Statement of Intent 2007-2010

Contents

Statement of Responsibility

This Statement of Intent

Medium-term information

National environment - New Zealand's securities markets
Co-regulatory environment
Legislative environment
Trans-Tasman environment
International environment
Government reforms
FSAP

Commission Members
Staff
Nature and scope of our functions and intended operations
Outcomes, objectives and outputs

Enforcement
Monitoring and market oversight
Law and practice reform
Exemptions and authorisations
International cooperation and recognition
Public understanding
Delivering outputs for the 3 years to 30 June 2010
Investment risks and how we will manage them
Environmental risks and how we will manage them
How we will work with others
Possible changes to our operating environment

Key elements of our capability and how we will manage risks to these
Collaboration on organisational health and capability building
Financial control and acquisition processes
Takeovers Panel

Annual information - for the 07/08 year

Statement of forecast financial performance
Statement of forecast service performance

Glossary

Statement of Responsibility

The Securities Commission is established under the Securities Act 1978 which defines its powers and functions as New Zealand's main regulator of investments.

The Commission is an independent Crown entity in terms of the Crown Entities Act 2004, and the information contained in this statement of intent is prepared in accordance with sections 141 and 142 of the Crown Entities Act 2004. The prospective financial statements have been prepared in accordance with NZ IFRS. They have been developed for the purpose of tabling the Commission's intentions in the House of Representatives and should not be relied on by any other party for any alternative purpose. Actual results are likely to be different from the prospective financial statements and the variation may be material.

We are responsible for the preparation of this statement of intent, including the forecast financial statements and the assumptions on which they are based, the statement of forecast service performance, and for the judgments used in them.

Jane Diplock AO Chairman 21 June 2007

Joanna Perry Chairman Audit and Risk Review Committee 21 June 2007

This Statement of Intent

This statement of intent:

• sets out the main objectives the Securities Commission will achieve over the next three years and how those achievements will be measured; and
• presents publicly the Commission's forecast financial statements and forecast statement of service performance for the next 12 months.

Medium-term information

The information in this section relates to the financial years 2007/08, 2008/09 and 2009/10. This section has key background information about the Commission, how it contributes to Government's goals, and the environments in which it operates. It sets out the nature and scope of the Commission's functions and intended operations, the outcomes to which we contribute, the objectives we seek to achieve, and the main measures of achievement.

The Securities Commission

The Commission is New Zealand's main investment regulator. The investments we regulate are securities which include shares, debentures, bonds, term deposits, superannuation schemes, unit trusts and other managed investments, contributory mortgages and futures contracts.

Our purpose is to strengthen investor confidence and foster capital investment in New Zealand by promoting the efficiency, integrity and cost-effective regulation of our securities markets.

The Commission's work contributes to robust and vibrant capital markets in which investors, both domestic and overseas, can have confidence. This in turn is important for New Zealand's sustainable economic development.

Government's Goals

The Commission contributes to the Government's economic transformation goals through:

• cost-effective regulation to raise the integrity of the markets and increase investor confidence thereby attracting overseas capital which enables firms to become more globally competitive;
• promoting closer economic relationships with Australia by settling regulatory procedures for trans-Tasman mutual recognition of securities offerings which will provide new opportunities for business and investors;
• contributing to law reforms that will create a world class regulatory infrastructure for New Zealand's capital markets that will attract investors and enable New Zealand firms to be globally competitive;
• encouraging New Zealand issuers to achieve international best practice in corporate governance and financial reporting;
• sponsoring investment education in schools to enable young people to become confident investors in the securities markets.

The environments we work in

The environments the Commission works in

National environment - New Zealand's securities markets
As the main regulator of investments the Commission has oversight of both the primary securities market and the secondary securities market.

The primary market covers investments offered to the public for the first time. These include shares, debentures, bonds, term deposits, superannuation schemes, unit trusts and other managed investments, and contributory mortgages. An issuer who offers these securities must do so in offer documents (usually a registered prospectus and an investment statement) which comply with the law. The purpose of the law is to give the prospective investor sufficient information to compare one investment with another and to make an informed decision on whether or not to invest.

The Commission's role relating to the primary markets is:

• to enforce the law regarding offers of securities and advertising for securities; and
• to intervene if an offer is misleading, deceptive, or confusing.

We can:

• request that documents be amended;
• ban offers from the market;
• report publicly on behaviour or circumstances we consider investors and market participants should be alerted to.

The secondary market is where securities are traded e.g. on a stock exchange or futures exchange. Participants in these markets have to comply with the rules of the exchange and with the law.

