SECTION 4: Finances Pūtea

Transcription

1 SECTION 4: Finances Pūtea

2 Financial statements The financial statements from Page 81 to Page 85 are to be read in conjunction with the notes to the financial statements from Page 87 to Page 140. STATEMENT OF COMPLIANCE The council of Waikato Regional Council hereby confirms that all statutory requirements in relation to the annual report, as outlined in the Local Government Act 2002, have been complied with. Paula Southgate Chairperson Vaughan Payne Chief Executive Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau 80

3 WAIKATO REGIONAL COUNCIL STATEMENT OF COMPREHENSIVE REVENUE AND EXPENSE FOR THE YEAR ENDED 30 JUNE 2016 Annual plan Last year Note Revenue Rates revenue 3 81,194 80,846 79,315 Fees and charges 5 9,714 9,995 9,101 Subsidies and grants 4 10,307 10,870 10,137 Other revenue 6 11,108 8,954 11,768 Investment revenue 7 1,774 1,940 2,235 Change in market value of investments 8 5,246 3,200 6,465 Investment fund capital protection revenue , Total revenue 119, , ,241 Expenditure Employee benefit expenses 10 39,762 41,077 38,894 Depreciation and amortisation expense 21,22,24 7,868 7,894 7,622 Other losses 11 1, Other expenses 12 68,572 68,251 64,396 Total operating expenditure 117, , ,549 Operating surplus/(deficit) before tax 2, ,692 Income tax expense 13 Net surplus/(deficit) after tax 2, ,692 Surplus/(deficit) attributable to Waikato Regional Council 2, ,692 Other comprehensive revenue and expenditure Gain on revaluation of property, plant and equipment 28 Total other comprehensive revenue and expense Total comprehensive revenue and expense 2, ,692 Total comprehensive revenue and expenditure comprised of: Funds transferred to reserves 28 5,184 3,665 4,984 General operating surplus (2,902) (3,352) 2,708 Other comprehensive income Budgeted rates remissions and penalties have been reclassified to rates income from other expenditure and other income to align with the classification of actual revenue reported. Explanations of major variances against budget are provided on Page 86. The accompanying notes form part of these financial statements. 2, ,692 SECTION 4: Finances Pūtea 81

4 WAIKATO REGIONAL COUNCIL STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Annual plan Last year Note Current assets Cash and cash equivalents 15 5,306 8,728 9,257 Trade and other receivables 16 8,329 6,794 9,443 Prepayments Inventories Work in progress 17 1, ,417 Other financial assets 18 31,534 15,032 29,432 Total current assets 48,027 31,829 50,500 Noncurrent assets Financial assets 18 78,568 74,972 75,741 Other financial assets Investments in CCO* 18 1,898 2,623 2,675 Investments in associate 3,534 Biological assets ,694 1,317 Intangible assets 21 1,949 3, Property, plant and equipment , , ,727 Total noncurrent assets 539, , ,435 Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau Total assets Current liabilities Trade and other payables Employee benefits liabilities Total current liabilities Noncurrent liabilities Employee benefits liabilities Total noncurrent liabilities Total liabilities Net assets EQUITY ,697 16,032 5,718 21,750 2,423 2,423 24, , ,095 14,738 5,576 20,314 2,745 2,745 23, , ,935 16,194 5,014 21,208 2,485 2,485 23, ,242 82

5 Accumulated funds , , ,427 Other reserves , , ,815 Total equity 563, , ,242 * Investments in CCOs relate to the council's interest in Waikato Local Authority Shared Services (LASS) and Regional Software Holdings Ltd (RSHL). Explanations of major variances against budget are provided on Page 86. The accompanying notes form part of these financial statements. SECTION 4: Finances Pūtea 83

6 WAIKATO REGIONAL COUNCIL STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Annual plan Last year Note Opening Equity 561, , ,550 Comprehensive revenue Surplus/(deficit) 2, ,692 Other comprehensive revenue Balance at 30 June , , ,242 COMPONENTS OF EQUITY Council created reserves Council created reserves at beginning of the year 45,557 45,954 40,572 Net transfer (to) / from retained earnings 5,188 1,873 4,985 Council created reserves at end of year 28 50,745 47,827 45,557 Asset revaluation reserves Asset revaluation reserves at beginning of the year 283, , ,258 Net surplus/(deficit) for the year Asset revaluation reserves at end of the year , , ,258 Retained earnings Retained earnings at beginning of the year 232, , ,720 Net surplus/(deficit) for the year 2, ,692 Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau Net transfer (to) / from reserves Retained earnings at end of the year EQUITY AT END OF THE YEAR Explanations of major variances against budget are provided on page 86. The accompanying notes form part of these financial statements. 28 (5,188) 229, ,524 (1,873) 223, ,036 (4,984) 232, ,242 84

