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2002 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1

STATEMENT OF ACCOUNTING POLICIES

(a)   Reporting Entity

The financial statements presented here for the reporting entity, the Securities Commission, are prepared pursuant to section 30 of the Securities Act 1978 and section 41 of the Public Finance Act 1989.

(b)   Measurement System

The accounting principles recognised as appropriate for the measurement and reporting of results and financial position on a cost basis have been applied with the exception that the library is periodically revalued.

(c)   Accounting Policies

	(i)	Budget Figures: The budget figures are those approved by Commission Members on 19 July 2001. The budget figures are prepared in accordance with generally accepted accounting practice and are consistent with the accounting policies adopted by Commission Members for the preparation of the financial statements.
	(ii)	Depreciation: Fixed assets, other than the library, are shown at cost and have been depreciated on the following bases:
		-	office furniture - 20 percent of diminishing value,
		-	office equipment - straight line over five years,
		-	leasehold improvements - straight line over nine years,
		-	motor vehicle - straight line over five years.
	(iii)	Library: All library acquisitions are recorded at cost. The library is depreciated on a straight line basis over ten years. The library is revalued to fair value every three years by an independent valuer. In the year that the periodic revaluation of the library is undertaken any difference between the depreciated value of the library and the fair value is recognised in the asset revaluation reserve. If this results in a debit balance in the asset revaluation reserve, the balance is expensed in the statement of financial performance.
	(iv)	Short Term Deposits: Short term deposits are shown at cost.
	(v)	Employee Annual Leave: Provision is made in respect of the Commission's liability for employee annual leave entitlements. This has been calculated on an actual entitlement basis at current remuneration rates.
	(vi)	GST: All items in financial statements are exclusive of GST with the exception of accounts receivable and accounts payable which are stated with GST included.
	(vii)	Financial Instruments: All financial instruments are recognised in the statement of financial position and all revenues and expenses in relation to financial instruments are recognised in the statement of financial performance.
	(viii)	Income Tax: The Commission is exempt from income tax under the Income Tax Act 1994.
	(ix)	Revenue Recognition: Government grant is recognised as revenue when it becomes due. Revenue from application fees and costs recoverable and from administrative services to the Takeovers Panel is recognised when the relevant services are provided.
	(x)	Changes in Accounting Policy: There have been no changes in accounting policies since the date of the last audited financial statements. The policies have been applied on a basis consistent with other years.

NOTE 2

GOVERNMENT GRANT - NZ STOCK EXCHANGE

Represents Government funding to date for the Commission review of the NZ Stock Exchange rules. The offsetting expenditure costs to the Commission are included in salaries and professional services.

NOTE 3

ADMINISTRATIVE SERVICES TO THE TAKEOVERS PANEL

The Commission provides administrative services to the Takeovers Panel. For each financial year the Commission and the Panel agree on the level of services required and on the fees to be paid to the Commission for these services. The costs involved in providing these services are part of total expenditure.

NOTE 4

ALLOCATION OF RECEIPT FOR USE OF ASSETS

This represents amounts received from the Takeovers Panel to finance the purchase of assets required by the Commission to service the requirements of the Panel. The prepayment is being amortised, having regard to the expected life of the assets over the following periods:

NOTE 5

REMUNERATION OF MEMBERS OF THE COMMISSION

	2002 $	2001 $
Members' Fees	251,737	213,382
Chairman's Remuneration (salary and motor vehicle allowance)	226,074	241,550
Total Remuneration paid to Members of the Commission	$477,811	$454,932

Members are remunerated on the basis of time spent on the work of the Commission.
Members' fees for the year ended 30 June 2002 were:

	2002 $	2001 $
C.A.N. Beyer	22,908	8,568
F.R.S. Clouston	37,091	42,052
A.M. Cotton	2,000	-
I.F. Farrant	14,429	22,829
A.N. Frankham	-	23,292
E.M. Hickey	35,768	22,900
L.A.J. Kavanagh	22,477	23,279
J.M.G. Perry	25,009	16,204
C.A. Quinn	16,250	8,284
R.M. Spiller	19,000	8,757
M.R.H. Webb	56,805	37,217
	$251,737	$213,382

NOTE 6

EMPLOYEE REMUNERATION

During the year, the number of employees of the Commission, not being Members, who received remuneration and other benefits in excess of $100,000 were:

