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2008 Annual Report

Notes to the Financial Statements
for the year ended 30 June 2008

NOTE 2   BUDGET FIGURES

The budget figures are those approved by the Commission on 15 June 2007 and published in the Commission's Statement of Intent 2007-2009. The budget figures are prepared in accordance with Generally Accepted Accounting Practice and are consistent with the accounting policies adopted by the Commission for the preparation of the financial statements.

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   REVENUE AND EXPENSE

2008 Budget $000's			Note	2008 Actual $000's	2007 Actual $000's
		Other income
—		Miscellaneous income		7	1
				7	1
		Personnel expenses
4,548		Staff expenses		4,472	3,945
335		Members’ fees		702	654
4,883				5,174	4,599
		Depreciation and amortisation
328		Depreciation	11	317	345
16		Amortisation	12	19	19
344				336	364
		Other operating expenses
16		Auditors - audit fees		19	15
—		Auditors - fees for transition to NZ IFRS		—	1
65		Communication charges		55	54
370		Printing and stationery		318	320
750		Professional services		744	666
585		Services and supplies		602	581
546		Travel and accommodation		564	477
2,332				2,302	2,114

NOTE 5 LITIGATION FUND

The Government has agreed to fund a litigation fund of $843,750 and to make top-ups as necessary to maintain the fund up to a maximum of $2,920,000 for the year ended 30 June 2008. The fund is to be used solely for approved litigation costs incurred
by the Securities Commission in taking or defending eligible cases.

A summary of the movements in the fund during the year is as follows:

		2008 $000's	2007 $000's
Opening balance		844	844
Government grant revenue		16	243
Interest income		64	49
Settlements and cost recoveries		1,996	—
Expenditure on eligible litigation		(54)	(292)
Closing balance		2,866	844
Comprising
Cash and cash equivalents
-	Current account	79	92
-	Call account	99	91
-	Short term deposits	—	—
Term deposits		650	575
		828	758
Trade and other receivables		2,038	93
		2,866	851
Trade and other payables		—	(7)
Balance		2,866	844

NOTE 6   MANAGEMENT OF EQUITY

The Commission seeks to maintain sufficient equity to enable it to be able to manage its on-going operations and obligations. Surplus funds are invested having regard to the cash flow profile of future commitments. There have been no material changes in the Commission's management of equity during the period compared with the previous period.

The Commission is not subject to any externally imposed equity requirements.

NOTE 7 FINANCIAL INSTRUMENTS

Credit risk
Credit risk represents the risk that a counterparty will default on its contractual obligations to the Commission. Financial instruments which subject the Commission to credit risk consist of bank balances, bank term deposits, trade and other receivables. The maximum exposure to credit risk at the reporting date is the carrying amount of those instruments as detailed in note 8.

There is limited credit risk for the Commission because most of the financial assets are the Commission's cash or investments. These are deposits with Westpac Banking Corporation which is a registered bank in New Zealand and is rated Moody's Aa2 and Standard & Poors AA for its long term credit rating.

The Commission does not require collateral or security to support financial instruments.

There is no significant concentration of credit risk pertaining to accounts receivable.

Liquidity risk
Liquidity risk represents the Commission's ability to meet its contractual obligations associated with financial liabilities. The Commission evaluates its liquidity requirements on an on-going basis by preparing quarterly budget analyses which are used to manage the timing of investment maturity with payments due. The Commission's creditors are mainly those reported as trade and other payables. The Commission aims to pay these within normal commercial terms, that is, by the 20th of the month, if not earlier.

Employee entitlements comprise obligations for employee accumulated leave. This obligation is extinguished when leave is taken. Staff are encouraged to take leave within the year in which it vests.

The Commission has cash and other short term deposits that it can use to meet its on-going payment obligations.

Market risk
The only market risk that the Commission is subject to is interest rate risk. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As term deposits are at fixed rates, and therefore do not fluctuate, the market risk the Commission is exposed to does not impact its reported financial performance and/or equity.

Details are as follows:

	Effective Interest Rate	Total $000's	Maturities 3 months or less $000's	Maturities greater than 3 months $000's
2008
Cash and cash equivalents
- Current account	3.50%	45	45	—
- Call account	7.45%	3	3	—
Term deposits	8.79%	1,632	—	1,632
		1,680	48	1,632
Cash and cash equivalents - litigation fund
- Current account	3.50%	79	79	—
- Call account	7.45%	99	99	—
Term deposits	8.79%	650	—	650
		828	178	650
2007
Cash and cash equivalents
- Current account	3.50%	43	43	—
- Call account	7.20%	52	52	—
Term deposits	7.63%	1,950	—	1,950
		2,045	95	1,950
Cash and cash equivalents - litigation fund
- Current account	3.50%	92	92	—
- Call account	7.20%	91	91	—
Term deposits	7.69%	575	—	575
		758	183	575

Term deposits are made for varying periods of up to, and including, three months depending on the immediate cash requirements of the Commission, and earn interest at the respective short term deposit rates.

The Commission interest rate risk is limited to interest on term investments, the maturities of which are shown above.

Sensitivity analysis
As at 30 June 2008, if the floating interest rate on call deposits had been 100 basis points higher or lower, with all other variables held constant, the surplus/deficit for the year would have been $1,020 (2007: $1,430) higher or lower.

Fair values
All financial instruments are recognised in the statement of financial position and are stated at carrying amounts. Given their short term nature, the carrying amounts are considered a reasonable approximation of their fair values.

There has been no change from the previous period in the Commission's exposure to risks, how they arise, or in the Commission's objectives, policies and processes for managing the risk and the methods used to measure the risks.