7 WAIKATO REGIONAL COUNCIL STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30 JUNE 2016 Annual plan Last year Note Cash flows from operating activities Receipts from customers 101, ,181 98,147 Grants 11,025 10,870 9,127 Interest revenue received 2,055 6,870 2,235 Receipts of funding held on behalf of third parties Goods and services tax Payments to suppliers and employees (106,638) (109,980) (102,060) Payments of funding held on behalf of third parties (622) (701) Net cash flows from operating activities 29 7,404 7,941 6,579 Cash flows from investing activities Receipts from sale of property, plant and equipment Receipts from sale of investments 42,558 36,729 Receipt of loan repayments Purchase of investments (42,177) (1,730) (29,432) Purchase of property, plant and equipment (10,872) (12,362) (6,972) Purchase of other investments Purchase of intangible assets (1,112) (915) (1,243) Net cash flow from investing activities (11,355) (14,975) (281) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Net cash flow from financing activities Net (decrease)/increase in cash, cash equivalents and bank overdrafts (3,951) (7,034) 6,298 Cash, cash equivalents and bank overdrafts at the beginning of the year 9,257 15,762 2,959 Cash, cash equivalents, and bank overdrafts at the end of the year 15 5,306 8,728 9,257 The GST (net) component of operating activities reflects the net GST paid and received with the Inland Revenue Department. The GST (net) component has been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes. As per PBE IPSAS 2 the receipt and purchase of long term deposit (greater than 3 months) is not able to be offset in the Statement of Cash Flow. The variance between this year actual and the budget arises because the budget shows the receipt and purchase of long term deposit as a net figure. Explanations of major variances against budget are provided on Page 86. The accompanying notes form part of these financial statements. SECTION 4: Finances Pūtea 85

8 Explanation of major variances against budget Explanations for major variations from Waikato Regional Council s estimated figures in the 2015/16 Annual Plan are as follows. Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau 86 STATEMENT OF COMPREHENSIVE REVENUE AND EXPENDITURE Government grant revenue is $563,000 less than budgeted. This is the result of lower costs associated with public transport services, as well as the deferral of some transport policy projects to the 2016/17 financial year. The harvesting of the Ryan s block forestry land as part of the Waihou Valley Scheme has impacted on the zone's revenue and expenditure for the year. Revenue of $1.155 million has been recognised, offset by additional costs of $771,000. The difference has been transferred to the Waihou zone operating reserve. Investment fund returns, overall, were $5.552 million (2015: $6.685 million) against a budgeted return of $4.93 million. Of this amount, $306,000 was transferred to a capital protection reserve to preserve the real value of the fund over time. The value of this transfer is calculated based on the change in the Consumer Price Index (CPI) over the year. The budgeted reserve transfer was $1.73 million. The actual reserve transfer was less than this, reflecting the low inflation rates this year. The fixed interest portion of the fund increased in value by $2.628 million (2015: $2.255 million). Equity investments increased in value by $1.533 million (2015: $2.753 million), and property investments by $1.391 million (2015: $997,000). The surplus return against budget has been transferred to the investment fund equalisation reserve. Investment returns on the council's working capital funds have been lower than budget, reflecting the decline in the Official Cash Rate and the flowon impact to interest rates. Employee benefit expenses were less than budget by $1.315 million for the year, reflecting a number of staff vacancies as a result of normal staff turnover. Other expenses are largely in line with the annual plan budget, having ended the year only $321,000 lower than planned. This represents a one per cent variance to the annual plan budget. STATEMENT OF FINANCIAL POSITION The combined value of cash and cash equivalents and other financial assets is favourable to budget, reflecting the favourable financial performance achieved at the end of the year. Budget carry overs of $2 million have been approved by the council to allow work planned for 2015/16 to be completed in the next financial year, together with budget amendments of $1.19 million in relation to targeted rate areas. Capital expenditure carry overs of $6.347 million are also required. In addition, $1.078 million of surplus funds from this year and prior years has been applied when setting the 2016/17 annual plan budget. When preparing the budget, the council is not able to predict the duration of investments held at balance date in particular with respect to those with maturities greater than three months which are classified as other financial assets. Work in progress represents chargeable work that the council has completed prior to the end of the financial year that has not yet been invoiced to our customers. Approximately $643,000 of the year end balance relates to farm water consents that are being processed on a catchmentbycatchment basis. It is expected that the remaining charges for this work will be made in the first quarter of the 2016/17 financial year. The value of property, plant and equipment is lower than budget by $4.04 million, reflecting the deferral of some planned expenditure. Key items include the upgrade to the electronic ticketing system for the Hamilton public transport network ($1.5 million). The council is now participating in a national review programme, so the timing for this expenditure will be determined through that process. Infrastructure capital programmes for the construction of the Muggeridge's pump station ($1.9 million) have also been delayed to allow further engagement with stakeholders. The value of biological assets has reduced this year, reflecting the completion of harvesting at Ryan's Block. The area of forestry valued at Ryan's Block has reduced from 34.9ha to 18.7ha. The value of intangible assets at the end of the year reflects a lower opening balance than projected in the annual plan. Deployment of further developments to council's regulatory software has been slower than anticipated.

