About us
Statement of accounting policies
Corporate information
The Corporation is a statutory corporation (Crown-owned entity) operating under the Housing Corporation Act 1974 (as amended). The core business of Housing New Zealand Corporation (the Corporation) and its subsidiaries is to give effect to the Crown's social objectives by providing housing, and services related to housing, in a businesslike manner, and to ensure the Minister of Housing receives appropriate policy advice, other advice, and information on housing and services related to housing.
The Parent and its subsidiaries are public benefit entities (PBE), defined as "reporting entities whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders."
The registered office of the Corporation is at Level 3, 28 Grey Street, Wellington.
Basis of preparation
The financial statements have been prepared on a historical cost basis, except for rental properties, freehold land, derivative financial instruments and available for sale financial assets, which have been measured at fair value.
The financial statements are presented in New Zealand dollars, which is the functional currency of the Group, and all values are rounded to the nearest million dollars ($m).
Statement of compliance
The financial statements comply with FRS-42 Prospective Financial Statements as appropriate for public benefit entities.
Basis of Group
The Group financial statements comprise the financial statements of Housing New Zealand Corporation and its subsidiaries (the Group) as at 30 June each year.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Subsidiaries have been included in the Group financial statements using the purchase method of accounting, which measures the acquiree's assets and liabilities at their fair value at acquisition date.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
All inter-entity balances and transactions have been eliminated in full.
Foreign currency transactions
Transactions in foreign currency are converted at the New Zealand rate of exchange ruling at the transaction date.
Property, plant and equipment
Motor vehicles, office equipment, furniture and fittings, computer hardware and leasehold improvements are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment as follows:
- motor vehicles - 5 years
- office equipment - 5 years
- furniture and fittings - 10 years
- computer hardware - 4 years
- leasehold improvements - the shorter of the period of lease or estimated useful life.
An item of property, plant or equipment is derecognised upon disposal or when no future economic benefits are expected to arise from its continued use. Any gain or loss arising on derecognition of the asset is included in the income statement in that year. Gain or loss on sales is calculated as the difference between the net disposal proceeds and the carrying amount.
Rental properties and land
Housing for community groups held by Housing New Zealand Corporation and state housing held by Housing New Zealand Limited is, on purchase or construction, recognised at cost. It is then revalued annually, on a class basis, to fair value.
Fair value is the amount for which the asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction at the valuation date. In practice, fair value is estimated by reference to market-based evidence. Independent valuations are performed annually to ensure that the carrying amount does not differ materially from the asset's fair value at the balance sheet date.
Any surplus arising on the revaluation of freehold land and rental properties is recognised in the asset revaluation reserve in the equity section of the balance sheet. A revaluation deficit greater than the asset revaluation reserve would be recognised as an expense in the income statement in the period it arose. Revaluation surpluses that reversed previous revaluation deficits recognised in the income statement would be recognised as revenue in the income statement. Any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset.
An item of property is derecognised upon disposal or when no future economic benefits are expected to arise from its continued use. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Any gain or loss arising on derecognition of an asset is included in the income statement in that year. Gain or loss on derecognition is calculated as the difference between the net disposal proceeds and the carrying amount of the item.
Depreciation is calculated on a straight-line basis over the estimated useful life of the building as follows:
- rental property improvements - 40 years.
Work in progress
Construction work in progress by Housing New Zealand Corporation and Housing New Zealand Limited is recognised at cost. On completion, the property will be held by the same entity, whereupon it will be accounted for as rental property.
Property intended for sale
Property previously held but now being sold as it is no longer required is classified as a property intended for sale. This classification is used where the carrying amount of the property will be recovered through sale, the property is available for immediate sale in its present condition, and sale is highly probable.
Property held for sale is recorded at the lower of the carrying amount and fair value, less costs to sell. From the time a property is classified as held for sale, depreciation is no longer charged on the improvements.
Where property is held for sale or for development for sale, in the ordinary course of business, it is classified as inventory. Such property is recorded at the lower of cost and net realisable value (selling price less costs to complete and sale costs). Any write-downs to net realisable value are expensed in the income statement.
The Corporation's Property Development Limited's (PDL) business is to subdivide large pieces of land, where the Group does not intend to retain all of the resulting titles. After subdivision, it will sell the land to other members of the Group or external entities. PDL will not retain any properties for the long term. As PDL property is held for development for sale, in the ordinary course of business, it is classified as inventory.
Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred.
Intangible assets
The Group has computer software, which is a nonmonetary asset without physical substance, and therefore is classified as an intangible asset. Intangible assets include software that has been externally developed as well as software that has been internally generated. Software is developed to meet Board-approved changes and improvements to the Corporation's way of working, structures, processes, products and systems.
Computer software is capitalised at cost, and the capitalised cost is amortised over 4 years. Following initial recognition, it is carried at cost less any accumulated amortisation and any accumulated impairment losses. The amortisation is taken to the income statement.
Computer software is tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Gains or losses arising from derecognition of computer software are recognised in the income statement when the asset is derecognised. They are measured as the difference between the net disposal proceeds and the carrying amount of the asset.
Impairment
All assets are assessed for impairment at least annually.
Where there are indicators of impairment for those assets, the asset's recoverable amount will be determined. Where the recoverable amount is lower than the carrying amount, an impairment loss will be recognised, and the asset written down to the recoverable amount.
Revaluations of property are performed annually so that, generally, property is not carried at an amount materially below its recoverable amount. However, where there are specific indicators of impairment during the financial year, a property will be assessed for impairment. An impairment loss is recognised first against the revaluation reserve for that property, then the portion of the loss greater than the asset revaluation reserve is recognised as an expense in the income statement in the period it arises.
Any calculated gain or loss arising on disposal of the asset is included in the income statement in the year the item is disposed of. Gain or loss arising on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the item.
The carrying values of corporate assets and finite-life intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the asset or cash-generating units are written down to their recoverable amount.
The recoverable amount of corporate assets and finite-life intangible assets is the greater of fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the income statement.
Investments
All investments are initially recognised at cost, being the fair value of the consideration given.
After initial recognition, investments that are classified as available for sale are measured at fair value. For investments where there is no quoted market price, fair value is calculated based on the expected cash flows of the underlying net asset base of the investment.
Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in the income statement.
The Shared Equity Scheme loan is classified as an available-for-sale investment. Fair value is determined by reference to market-based evidence. Independent valuations are performed annually to ensure the carrying amount does not differ materially from the asset's fair value at the balance sheet date.
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as loans and receivables and are measured at amortised cost using the effective interest method. Investments intended to be held for an undefined period are not included in this classification. Amortised cost is calculated by taking into account any discount or premium on acquisition over the period to maturity. For investments carried at amortised cost, gains and losses are recognised in income when the investments are derecognised or impaired, as well as through the amortisation process.
Under the Shared Equity Scheme, the home buyer holds an option of early repayment of the loan. The loan is adjusted on day one to reflect the prepayment option in the form of an impairment provision in the balance sheet and a grant expense in the income statement.
Mortgages and housing-related lending
Mortgage advances are stated at amounts outstanding net of provisions made on advances considered doubtful for collection, ensuring mortgage advances' carrying values do not exceed their recoverable amount.
The mortgage provision reflects an amount considered adequate to provide for probable losses based on the best information available at balance date for loans identified as having particular risk, where security is considered inadequate.
Trade and other receivables
Receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and short-term liquid investments with original maturities up to 90 days.
Interest-bearing borrowings
All borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.
After initial recognition, interest-bearing borrowings, with the exception of those detailed separately below, are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses are recognised in the income statement when the liabilities are derecognised and through the fair valuing and amortisation processes for liabilities carried at amortised cost. Gains and losses are recognised on an ongoing basis.
Mortgage insurance premium
The unearned premium reserve represents the unrealised amount of premium received. It is determined by apportioning premiums received over the relevant periods of risk underwritten, based on actuarially assessed risk factors.
The provision for claims is based on the actuarial assessment of the present value of the estimated cost of future claims, in excess of unearned premium reserve.
Any estimate of future monetary amounts is in nominal dollars and no inflationary increases have been built in.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The Group has a legal obligation to fund Westpac Banking Corporation for mortgages sold to it that go to mortgagee sale but generate a shortfall on the loaned amount. Provisions related to those obligations have been recorded based on the present value of a best estimate, actuarially determined assessment of likely losses.
The expense relating to any provision is presented in the income statement.
As the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to the passage of time is recognised as a borrowing cost.
Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.
All of the Group's leases are operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
Make good provisions
Where appropriate, provision is made for the present value of anticipated costs for the future restoration of leased premises to their state at the commencement of a Corporation lease. This calculation requires assumptions such as the costs of materials, labour, fittings and fixtures. These uncertainties may result in future actual expenditure differing from the amounts provided. Provisions recognised for each site are periodically reviewed and updated based on the facts and circumstances available at the time.
