Publications
Annual Report
Statement of Accounting Policies
for the year ended 30 June 2005
Reporting entity
These are the financial statements of the Earthquake Commission, a body corporate under Section 4 of the Earthquake Commission Act 1993. They have been prepared in accordance with the Public Finance Act 1989 and the accounting policies set out below.
Measurement system
The financial statements are prepared following the general accounting principles of historic cost accounting, modified by the valuation of investments as stated in the specific accounting policies below.
The financial statements have been prepared on a going concern basis with accrual accounting used to match expenses and revenue.
The Commission has not recognised future liabilities or assets for future natural disaster events.
It is recognised that the Fund plus reinsurances may not be sufficient to cover claims arising from a major urban catastrophe and/or other losses and costs. In those events the Crown would be called upon to meet any shortfall, under Section 16 of the Earthquake Commission Act 1993.
Accounting policies
REVENUE RECOGNITION
- Premiums
Premium income represents premiums collected and paid to the Commission by insurance companies and brokers. In accordance with Section 24 (ii) of the Earthquake Commission Act 1993, the Commission receives declarations provided by insurance companies and brokers that all premiums collected have been returned to the Commission. It also contracts external auditors of insurance companies and brokers to review and report on those companies’ internal controls and accounting systems so far as they are related to the Commission’s premiums.Premium income is recognised on an accrual basis with a liability for unearned premiums recognised using the 24ths rule.
- Investment Income
Income from investments includes:- Full accrued interest with premium or discount arising on the purchase of investments being amortised over the life of those investments;
- Realised gains/losses, including currency gains/losses, on sale of investments;
- Unrealised gains/losses on all securities, including currency gains/losses.
FINANCIAL INSTRUMENTS
The Commission is party to financial instrument arrangements as part of its everyday operations. These financial instruments include bank accounts, short-term investments, Government securities, global equities, accounts receivable and accounts payable.
Revenue and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance. The Commission has not entered into transactions involving off-balance sheet instruments.
FOREIGN CURRENCY
Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transaction.
Monetary assets and liabilities are translated to New Zealand dollars at the closing mid-point exchange rate. The resulting unrealised exchange gain or loss is recognised in the Statement of Financial Performance.
INVESTMENTS
Investments are stated at their net market value. The net change in value of these investments is recognised in the Statement of Financial Performance.
PROVISION FOR EMPLOYEE ENTITLEMENTSAnnual leave and time off in lieu are recognised as they accrue to employees.
CLAIMSClaims expenditure includes assessor fees and related expenses. A liability is recognised for those claims notified but not settled at balance date together with claims incurred but not reported, where such is deemed necessary.
The Commission does not budget for claims.
FIXED ASSETS
The initial cost of a fixed asset is the value of the consideration given to acquire or create the asset and any directly attributable costs of bringing the asset to working condition for its intended use.
The Institute of Geological & Nuclear Sciences (GNS) administers the design, engineering, operation and maintenance of New Zealand’s geological hazard monitoring system (GeoNet) under a 10-year agreement with the Commission. The services performed by GNS include the purchase, testing, installation and commissioning of capital equipment on behalf of the Commission.
The GeoNet assets, comprising buildings, computer equipment and other equipment, remain the property of the Commission at all times and are included in the Commission’s fixed assets in the Statement of Financial Position.
DEPRECIATION
Depreciation of fixed assets is provided on a straight line basis so as to allocate the cost of assets, less any estimated residual value, over their economic useful lives.
The estimated economic useful lives are:
| Furniture and Equipment | 10 years |
| Motor Vehicles | 5 years |
| Computer and other Electronic Equipment | 3 years |
| GeoNet Assets | 3-25 years |
| GeoNet Buildings (mostly Shelters) | 25 years |
| GeoNet Computer Equipment | 3 years |
| GeoNet Equipment other than Computer Equipment | 8 years |
The cost of leasehold improvements is capitalised and amortised over the unexpired period of the lease or the estimated remaining lives of the improvements, whichever is shorter.
LEASES
The Commission leases office premises. As all the risks and rewards of ownership are retained by the lessor, these leases are classified as operating leases. Operating lease costs are expensed in the period in which they are incurred.
PREMIUMS
Premiums receivable are reported net of applicable discounts.
GRANTS FOR EARTHQUAKE RESEARCH
The Commission provides grants for earthquake research. The grants are recognised as expenditure in the period since the Commission obtains no direct measurable financial benefit. The benefit to the Commission relates to possible reduction in future claims potential.
STATEMENT OF CASH FLOWS
The following are the definitions of the terms used in the Statement of Cash Flows.
- Cash is considered to be cash on hand and current accounts in banks, net of bank overdrafts.
- Investing activities are those activities relating to the acquisition, holding and disposal of fixed assets and of investments. Investments can include securities not falling within the definition of cash.
- Financing activities are those activities which result in changes in the size and composition of the capital structure of the Commission. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities.
- Operating activities include all transactions and other events that are not investing or financing activities.
GOODS AND SERVICES TAX (GST)
The Statement of Financial Performance, Statement of Movements in Equity, Statement of Cash Flows and Statement of Commitments are exclusive of GST. The Statement of Financial Position is also exclusive of GST except for payables and receivables which are GST inclusive.
The amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between output GST and input GST, is included in payables or receivables (as appropriate).
TAXATION
The Earthquake Commission is exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax has been provided for.
COMMITMENTS
Future payments are disclosed as commitments at the point a contractual obligation arises, to the extent that there are equally unperformed obligations.
CONTINGENT LIABILITIES
Contingent liabilities are disclosed at the point at which the contingency is evident.
Changes in accounting policies
There have been no changes in accounting policies since the date of the last audited financial statements.