9 Notes to the financial statements 1 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 30 JUNE 2016 REPORTING ENTITY Waikato Regional Council is a territorial local authority established under the Local Government Act 2002 (LGA), and is domiciled and operates in New Zealand. The relevant legislation governing the council's operations includes the LGA and the Local Government (Rating) Act The primary objective of Waikato Regional Council is to provide local infrastructure, local public services, and to perform regulatory functions for the community. The council does not operate to make a profit. Accordingly, Waikato Regional Council has designated itself a public benefit entity for financial reporting purposes. The financial statements of the council are for the year ended 30 June The financial statements were authorised for issue by the council on 29 September BASIS OF PREPARATION The financial statements have been prepared on the going concern basis, and the accounting policies have been applied consistently throughout the year. These financial statements have been prepared on the historical cost basis, except where modified by the revaluation of land, buildings and infrastructural assets. Rates The following policies for rates have been applied: General rates, targeted rates and uniform annual general charges are recognised at the start of the financial year to which the rates resolution relates. They are recognised at the amounts due. Rates arising from late payment penalties are recognised as revenue when the rates become overdue. Rate remissions are recognised as a reduction in rates revenue when the council has received an application that satisfies its rates remission policy. Government grants The council receives funding assistance from the New Zealand Transport Agency, which subsidises part of the costs of the provision of public transport services and development of transport policies and plans. The subsidies are recognised as revenue upon entitlement, as conditions pertaining to eligible expenditure have been fulfilled. Other grants are recognised as revenue when they become receivable unless there is an obligation in substance to return the funds if conditions are not met. If there is such an obligation, the grants are initially recorded as grants received in advance and recognised as revenue when conditions of the grant are satisfied. Statement of compliance The financial statements of the council have been prepared in accordance with the requirements of the Local Government Act 2002, which includes the requirement to comply with generally accepted accounting practice in New Zealand (NZ GAAP). The financial statements have been prepared in accordance with Tier 1 PBE accounting standards. These financial statements comply with PBE standards. Presentation currency and rounding The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated. SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenue is measured at fair value. The specific accounting policies for significant revenue items are explained below. SECTION 4: Finances Pūtea 87