The Commission's role relating to the secondary market is to use its powers:

• to investigate various types of misbehaviour in the secondary markets, e.g. trading by "insiders" who have information that is not known to other shareholders;
• to take legal action where appropriate; and
• to work with and oversee NZX under the statutory co-regulatory framework.

Co-regulatory environment
Currently NZX is the only registered stock exchange in New Zealand. The Commission and NZX have co-regulatory roles relating to the exchange under the Securities Markets Act 1988. NZX is the front line regulator concerned with breaches of the rules of the exchange and the Commission is the statutory regulator concerned with breaches of the law.

The Commission gives the Minister of Commerce advice on NZX's rules and oversees NZX's performance of its regulatory role. This co-regulatory regime has addressed the matter of standards for exchanges which are self-regulatory organisations raised by the 2003 Financial Sector Assessment Programme (FSAP) by the IMF (See FSAP ).

A co-regulatory regime has the advantage of giving front line responsibility to those who are closest to the market, and adds public accountability to this by the oversight and statutory enforcement powers of a public regulator.

Legislative environment
The Government has conducted several reviews on the regulatory regime for securities markets. In particular reforms relating to:

• financial intermediaries;
• financial products and providers; and
• Financial Action Task Force recommendations.

• registration of financial service providers;
• regulation of non-bank deposit-takers;
• trustee supervisory model;
• consumer dispute resolution and redress;
• institutional arrangements for prudential regulation; and
• financial advisers - a new regulatory framework.

The Cabinet papers are published on www.med.govt.nz. The Commission has had extensive input to these reviews and will continue to provide advice to the Ministry of Economic Development on the development of detailed policy and drafting of legislation.

Trans-Tasman environment
New Zealand has strong economic ties with Australia and is currently working with that country towards a single economic market. The Government has a memorandum of understanding (MOU) with the Australian Government aimed at improving the trans-Tasman business environment.

The two Governments have an agreement which commits to removing unnecessary regulation and costs of offers of securities made in both countries. This mutual recognition of securities offerings will remove barriers and costs for issuers and broaden the choice of investments for investors. This regime is likely to commence within the next 12 months. A vital part of providing these benefits is that the Commission and the Australian Securities and Investments Commission (ASIC) work closely together so that regulatory standards are consistent and duplication of work is kept to a minimum. The Commission, the Registrar of Companies and ASIC are preparing protocols for cooperating to regulate the new regime.

International environment
Securities markets are global. Transactions take place instantly around the world. This brings benefits for both business and investors. It is important for New Zealand to benefit from globalisation of the markets. To do this it must be seen to have a securities regulatory framework that is on a par with international standards and best practice.

The International Organisation of Securities Commissions (IOSCO) is the international standard setter for securities regulation. The Commission is a member of the Executive Committee, IOSCO's governing body, and Chairman Jane Diplock is in her second two-year term as Chairman of the Executive Committee. This role raises New Zealand's international profile as a well-regulated market, attractive to international investors. It enables New Zealand to take part in IOSCO's work to raise standards of securities regulation worldwide.

The globalisation of the securities markets also increases opportunities for international financial fraud. To combat this regulators must be able to work together across traditional jurisdictional boundaries. These issues are being addressed by IOSCO, particularly through the IOSCO Multi-lateral Memorandum of Understanding on Cooperation and Exchange of Information (IOSCO MMoU), to which the Commission is a signatory.

Government reforms
Over the last six years the regulatory framework for securities has changed significantly as the Government has carried out its programme of reforms. These have given the Commission new powers and functions as shown in the table.

FSAP
New Zealand's financial sector, including the regulatory framework, was assessed by the IMF and World Bank in 2003. The FSAP experts measured New Zealand's regulatory framework and its operation against international standards.

In general New Zealand was given a good report but a number of shortcomings were noted including:

• the legislative process for registration of an exchange did not establish standards for an exchange which is also a self-regulatory organisation; and
• the lack of regulation of financial intermediaries.

Some of the shortcomings, including matters relating to exchanges, were already being addressed in the Government's programme of reforms, and have now taken effect. (See Co-regulatory Environment on page 7). In 2006 the Ministry of Economic Development published a discussion paper proposing reforms for the regulation of financial intermediaries. The Commission is helping with this and our commitments to it are included in this statement of intent under the Law and Practice Reform Output (page 13).

Who we are and what we do

Commission Members
Commission Members are appointed by the Governor-General on the recommendation of the Minister of Commerce. They are usually appointed for five years, and may be reappointed. Members are chosen for their knowledge and experience of the securities markets.
One Member must be an experienced lawyer.

