Notes to the Financial Statements

for the year ended 30 June

1 Revenue Crown

2 Revenue Department

3 Revenue Other

4 Gain on Sale of Property, Plant and Equipment

5 Personnel Costs

6 Operating Costs

7 Depreciation and Amortisation Expense

8 Capital Charge

The Ministry paid a capital charge to the Crown on its net taxpayers’ funds as at 30 June and 31 December. The capital charge rate for the year ended 30 June 2008 was 7.5%: (2007: 7.5%).

9 Taxpayers' Funds

10 Debtors and Other Receivables

Trade debtors are generally on 30 day terms.

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

The provision for doubtful debts has been calculated based on forecast losses for the Ministry’s pool of debtors. Forecast losses have been determined based on a review of specific debtors.

Movements in the provision for doubtful debts are as follows:

11 Property, Plant and Equipment

The total amount of property, plant and equipment in the course of construction is $60,000.

12 Intangible Assets

The total amount of intangible assets in the course of construction is $980,000.

13 Creditors and Other Payables

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.

14 Repayment of Surplus to the Crown

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

15 Provisions

Marine Farming Permit Refunds

During the period October 2000 to October 2001 the 1986 Fisheries (Commercial Fishing) Regulations, made pursuant to the Fisheries Act 1983, required marine farm permit applicants to pay a prescribed flat fee to process their applications.

This provision provides for the refund of marine farming permits which have been overcharged.

Organisational Change

At 30 June 2008 a provision of $216,000 was made to cover costs associated with changes in fisheries operations business group activities.

These costs are expected to crystallize within the next two years.

Office Redevelopment

The refurbishment of the Napier Office requires the removal of current internal structures and services from within the Napier Office. This is expected to take place over the next year.

16 Employee Entitlements

Retirement Leave Employees are entitled to retirement leave or approved early retirement, providing they have completed ten or more years of service and the retirement is the permanent cessation of regular paid employment with the Ministry.

Long Service Leave applies to those persons who have not had long service leave rolled into annual leave salary as at 30 June 2008. Employees who have completed ten years’ continuous government service may be granted ten working days’ long service leave. A further ten working days are available after completion of twenty years’ continuous service. Long service leave must be taken within five years of qualification.

Employee entitlements to long service leave and retirement leave are valued on an actuarial basis at six monthly intervals. Mr Bernie Higgins of Aon Consulting New Zealand Limited, an independent consulting actuary, undertook this valuation at 31 December 2007 and 30 June 2008.

The present value of the retirement and long service leave obligations depend on several economic and demographic factors that are determined on an actuarial basis using a package of assumptions. Two key assumptions used in calculating this liability include the discount rate and the salary inflation factor. Any change to these assumptions is likely to impact on the carrying amount of the liability.

In determining the appropriate discount rate the Ministry considered the interest rates on New Zealand government bonds which have terms to maturity that match, as far as possible, the estimated future cash outflows. The salary inflation factor has been determined after considering historical salary inflation patterns and on advice from an independent actuary.

If the discount rate were to differ by plus/minus 1% from the Ministry’s estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $254,000 higher/$219,000 lower.

If the salary inflation factor were to differ by plus/minus 1% from the Ministry’s estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $260,000 higher/$228,000 lower.

17 Reconciliation of Net Surplus to Net Cash from Operating Activities for the Year Ended 30 June

18 Related Party Transactions and Key Management Personnel

Related party transactions

The Ministry is a wholly owned entity of the Crown. The Government significantly influences the roles of the Ministry as well as being its major source of revenue.

The Ministry enters into transactions with other government departments, Crown entities and state-owned enterprises on an arm’s length basis.

Those transactions that occur within a normal supplier or client relationship on terms and conditions no more or less favourable than those which it is reasonable to expect the Ministry would have adopted if dealing with that entity at arm’s length in the same circumstance are not disclosed.

Key management personnel compensation

19 Financial Instrument Risks

The Ministry’s activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The Ministry has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Credit Risk

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

There is no collateral held as security against these financial instruments with financial institutions the Ministry deals with, as these entities have high credit ratings. For its other financial instruments, the Ministry does not have significant concentrations of credit risk.

Fair Value

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

Market Risk

Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Ministry’s foreign exchange management policy requires the Ministry to manage material currency risk arising from future transactions and recognised liabilities by entering into foreign exchange forward contracts. The Ministry’s policy has been approved by the Treasury and is in accordance with the requirements of the Treasury Guidelines for the Management of Crown and Departmental Foreign-Exchange Exposure.

Interest Rate Risk

Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument will fluctuate, due to changes in market interest rates. The Ministry does not have any significant exposure to either currency risk or interest rate risk.

Liquidity Risk

Liquidity risk is the risk that the Ministry will encounter difficulty raising liquid funds to meet commitments as they fall due.

In meeting its liquidity requirements, the Ministry closely monitors its forecast cash requirements with expected cash draw downs from the New Zealand Debt Management Office. The Ministry maintains a target level of available cash to meet liquidity requirements.

The table below analyses the Ministry’s financial liabilities that will be settled based on the remaining period at 30 June 2008 to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

20 Categories of Financial Instruments

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

21 Capital Management

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

The Ministry manages its revenues, expenses, assets, liabilities, and general financial dealings prudently. The Ministry’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 Ministry’s equity is to ensure the Ministry effectively achieves its goals and objectives for which it has been established, whilst remaining a going concern.

22 Segment Information

The Ministry undertakes fisheries management activities throughout New Zealand.

23 Major Budget Variations

Statement of Financial Performance

The variations from the initial 2007/2008 Budget Night (Main) Estimates to Supplementary Estimates were due to:

These movements are shown in the table below.

24 Explanation of Transition to NZ IFRS

Transition to NZ IFRS

The Ministry’s financial statements for the year ended 30 June 2008 are the first financial statements that comply with NZ IFRS. The Ministry has applied NZ IFRS 1 First-time Adoption of NZ IFRS (NZ IFRS 1) in preparing these financial statements. The Ministry’s transition date is 1 July 2006. The Ministry prepared its opening NZ IFRS balance sheet at that date. The reporting date of these financial statements is 30 June 2008. The Ministry NZ IFRS adoption date is 1 July 2007.

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.

Explanatory Notes

1 Intangible assets – computer software

Computer software was classified as property, plant and equipment under previous NZ GAAP. Computer software has been reclassified as an intangible asset on transition to NZ IFRS.

2 Employee entitlements – sick leave

Sick leave was not recognised as a liability under previous NZ GAAP. NZ IAS 19 requires the Ministry to recognise employee’s unused sick leave entitlement that can be carried forward at balance date, to the extent that the Ministry anticipates it will be used by staff to cover future absences $131,000.

Long service leave has been reclassified from non-current liabilities to current liabilities on transition to NZ IFRS $522,000.

3 Revaluation reserve

At 1 July 2006 and 30 June 2007 an amount of $722,000 has been reclassified from a revaluation reserve recognised under previous GAAP to general funds. This amount represents the balance on the revaluation reserve at 1 July 2006 in respect of assets that are measured on the basis of deemed cost under NZ IFRS.

Statement of Financial Performance

There have been no material adjustments to the statement of financial performance on transition to NZ IFRS.

Statement of Cash Flows

Computer software was classified as property, plant and equipment under previous NZ GAAP. Computer software has been reclassified as an intangible asset on transition to NZ IFRS.

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