10 Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau Provision of services Revenue from the rendering of services is recognised by reference to the stage of completion of the transaction at balance date, based on the actual service provided as a percentage of the total services to be provided. Vested assets Where a physical asset is acquired for nil or nominal consideration, the fair value of the asset received is recognised as revenue. Assets vested in the council are recognised as revenue when control over the asset is obtained. Building and resource consent revenue Fees and charges for building and resource consent services are recognised on the basis of the recoverable costs incurred at balance date. Interest and dividends Interest revenue is recognised using the effective interest method. Interest revenue on an impaired financial asset is recognised using the original effective interest rate. Dividends are recognised when the right to receive payment has been established. When dividends are declared from preacquisition surpluses, the dividend is deducted from the cost of the investment. GRANT EXPENDITURE Non discretionary grants are those grants that are awarded if the grant application meets the specified criteria and are recognised as expenditure when an application that meets the specified criteria for the grant has been received. Discretionary grants are those grants where Waikato Regional Council has no obligation to award on receipt of the grant application and are recognised as expenditure when approved by the council and the approval has been communicated to the applicant. FOREIGN CURRENCY TRANSLATION Foreign currency transactions (including those for which forward foreign exchange contracts are held) are translated into New Zealand dollars (the functional currency) using the spot exchange rate at the date of the transactions. Foreign exchange gains and losses resulting from 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. INCOME TAX Income tax expense includes components relating to both current tax and deferred tax. Current tax is the amount of income tax payable based on the taxable profit for the current year, plus any adjustments to income tax payable in respect of prior years. Current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted at balance date. Deferred tax is the amount of income tax payable or recoverable in future periods in respect of temporary differences and unused tax losses. Temporary differences are differences between the carrying amount of assets and liabilities in the statement of financial position and the corresponding tax bases used in the computation of taxable profit. Deferred tax is measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the council expects to recover or settle the carrying amount of its assets and liabilities. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable surpluses will be available against which the deductible temporary differences or tax losses can be utilised. Deferred tax is not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of an asset and liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit. Current and deferred tax is recognised against the surplus or deficit for the period, except to the extent that it relates to a business combination, or to transactions recognised in other comprehensive revenue and expense or directly in equity. LEASES Finance leases A finance lease is a lease that transfers to the lessee substantially all the risks and rewards incidental to ownership of an asset, whether or not title is eventually transferred. At the commencement of the lease term, finance leases are recognised as assets and liabilities in the statement of financial position at the lower of the fair value of the leased item or the present value of the minimum lease payments. The finance charge is charged to the surplus or deficit over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. The amount recognised as an asset is depreciated over its useful life. If there is no certainty as to whether the council will obtain ownership at the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. 88

11 Operating leases An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight line basis over the lease term. Lease incentives received are recognised in the surplus or deficit as a reduction in rental expense over the lease term. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. RECEIVABLES Receivables are measured at their face value, less any provision for impairment. OTHER FINANCIAL ASSETS Financial assets are initially recognised at fair value plus transaction costs unless they are carried at fair value through surplus or deficit in which case the transaction costs are recognised in the surplus or deficit. Purchases and sales of financial assets are recognised on tradedate, the date on which the council commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the council has transferred substantially all the risks and rewards of ownership. Financial assets are classified into the following categories for the purpose of measurement: fair value through surplus or deficit loans and receivables held to maturity investments fair value through other comprehensive revenue and expense. The classification of a financial asset depends on the purpose for which the instrument was acquired. Financial assets at fair value through surplus or deficit Financial assets at fair value through surplus or deficit include financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of short term profittaking. Derivatives are also categorised as held for trading unless they are designated into a hedge accounting relationship for which hedge accounting is applied. Financial assets acquired principally for the purpose of selling in the short term or part of a portfolio classified as held for trading are classified as a current asset. After initial recognition, financial assets in this category are measured at their fair values with gains or losses on remeasurement recognised in the surplus or deficit. Loans and receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance date, which are classified as noncurrent assets. After initial recognition loans and receivables are measured at amortised cost using the effective interest method, less impairment. Gain and losses when the asset is impaired or derecognised are recognised in the surplus or deficit. Loans to community organisations made at nil or below market interest rates are initially recognised at the present value of their expected future cash flows, discounted at the current market rate of return for a similar financial instrument. The loans are subsequently measured at amortised cost using the effective interest method. The difference between the face value of the expected future cash flows of the loan is recognised in the surplus or deficit as a grant. Held to maturity investments Held to maturity investments are nonderivative financial assets with fixed or determinable payments and fixed maturities and there is the positive intention and ability to hold to maturity. They are included in current assets, except for maturities greater than 12 months after balance date, which are classified as noncurrent assets. After initial recognition they are measured at amortised cost using the effective interest method, less impairment. Gains and losses when the asset is impaired or derecognised are recognised in the surplus or deficit. Financial assets at fair value through other comprehensive revenue and expense Financial assets at fair value through other comprehensive revenue and expense are those that are designated into the category at initial recognition or are not classified in any of the other categories above. They are included in noncurrent assets unless management intends to dispose of, or realise, the investment within 12 months of balance date. The council includes in this category: investments that it intends to hold long term but which may be realised before maturity; and shareholdings that it holds for strategic purposes. These investments are measured at their fair value, with gains and losses recognised in other comprehensive revenue and expense, except for impairment losses, which are recognised in the surplus or deficit. SECTION 4: Finances Pūtea 89