Currently there is a full complement of 10 Members. The Chairman, Jane Diplock, works full time. The other nine Members attend one full Commission meeting per month and meet in divisions as required to handle the business of the Commission. Divisions have the full powers of the Commission.

Profiles of Commission Members are published at www.seccom.govt.nz/about/.

Staff
We have 43 staff. They include lawyers, accountants, a general manager, investigators, communications, international, library and support staff. Seven people work full time for the Takeovers Panel, and several staff work part of their time for the Panel. We work in a flexible structure which enables us to form cross-disciplinary teams to address particular matters.

Nature and scope of our functions and intended operations
The nature and scope of our functions and operations are defined by the Securities Act 1978 which establishes the Commission. They include:

• to keep under review the law relating to bodies corporate, securities and unincorporated issuers of securities and to recommend changes to the Minister of Commerce
• to keep under review practices relating to securities and to comment on these
• to cooperate with overseas securities commissions
• to keep under review securities markets activities and to comment on these
• to advise the Minister of Commerce on conduct rules proposed by securities exchanges
• to promote public understanding of the law and practice of securities
• to provide administrative and support services to the Takeovers Panel
• to perform any other function conferred by law.

To perform these functions we have a number of powers. These include:

• to receive evidence as to securities law and practice, with power to summons people and documents and to carry out inspections
• to ban misleading and illegal offer documents and advertisements
• to enforce insider trading and substantial security holder law
• to enforce continuous disclosure law and to make orders requiring disclosure by issuers
• to require an exchange to provide information and assistance to the Commission
• to accept enforceable undertakings
• to publish reports and comments
• to make orders requiring disclosure by unregistered exchanges
• to exempt persons from compliance with provisions of the Securities Act or Regulations under the Act
• to authorise certain market participants
• to recommend law reform
• to hear appeals against certain decisions of the Registrar of Companies.

For other legislation the Commission works with see www.seccom.govt.nz/about/laws.shtml.

Outcomes, objectives and outputs
The Commission has identified six outcomes that will benefit the New Zealand securities markets.

It will contribute to these outcomes through its short and medium term objectives. These are measurable and will determine the Commission's work during the term of this statement of intent. The work will be delivered via the Commission's outputs which align with the functions for which the Commission is funded through the Vote Commerce.

The Commission is funded for the performance of securities market functions as part of the Vote Commerce. This funding is specifically given for the Commission to undertake the following functions:

The Commission has adopted these functions as its outputs.

The relationships between these terms (outcomes, objectives, outputs and functions) are shown in the chart.

View large version »

Outputs

The Commission has adopted the six functions listed on page 10 as its outputs under the Crown Entities Act. These define our work. Each output is described below together with the outcome it contributes to, the objectives to be achieved and the measures of achievement. These are the Commission's main non-financial measures for the period of this statement of intent.

Delivering outputs for the 3 years to 30 June 2010
The Commission has a planning process which culminates in a three year strategic plan. The planning process aims to enable the Commission to efficiently allocate its resources and set its work priorities.

The strategic plan is kept under review during the year and formally reviewed when a new statement of intent is prepared. The plan for the three years to 30 June 2010 sets out the detailed work to be undertaken (under each output) to achieve all the objectives, including the objectives highlighted in this statement of intent. This work will contribute to the outcomes the Commission seeks for New Zealand's securities markets.

The details of this work, and how performance will be measured, are provided in the Statement of Forecast Service Performance on page 28 of this statement of intent.

Investment risks and how we will manage them
Risk is inherent in all investments. The Commission cannot take the risk out of investing, nor should it. However, the Commission is concerned with other risks to investors e.g. dishonest and fraudulent activity, misleading descriptions of investment offers, poor investment choices, and poor investment advice. These risks can affect the markets and investor confidence, and impact on the Commission's desired outcomes for the securities markets.

The Commission reduces these risks by its work in enforcement, monitoring and market oversight, law reform, and by applying resources where market integrity is at greatest risk.

Environmental risks and how we will manage them
The Commission will have a strategy in place by June 2007 to operate and use resources in a sustainable manner. The strategy will set out the methods to achieve the strategy and the performance indicators and targets to be met during the period of this statement of intent.

How we will work with others
The Commission's stakeholders include:

• the Minister of Commerce;
• the Ministry of Economic Development;
• investors, news media, and the general public;
• securities markets participants (issuers of securities, brokers, futures dealers, market analysts, stock and futures exchanges, investment advisers, financial intermediaries, debt security trustees and statutory supervisors of participatory securities);
• advisers to market participants (lawyers, accountants and auditors);
• other New Zealand regulators and enforcement agencies (the Companies Office, Takeovers Panel, Reserve Bank of New Zealand, Serious Fraud Office, Commerce Commission, New Zealand Police);
• overseas regulators;
• Parliamentary Counsel Office.