Changes to the estimated future costs for sites are recognised in the balance sheet by adjusting the expense and/or asset and provision.
Crown operating appropriations
The Group receives revenue from the Crown as operating appropriations. Crown appropriation revenue is received to subsidise third party revenue to bring it to market value (eg rent, premium and interest subsidies), to pay for services provided to the Crown (eg policy advice, government relations, research and evaluation), or to reimburse the Group for expenses incurred by operating various programmes (eg home ownership education courses). All Crown appropriation revenue is recognised as it is earned. Where relevant, the policy for Crown appropriation revenue is included in the accounting policy for its revenue item below.
Rental income
Rental income, including rental income from the Crown (Income-Related Rent Subsidy), is recognised on a straightline basis over the lease term.
Mortgage insurance income
The premium income realised and the movement in provision for claims during the year are recognised in the income statement. Premiums, including premium subsidies from the Crown, are realised over the estimated period of the contract in accordance with the pattern of the incidence of risk expected under the contract, which is an estimate when the premium is earned.
Interest income
Interest revenue from mortgages, including interest subsidies from the Crown and short-term investments, is recognised as the interest accrues (using the effective interest method which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.
Management fees
The Group receives management fees, on a cost recovery basis, from the Housing Agency Account for managing the development of land. The Parent receives management fees from subsidiaries for managing their operations. Management fees are recognised as income in the period the expenses they relate to are incurred.
Dividends
The Parent receives dividends from subsidiaries. Dividends are recognised in the Parent's income statement when the shareholders' right to receive the payment is established.
Contingent assets
The Group has made grants and suspensory loans to third parties, with conditions attached for an agreed period. If the conditions are breached, the grant or suspensory loans will be repayable. If the conditions have been breached, the Group will disclose a contingent asset, as there will be a possibility that resources will flow to the Group.
Income tax
The income tax expense charged to the income statement includes the current year's provision and the movement in the deferred tax liability and asset.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences:
- except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, the carry-forward of unused tax assets and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax losses, can be utilised:
- except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss
- for deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year 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 the balance sheet date.
Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
Other taxes
The Group is mainly an exempt supplier in relation to Goods and Services Tax. Goods and Services Tax on the majority of inputs cannot be reclaimed; therefore, it is included in expenditure. Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the Inland Revenue Department is included as part of receivables or payables in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to Inland Revenue are classified as operating cash flows.
Commitments and contingencies are disclosed gross of the amount of GST recoverable from, or payable to, the Inland Revenue Department.
Derecognition of financial instruments
The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.
Derivative financial instruments
The Group uses derivative financial instruments such as interest rate swaps, and foreign currency contracts to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are stated at fair value.
The fair value of derivative financial instruments is determined by reference to current rates for similar instruments with similar maturity profiles, and is calculated as the net discounted estimated cash flows of the instrument.
For the purposes of hedge accounting, hedges are classified as cash flow hedges where they hedge exposure to variability or a forecasted transaction.
For those interest rate swaps that meet the conditions for hedge accounting as cash flow hedges, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the income statement.
Hedge accounting is discontinued when the hedging instrument is exercised, expires, is sold, terminated or no longer qualifies. At that point, any cumulative gain or loss on the hedging instrument is recognised in equity until the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the year.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement for the year.
Financial guarantees
When the Corporation agreed to sell mortgages to Westpac Banking Corporation in 1996, 1998 and 1999, the Corporation guaranteed a certain number of those mortgages. The mortgage sale provision is the actuarially assessed amount likely to be payable under the guarantees. In order to estimate the fair value, the following assumptions are made.
- House price indices are grouped into 11 geographical areas.
- It is assumed that household income will keep pace with general market inflation.
- A discounted provision is calculated whereby, as interest is added, it will be sufficient to meet expected future payments. The rate of interest used is that obtained by holding New Zealand Government Bonds.
Accounts payable and other liabilities
Accounts payable and other liabilities are carried at amortised cost. Due to their short-term nature, they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.
Employee entitlements
Employee entitlements include wages, salaries, annual leave, long service leave and sick leave. Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave are recognised in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
Changes to accounting policies
There have been no changes in accounting policies. Since the application of NZIFRS, all accounting policies have been applied on a consistent basis.