12 Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau On derecognition, the cumulative gain or loss previously recognised in other comprehensive revenue and expense is reclassified from equity to the surplus or deficit. IMPAIRMENT OF FINANCIAL ASSETS Financial assets are assessed for evidence of impairment at each balance date. Impairment losses are recognised in the surplus or deficit. Loans and receivables, and held to maturity investments Impairment is established when there is evidence that the council 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 bankruptcy, receivership, or liquidation and default in payments are considered indicators that the asset is impaired. The amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. For debtors and other receivables, the carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the surplus or deficit. When the receivable is uncollectible, it is written off against the allowance account. Overdue receivables that have been renegotiated are reclassified as current (that is, not past due). Impairment in term deposits, local authority stock, government stock and community loans, and impairment losses are recognised directly against the instrument's carrying amount. Financial assets at fair value through other comprehensive income For equity investments, a significant or prolonged decline in the fair value of the investment below its cost is considered objective evidence of impairment. For debt investments, significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered objective indicators that the asset is impaired. If impairment evidence exists for investments at fair value through other comprehensive revenue and expense, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the surplus or deficit) recognised in other comprehensive revenue and expense is reclassified from equity to the surplus or deficit. Equity instrument impairment losses recognised in the surplus or deficit are not reversed through the surplus or deficit. If in a subsequent period the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed in the surplus or deficit. INVENTORY Inventories held for distribution or consumption in the provision of services that are not supplied on a commercial basis are measured at cost (using the FIFO method), adjusted, when applicable, for any loss of service potential. Inventories acquired through nonexchange transactions are measured at fair value at the date of acquisition. Inventories held for use in the provision of goods and services on a commercial basis are valued at the lower of cost (using the FIFO method) and net realisable value. The amount of any write down for the loss of service potential or from the cost to net realisable value is recognised in the surplus or deficit in the period of the write down. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of: Operational assets these include land, buildings, plant and equipment, and motor vehicles. Infrastructure assets infrastructure assets are the flood protection and erosion control assets owned by Waikato Regional Council. Operational land is measured at fair value, and buildings and infrastructure assets are measured at fair value less accumulated depreciation. All other asset classes are measured at cost less accumulated depreciation and impairment losses. Revaluation Land and buildings and infrastructural assets (except land under roads) are revalued with sufficient regularity to ensure that their carrying amount does not differ materially from fair value and at least every three years. The carrying values of revalued assets are assessed annually to ensure that they do not differ materially from the assets fair values. If there is a material difference, then the offcycle asset classes are revalued. Revaluations of property, plant, and equipment are accounted for on a class of asset basis. The net revaluation results are credited or debited to other comprehensive revenue and expense and are accumulated to an asset revaluation reserve in equity for that class of asset. Where this would result in a debit balance in the asset revaluation reserve, this balance is not recognised in other comprehensive revenue and expense but is recognised in the surplus or deficit. Any subsequent increase on revaluation that reverses a previous decrease in value recognised in the surplus or deficit will be recognised first in the surplus or deficit up to the amount previously expensed, and then recognised in other comprehensive revenue and expense. 90