Remuneration $	No. of Employees 2002	No. of Employees 2001
210,000 to 220,000	-	1
200,000 to 210,000	1	-
130,000 to 140,000	2	-
120,000 to 130,000	-	2

NOTE 7

RECONCILIATION OF THE NET DEFICIT FROM OPERATIONS WITH THE NET CASH FLOWS FROM OPERATING ACTIVITIES

	2002 $	2001 $
Reported surplus (deficit)	(116,944)	(7,689)
Add non-cash items:
- Allocation of receipt for use of assets	(9,848)	(3,002)
- Depreciation	124,100	106,091
	114,252	103,089
Movement in working capital:
- Increase (decrease) in creditors	34,107	50,273
- Increase in receivables	(68,036)	(54,422)
	(33,929)	(4,149)
Net cash flows from operating activities	($36,621)	$91,251

NOTE 8

FIXED ASSETS

	2002 Cost/ Valuation $	Accumulated Depreciation $	Net Book Value $
Assets at cost
Office equipment	430,992	273,774	157,218
Office furniture	100,224	68,551	31,673
Leasehold improvements	189,863	147,538	42,325
Motor vehicle	64,000	9,600	54,400
Assets at valuation plus additions at cost
Library	201,330	20,133	181,197
	$986,409	$519,596	$466,813

	2001 Cost/ Valuation $	Accumulated Depreciation $	Net Book Value $
Assets at cost
Office equipment	432,214	293,984	138,230
Office furniture	86,533	62,008	24,525
Leasehold improvements	189,863	126,442	63,421
Motor vehicle	-	-	-
Assets at valuation
Library	173,520	-	173,520
	$882,130	$482,434	$399,696

NOTE 9

CREDITORS AND ACCRUALS

	2002 $	2001 $
Creditors	170,661	141,962
Employee entitlements	35,735	30,327
	$206,396	$172,289

NOTE 10

CASH FLOWS

The cash flows relating to the Commission's investing activities are reported on a net basis in the statement of cash flows. The amounts involved are held in short term deposits which are rolled over frequently through the year.

NOTE 11

FINANCIAL INSTRUMENTS

(a)   Credit Risk
Financial instruments which may subject the Commission to credit risk consist of bank balances, bank short term deposits and accounts receivable.
The Commission's investments are deposited with a registered bank in New Zealand.
The Commission does not require collateral or security to support financial instruments.
There is no significant concentration of credit risk pertaining to accounts receivable.

(b)   Fair Values
All financial instruments are recognised in the statement of financial position and are stated at fair values.

NOTE 12

LEASE COMMITMENTS

The Commission has the following operating lease commitments, which are subject to review under the terms of the leases, with terms of more than one year:

	2002 $	2001 $
- Not later than one year	210,000	210,000
- Later than one year and not later than two years	35,000	210,000
- Later than two years and not later than five years	-	35,000
- Later than five years	-	-

NOTE 13

CAPITAL COMMITMENTS

Estimated capital expenditure contracted for at balance date but not provided for:
$130,695 (2001 - $28,823).

NOTE 14

CONTINGENT LIABILITIES

The Commission is engaged in litigation with a third party. On the basis of legal advice received the Commission does not acknowledge any liability. The claim was unquantified at balance date. (2001 - NIL).

NOTE 15

TRANSACTIONS WITH RELATED PARTIES

During the year there were no transactions with related parties.
No related party debts have been written off or forgiven during the year.

NOTE 16

BUDGET VARIANCES

(a)   Income
 

	Income for the year was $290,000 above budget, mainly arising from:
	(i)	Additional services provided to the Takeovers Panel.
	(ii)	Additional Government grant for the review of the NZ Stock Exchange rules.
	(iii)	Recovery of litigation and court costs.

(b)   Expenditure
 

	Significant variances from budget were:
	(i)	The Commission incurred additional costs arising from additional services provided to the Takeovers Panel.
	(ii)	Additional costs arising from the NZ Stock Exchange review.
	(iii)	Additional professional services costs arising from various major enforcement matters.
	(iv)	Additional services and supplies costs arising from increased professional indemnity insurance due to 11 September events, and increases in IT and other service costs.

NOTE 17

COST ALLOCATION POLICY

Direct costs are charged directly to outputs. Indirect costs are allocated on the basis of direct labour hours spent on each output.