Our policy on stakeholders is published at www.seccom.govt.nz/about/stakeholder-policy.shtml

We work with the Minister of Commerce and the Ministry of Economic Development, in accordance with our statutory functions and powers, on policy, regulatory matters, law reform, and appropriations. We report to the Minister under the Crown Entities Act.

Under the Securities Markets Act we have a co-regulatory role with the NZX over the markets operated by that exchange. NZX is currently the sole registered exchange in New Zealand.

We also work with other government agencies including the Registrar of Companies, Reserve Bank of New Zealand, Serious Fraud Office, Parliamentary Counsel Office, Commerce Commission, Retirement Commission, Police and State Services Commission, as appropriate and in accordance with our statutory functions and powers.

We work with overseas securities regulators and agencies in accordance with the IOSCO MMoU, bilateral MOUs and applicable law. We also work with a variety of industry organisations and professional bodies.

Possible changes to our operating environment
Some aspects of securities regulation are currently under review by Government. These include financial intermediaries, the wider law relating to financial products and providers, and anti-money laundering supervision. It is likely that reforms arising from these reviews will affect the Commission within the period of this statement of intent. In particular, if the Commission is given new functions it will need additional resources.

Effectiveness and managing organisational health

The Commission has set a main financial measure for the period of this statement of intent.

Key elements of our capability and how we will manage risks to these
The Commission developed a risk management framework following a study by Deloitte in 2004. This identified the key areas of our capability and risks to these. The main risks are recruitment, key personnel, staff retention, physical event/disaster, reputation, confidentiality of information and knowledge available. The Commission has developed responses to these.

Staff
Our staff has increased from 22 in 2002 to 43 in 2007. A risk for the Commission is that it may not be able to recruit suitably qualified staff. The Commission counters this by boosting graduate recruitment, intensifying overseas recruitment, and targeting New Zealand recruitment campaigns effectively. To date the Commission has managed to recruit as required for its increased responsibilities.

We seek to minimise the risks associated with retention of staff by our commitment to being a good employer. The Commission won the small employer category (up to 50 staff) of the Unlimited/JRA Best Places to Work in New Zealand Survey in 2006, after coming second in 2005. We use this to measure our organisational health and our performance as an employer. Staff complete anonymous surveys under the headings:

Our objective over the next three years is to keep our status as a good employer by continuing our values-based culture, maintaining high professional standards, being responsive to staff feedback, and continuing the human resource practices that have proven effective. The Commission will continue to use the Unlimited/JRA Best Places to Work in New Zealand Survey to measure its performance as a good employer.

Physical event/disaster
The Commission's offices are code compliant under section 95 of the Building Act 2004. Our earthquake and disaster plan includes emergency food, water and first aid supplies, staff trained in first aid, and document and IT recovery systems. Staff have access to the Commission's computer network enabling them to work from home. The Commission has consulted with the State Services Commission on guidance for preparing a Pandemic Plan.

Reputation and integrity
The Commission promotes high ethical standards in the securities markets. If it is to succeed in this, and thereby strengthen confidence in the integrity of New Zealand's capital markets, it is essential that people have confidence in the integrity of the Commission itself.

The Commission must maintain a good reputation both for quality of work and integrity of approach. Much of our work is highly sensitive and confidentiality must be maintained. These risks are managed though the Values and the Code of Ethics we have adopted as an organisation.

The code of ethical standards and behaviour that is expected of Commission Members and staff is published at www.seccom.govt.nz/about/code-of-ethics.shtml

Future capability
The MED's review of financial products and providers is proposing reforms which would significantly increase the Commission's responsibilities. We have carried out a project to estimate the likely resource requirements of these new responsibilities and help prepare for these changes, and advise the Government on the possible funding implications associated with any such reforms. This project has sought to quantify the likely funding needs for premises, infrastructure, technology and personnel needs.

Collaboration on organisational health and capability building The Commission is collaborating with these agencies for its organisational capability and health initiatives:

• the State Services Commissioner, for its six Development Goals for the State Services; and
• the Equal Employment Opportunities Unit of the Human Rights Commission for its Good Employer Guidance under the National Equal Opportunities Network.

Financial control and acquisition processes
The Commission has policies for expenditure, financial delegations, and acquisitions. The financial delegation policy requires all expenditure to be within set delegations, or subject to prior approval by the Commission. Detailed planning and management procedures based on the Auditor-General's guidelines must be followed for significant acquisitions and for planning and managing litigation expenditure.