13 Additions The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to the council and the cost of the item can be measured reliably. Work in progress is recognised at cost less impairment and is not depreciated. In most instances, an item of property, plant and equipment is initially recognised at its cost. Where an asset is acquired through a nonexchange transaction, it is recognised at fair value as at the date of acquisition. Disposals Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are reported in the net surplus or deficit. When revalued assets are sold, the amounts included in asset revaluation reserves in respect of those assets are transferred to accumulated funds. Subsequent costs Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the council and the cost of the item can be measured reliably. The costs of day to day servicing of property, plant, and equipment are recognised in the surplus or deficit as they are incurred. Depreciation Depreciation is provided on a straight line basis on all property, plant and equipment other than land and drainage networks, at rates that will write off the cost (or valuation) of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of the major classes of assets have been estimated as follows: Operational assets Annual depreciation rate Infrastructure assets Ballast Bridges Channels Conservation areas fencing and planting Culverts Debris traps Diesel generator and storage Earth detention dams Flood pumps and motors Lifting gear Pipes Power and control equipment Pump stations buildings Retaining structures timber River training works Rock weirs, bank protection and drop structures Screens Stopbanks clay foundation Stopbanks firm clay foundation Stopbanks marine mud Stopbanks peat foundation Stopbanks sand foundation Useful life (years) Buildings concrete 1.00 per cent Structures major 100 Buildings wooden 2.5 per cent Structures minor Motor vehicles per cent Telemetry/scada 15 Computer equipment per cent Valves Office furniture Plant items Air conditioning per cent per cent 5.00 per cent The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end. SECTION 4: Finances Pūtea 91

14 INTANGIBLE ASSETS Software acquisition and development Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs that are directly associated with the development of software for internal use are recognised as an intangible asset. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Staff training costs are recognised in the surplus or deficit when incurred. Costs associated with maintaining computer software are recognised as an expense when incurred. Costs associated with development and maintenance of the council's website 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 surplus or deficit. The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows: For non cash generating assets, the value in use is determined using an approach based on either a depreciated replacement cost approach, restoration cost approach, or a service units approach. The most appropriate approach used to measure value in use depends on the nature of the impairment and availability of information. Value in use for cash generating assets Cash generating assets are those assets that are held with the primary objective of generating a commercial return. The value in use for cashgenerating assets and cash generating units is the present value of expected future cash flows. FORESTRY ASSETS Standing forestry assets are independently revalued annually at fair value less estimated costs to sell for one growth cycle. Fair value is determined based on the present value of expected net cash flows discounted at a current market determined rate. This calculation is based on existing sustainable felling plans and assessments regarding growth, timber prices, felling costs and silviculture costs and takes into consideration environmental, operational and market restrictions. Gains or losses arising on initial recognition of forestry assets at fair value less costs to sell and from a change in fair value less costs to sell are recognised in the surplus or deficit. Forestry maintenance costs are included in the surplus or deficit when incurred. Computer software 4 years per cent PAYABLES Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau 92 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES Intangible assets subsequently measured at cost that have an indefinite useful life, or are not yet available for use, are not subject to amortisation and are tested annually for impairment. Property, plant and equipment and intangible assets subsequently measured at cost that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. If an asset s carrying amount exceeds its recoverable amount, the asset is impaired and the carrying amount is written down to the recoverable amount. The total impairment loss is recognised in the surplus or deficit. The reversal of an impairment loss is recognised in the surplus or deficit. Value in use for non cash generating assets Non cash generating assets are those assets that are not held with the primary objective of generating a commercial return. Short term creditors and other payables are recorded at their face value. EMPLOYEE ENTITLEMENTS Short term employee entitlements Employee benefits expected to be settled within 12 months after the end of the period in which the employee renders the related service are measured based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave earned to, but not yet taken at balance date, retirement gratuities and long service 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 period are expected to be greater than the sick leave entitlements earned in the coming period. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent it will be used by staff to cover those future absences. A liability and an expense are recognised for bonuses where the council has a contractual obligation or where there is a past practice that has created a constructive obligation. Long term employee entitlements

