAT will encounter difficulty raising liquid funds to meet commitments as they fall due.

In meeting our liquidity requirements we closely monitor our forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. MFAT maintains a target level of available cash to meet its liquidity requirements.

Our creditors and payables will be settled within three months of balance date. Derivative financial instrument liabilities will be settled within one year of balance date.

The table below analyses MFAT's financial liabilities that will be settled based on the remaining period at 30 June 2013 to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

Derivative financial instrument liabilities

Less than
6 months
$000

Between
6 months
and 1 year
$000

2012

Creditors and other payables

12,547

-

Derivative financial instrument liabilities

2,341

2,448

2013

Creditors and other payables

14,430

-

The table below analyses MFAT's forward exchange contract derivatives into the relevant maturity groupings based on the remaining period at balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

Liability carrying amount
$000

Asset
carrying amount
$000

Contractual
cash flows
$000

Less than
6 months
$000

6-12
months
$000

- inflow

2012

Gross settled foreign exchange contracts:

4,790

112

- outflow

-

-

70,126

34,469

35,657

- inflow

-

-

65,449

32,183

33,266

2013

Gross settled foreign exchange contracts:

1,043

1,751

- outflow

-

-

62,200

30,391

31,809

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Note 20: Categories of financial instruments

Fair value

The fair value of all financial instruments is equivalent to the net carrying amount disclosed in the Statement of Financial Position.

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:

30/06/12
Actual
$000

30/06/13
Actual
$000

12,547

Loans and receivables

66,342

Cash and cash equivalents

46,866

5,865

Debtors and other receivables

10

6,122

102,451

Debtor Crown

125,300

174,658

Total loans and receivables

178,288

Fair value through surplus and deficit – held for trading

112

Derivative financial instrument assets

1,751

(4,790)

Derivative financial instrument liabilities

(1,043)

(4,678)

Total fair value through surplus and deficit – held for trading

708

Financial liabilities measured at amortised cost

The derivatives in gain and the derivatives in loss represent the difference between the notional principal amount and the carrying amount of the forward exchange contracts.

Movements in fair value of derivative financial instruments are recognised in the Statement of Comprehensive Income as a net gain or loss on derivative financial instruments.

Fair value hierarchy

The following table analyses the basis of the valuation of classes of financial instruments measured at fair value in the statement of financial position.

Valuation technique

Total
$000

Quoted market price
$000

Observable inputs
$000

Significant non-observable inputs
$000

Foreign exchange derivatives

1,043

-

1,043

30 June 2012

Financial assets

Foreign exchange derivatives

112

-

112

-

Financial liabilities

Foreign exchange derivatives

4,790

-

4,790

-

30 June 2013

Financial assets

Foreign exchange derivatives

1,751

-

1,751

-

Financial liabilities

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Note 21: Capital managt emen

MFAT's capital is its equity or taxpayers' funds, which comprises general funds. Equity is represented by net assets.

MFAT manages its revenues, expenses, assets, liabilities, and general financial dealings prudently. MFAT'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 MFAT's equity is to ensure we effectively achieve our goals and objectives for which MFAT has been established, whilst remaining a going concern.

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Note 22: Related party transactions and key management personnel

All transactions with related parties have been entered into on an arm's length basis.

MFAT is a wholly owned entity of the Crown. The Government significantly influences our role as well as being our major source of revenue.

Significant transactions with government-related entities

MFAT enters into numerous transactions with other Government departments, Crown agencies, and State-owned enterprises on an arm's length basis. We have received funding from the Crown of $348 million (2012: $364 million) to provide services to the public for the year ended 30 June 2013.

Collectively, but not individually significant transactions with government-related entities

In conducting our activities, MFAT is required to pay various taxes and levies (such as GST, FBT, PAYE, and ACC levies) to the Crown and entities related to the Crown. The payment of these taxes and levies, other than income tax, is based on the standard terms and conditions that apply to all tax and levy payers. MFAT is exempt from paying income tax.

MFAT also purchased goods and services from entities controlled, significantly influenced, or jointly controlled by the Crown. Purchases from these government-related entities for the year totalled $5.955 million of which $0.584 million was payable at 30 June 2013 (2012: $6.712 million and $0.514 million respectively). These included purchases from Ministry for Primary Industries, New Zealand Customs Service, New Zealand Defence Force, New Zealand Police, and Air New Zealand.

Sales to government related entities for the year ended 30 June 2013 totalled $9.273 million with a closing receivable balance of $1.728 million relating to accommodation and support services provided to other NZ Inc organisations such as the Education New Zealand, New Zealand Defence Force, Department of Internal Affairs, Ministry for Primary Industries, New Zealand Trade and Enterprise, and Ministry of Business, Employment and Innovation (2012: $14.022 million and $2.059 million respectively).

Apart from those transactions described above, MFAT has not entered into any other related party transactions.

Key management personnel compensation

30/06/12
Actual
$000

30/06/13
Actual
$000

4,359

Total key management personnel compensation

4,297

Salaries and other short-term employee benefits

3,735

62

Other long-term benefits

103

Key management personnel include the Chief Executive and the 12 members of the Senior Leadership Team including additional Senior Management personnel appointed for a fixed term for oversight of MFAT's modernisation programme (2012: $4.359 million consisting of the Chief Executive and 12 SLT members including some who took up their roles part way through the financial year).

The above key management personnel compensation excludes the remuneration and other benefits the Minister of Foreign Affairs receives. The Minister's remuneration and other benefits are not received only for his role as a member of key management personnel of MFAT. The Minister's remuneration and other benefits are set by the Remuneration Authority under the Civil List Act 1979 and are paid under Permanent Legislative Authority, and not paid by MFAT.

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Note 23: Major budget variations

Statement of comprehensive income

Variances between estimates

The movement in total expenses between the 2012/13 main estimates and the 2012/13 supplementary estimates was a reduction of $52.573 million. The net reduction is mainly due to decreases arising from:

Offset by following increases in:

Variances between actual and supplementary estimates

Actual expenditure (excluding remeasurements) was $12.844 million less than the supplementary estimates. The main drivers for this under-expenditure are:

Statement of financial position and statement of cash flows

The movement in the forecast net closing cash balance between the 2012/13 main estimates and the 2012/13 supplementary estimates of $17.103 million was partly due to a revision of cash flows reflecting changes to the operating budgets in the Statement of Comprehensive Income above.

The actual cash balance as at 30 June 2013 is $21.525 million lower than in the supplementary estimates, mainly due to a build-up of capital funds over the years arising from slower-than-expected capital expenditure demonstrated by expenditure on the purchase of assets being $18.211 million lower than forecast associated with design and local planning requirements taking longer than anticipated primarily in two offshore locations. Also, forecast revenue from the Crown of $20.710 million was not drawn down relating to NZ Inc. initiatives' in-principle expense transfers.

The actual intangibles balance as at 30 June 2013 is $2.382 million less than in the supplementary estimates mainly due to delays with capital projects arising from design and implementation processes taking longer than anticipated; as well as the rephasing of the capital works programme; changes in operational and business requirements; and tightening of fiscal forecasts.

The increase in debtor crown ($28.511 million), the decrease of plant, property, and equipment ($7.179 million) and the decrease of intangible assets ($2.938 million) between 2012/13 main estimates and the 2012/13 supplementary estimates is due to delays with capital projects arising from design and tendering processes taking longer than anticipated, changes in operational and business requirements, and tightening fiscal forecasts.

Note 24: Events after the balance sheet date

There have been no significant events after the balance sheet date.

Footnotes

[67] Where material, information on the major assumptions is provided in the relevant accounting policy or will be provided with a relevant note.

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