15 Employee benefits that are expected to be settled beyond 12 months after the end of the period in which the employee renders the related service, such as long service leave and retirement gratuities, have been calculated on an actuarial basis. The calculations are based on: likely future entitlements accruing to staff, based on periods of service, years to entitlement, the likelihood that staff will reach the point of entitlement and contractual entitlement information; and the present value of the estimated future cash flows. Presentation of employee entitlements Sick leave, annual leave, and vested long service leave are classified as a current liability. Nonvested long service leave and retirement gratuities expected to be settled within 12 months of balance date are classified as a current liability. All other employee entitlements are classified as a noncurrent liability. SUPERANNUATION SCHEMES Defined contribution schemes Obligations for contributions to KiwiSaver are accounted for as defined contribution superannuation schemes and are recognised as an expense in the surplus or deficit when incurred. PROVISIONS A provision is 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 measured at the present value of the expenditures expected to be required to settle the obligation using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense and is included in "finance costs". EQUITY Equity is the community s interest in the council and is measured as the difference between total assets and total liabilities. Equity is disaggregated and classified into the following components: accumulated funds restricted reserves property revaluation reserve. Restricted reserves Restricted reserves are a component of equity generally representing a particular use to which various parts of equity have been assigned. Reserves may be legally restricted or created by the council. Restricted reserves include those subject to specific conditions accepted as binding by the council and which may not be revised by the council without reference to the Courts or a third party. Transfers from these reserves may be made only for certain specified purposes or when certain specified conditions are met. Also included in restricted reserves are reserves restricted by council decision. The council may alter them without reference to any third party or the Courts. Transfers to and from these reserves are at the discretion of the council. Property revaluation reserve This reserve relates to the revaluation of property, plant and equipment to fair value. GOODS AND SERVICES TAX (GST) All items in the financial statements are stated exclusive of GST, except for receivables and payables, which are presented 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 net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the statement of financial position. The net GST paid to, or received from the IRD, including the GST relating to investing and financing activities, is classified as an operating cash flow in the cash flow statement. Commitments and contingencies are disclosed exclusive of GST. BUDGET FIGURES The budget figures are those approved by the council in its 2015/16 Annual Plan. The budget figures have been prepared in accordance with NZ GAAP, using accounting policies that are consistent with those adopted in preparing these financial statements. COST ALLOCATION The cost of service for each significant activity of the council uses the cost allocation system outlined below. Direct costs are those costs directly attributable to a significant activity. Indirect costs are those that cannot be identified in an economically feasible manner with a specific significant activity. Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities using appropriate cost drivers such as actual usage, staff numbers and floor area. SECTION 4: Finances Pūtea 93

16 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS In preparing these financial statements, estimates and assumptions have been made concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations or future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Infrastructural assets Note 22 provides information about the estimates and assumptions applied in determining the fair value of infrastructural assets. CRITICAL JUDGEMENTS IN APPLYING WAIKATO REGIONAL COUNCIL S ACCOUNTING POLICIES Management has exercised the following critical judgements in applying Waikato Regional Council s accounting policies for the period ended 30 June 2016: Classification of property The property at 319 Grey Street, Hamilton East is classified as property, plant and equipment as it is the council's intention to use the land for the development of future business premises. Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau 94

17 2 SUMMARY OF COST OF SERVICES Budget Revenue Community and Services 8,165 8,179 8,665 Emergency Management 3,092 2,874 2,868 Flood protection and control works 18,711 18,103 19,183 Integrated Catchment Management 21,666 19,907 19,810 Public Transport 22,871 23,793 23,174 Resource Use 14,060 14,174 13,615 Science and Strategy 25, ,673 Corporate and selffunding 3,089 2,696 4,388 Council controlled organisations 2,021 1,864 2,865 Total income from activities 119, , ,241 Expenditure Community and Services 7,816 8,141 8,581 Emergency Management 3,203 2,917 2,848 Flood protection and control works 17,778 17,256 17,896 Integrated Catchment Management 21,363 19,992 19,254 Public Transport 23,231 24,002 22,804 Resource Use 14,228 14,224 12,923 Science and Strategy 24, ,093 Corporate and selffunding 2, ,106 Council controlled organisations 2,761 2,655 3,044 Total operating expenses 117, , ,549 Net Total 2, ,692 SECTION 4: Finances Pūtea 95

18 3 RATES REVENUE General rates Total general rates revenue Targeted rates attributable to activities Biodiversity Biosecurity Permitted activity monitoring River and catchment services Transport Protecting Lake Taupo Stock Truck Effluent Civil defence and emergency management Rate penalties Rates remissions Valuation objections settled prior year rates Total targeted rates Total rates, excluding targeted water supply rates 41,273 41, ,370 1,096 20,784 6,522 1, , ,921 81,194 36,484 36, , ,109 7,201 2, ,427 1, ,831 79,315 Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau Through the Long Term Plan, the council reviewed its Revenue and Financing Policy with subsequent impacts to the way in which it sets and assesses rates. Changes included a shift of funding for the council's emergency management work programmes from the targeted Civil Defence and emergency management rate to the UAGC. This is illustrated be the change in the civil defence rates disclosed in the table above. RATES REMISSIONS Rates revenue is shown net of rates remissions. Waikato Regional Council s rates remission policies allow for the remission of the following rates. Land protected for conservation purposes. Lake Taupō lakebed. Māori freehold land. Urban land in areas classified as rural, commercial or industrial. Biosecurity works and services rate on fenced indigenous bush and wetland areas. Rating units with a capital value of $1000 or less. Sporting and recreational organisations. Community organisations. Undeveloped land, native bush or swamp areas charged the Waihou/Piako Catchment rate. NONRATEABLE LAND Under the Local Government (Rating) Act 2002 certain properties cannot be rated for general rates. These properties include schools, places of religious worship, public gardens and reserves. These nonrateable properties may be subject to targeted rates. The nonrating of nonrateable land does not constitute a remission under the council s rates remission policy. 96

19 4 SUBSIDIES AND GRANTS Land transport government grants Other government grants Total subsidies and grants 10, ,307 9, ,137 There are no unfulfilled conditions and other contingencies attached to subsidies and grants recognised (2015 nil). 5 FEES AND CHARGES Compliance monitoring direct charges 1,824 1,837 Consent application fees Consent holder charges 2,984 2,864 Other direct charges Total fees and charges 9,714 9,101 6 OTHER REVENUE Bus fare revenue 6,085 6,302 Rental Royalties Other revenue Total other revenue 11,108 11,768 7 INVESTMENT REVENUE Community loans Statutory land charges Term deposits and call accounts 1,736 2,202 Total investment revenue SECTION 4: Finances Pūtea 97

20 8 CHANGE IN MARKET VALUE OF INVESTMENTS Unrealised gains on assets at fair value through surplus or deficit Fixed interest Equities Property Realised gains on assets at fair value through surplus or deficit Fixed interest Equities Property Total change in market value of investments Investment fund capital protection revenue Net change in market value Total change in market value of investments 2, , , ,246 5,552 2, , ,465 6,685 FINANCIAL RISK MANAGEMENT STRATEGIES Waikato Regional Council is exposed to financial risks associated with changes in the value of the financial instruments that comprise its investment fund. Waikato Regional Council is a long term investor, and accepts that returns in any given year may vary from its long term target return. Risk is managed through the use of a diversified portfolio of financial assets. Council also undertakes a regular review of the risk profile associated with the investment fund, and adjusts its asset allocation policy accordingly. Refer to note 34 for further information regarding council s financial instrument risks. Waikato Regional Council 2015/16 Annual Report 2015/16 Pūrongo ātau 9 EXCHANGE AND NONEXCHANGE REVENUE The total revenue from nonexchange transactions includes the revenue from rates, government grants, bus revenue, fines and other revenue. Total nonexchange revenue for the 2015/16 financial year is $ million (2015: $ million). The total revenue from exchange transactions includes the revenue from Interest, rental, royalties, fees and charges and other revenue. Total exchange revenue for the 2015/16 financial year is $ million (2015: $ million). 10 EMPLOYEE BENEFIT EXPENSES Salaries and wages Defined contribution plan employer contributions Increase/(decrease) in employee benefit liabilities Total employee benefit expenses 38,967 1,024 (229) ,

21 The impact of the actuarial valuation of long service leave and retirement gratuity liability has been to increase the employee benefit expense by $86,000 in total (2015: $87,000 increase). This was due to an increase in the long service leave of $91,000 as a result of an increase in the number of employees, offset by decrease in long service and retirement gratuity liability of $5000. Employer contributions to defined contribution plans include contributions to KiwiSaver. 11 OTHER GAINS/(LOSSES) Gain/(loss) on changes in fair value of biological assets Gain/(loss) on changes in fair value of other investments Gain/(loss) on changes in fair value of property, plant and equipment (397) (776) 8 (1,165) (476) (161) (637) 12 OTHER EXPENSES Insurance premiums Subscriptions and levies Debts written off Impairment of receivables Fees paid to auditors: Audit of Annual Report Fees paid to auditors: Audit of LTP and LTP amendment Donations Minimum lease payments under operating leases Other operating expenses Inventory consumption Property, plant and equipment losses / (gains) on disposal Councillors remuneration: Meeting attendance fees and salary Councillors' remuneration: Expenses Investment fund management fees Total other expenses , , , ,396 SECTION 4: Finances Pūtea 99