Takeovers Panel
The Commission provides administrative and support services to the Takeovers Panel in accordance with the Securities Act. These services are provided under an MOU. For each financial year the Commission and the Panel agree on the level of services required and on the fees to be paid for them. The income received from the Panel and the costs of providing these services are recorded in the financial statements.

Consultation and reporting to the Minister of Commerce

The Minister of Commerce is the Commission's responsible minister, and the Ministry of Economic Development is the monitoring department.

The Commission acts independently of Government and others except as required by the Securities Act 1978 or the Crown Entities Act 2004.

There are no matters on which the Commission is required to consult or notify the responsible Minister before exercising its statutory functions and powers. However, we work with the Minister and Ministry in accordance with our statutory functions and powers on policy, regulatory matters, law reform and appropriations.

Annual information - for the 07/08 year

Appropriations

During 2007/08 the Securities Commission is appropriated to supply services under Vote Commerce, as follows:

Further information is available in Part B, volume 1 of Budget 2007 - Estimates of Appropriation for the Government of New Zealand for the year ending 30 June 2008.

Forecast Financial Statements

Statement of Forecast Financial Performance for the year ended 30 June 2008

Statement of Forecast Financial Position as at 30 June 2008

Statement of Forecast Changes in Equity
for the year ended 30 June 2008

Statement of Forecast Cash Flows
for the year ended June 2008

Statement of Significant Assumptions

The assumptions used in preparing the forecast information were adopted by the Securities Commission on 21 June 2007 and are as follows:

Government grant
We assume a Government grant of $6,501,000 (excluding GST) for our operating activities. This is the amount appropriated to the Commission.

Administrative services to the Takeovers Panel
We have assumed recovery of $1,242,000 for services provided to the Takeovers Panel. This amount reflects an increase in the Panel's chargeable hours because of greater activity arising from its heightened enforcement powers and increased coverage of the Takeovers Code under the recently amended securities legislation. The hourly rate is unchanged at $115 per hour.

Exemptions and authorisations income
We have assumed that our total income from fees and the recovery of costs under the Regulations will be $250,000. We have based this on our historical experience and expect the general historical pattern to apply.

Personnel expenses
We expect 51 staff positions (44 full time equivalents).

Litigation expense and fund
We assume expenditure on approved litigation of $810,000. This is based on our most-likely litigation portfolio, arising from anticipated cases to be actioned, modeled on our historical experience. We note the volatility inherent in predicting litigation activity. Actual litigation activity and expenditure may be materially different from forecast. We assume the settlement for costs on the Tranz Rail insider trading case of $2,200,000 (excl. GST).

Occupancy and other operating costs
We have based our occupancy and other operating costs on our historical experience. We expect the general historical pattern to continue.

Opening position for 2007/08
The 2006/07 estimate is based on management's judgments, estimates and assumptions of the final 2006/07 outcome and is used as the opening position for 2007/08 forecasts. Estimated year end information for 2006/07 is used as the opening position for the 2007/08 forecasts.

Possible changes to our operating environment and future capability
Some aspects of securities regulation are currently under review by Government. These include financial intermediaries, the wider law relating to financial products and providers, and anti-money laundering supervision. It is likely that reforms arising from these reviews will affect the Commission within the period of this statement of intent. In particular, if the Commission is given new functions it will need additional resources. The MED's review of financial products and providers is proposing reforms which would significantly increase the Commission's responsibilities. We have carried out a project to estimate the likely resource requirements of these new responsibilities and help us prepare for these changes, and advise the Government on the possible funding implications associated with any such reforms. This project has sought to quantify the likely funding needs for premises, infrastructure, technology and personnel needs. The financial implications of these possible changes have not been included in the forecast financial statements of this statement of intent.

Statement of Significant Accounting Policies

Reporting entity
The forecast financial statements presented here for the reporting entity, the Securities Commission, are prepared pursuant to section 142 of the Crown Entities Act 2004. The Commission is a Crown entity for legislative purposes and a public benefit entity for financial reporting purposes.

These forecast financial statements were authorised for issue by the Commission on the [21 June 2007].

These forecast financial statements have been prepared for the special purpose of the 2007/08 statement of intent of the Securities Commission to the Minister of Commerce. They are not prepared for any other purpose and should not be relied upon for any other purpose.

These forecast financial statements have not been reviewed or audited by our auditors, Audit New Zealand.

Statement of compliance
These forecast financial statements comprise prospective financial information and have been prepared in accordance with New Zealand Financial Reporting Standard No. 42: Prospective Financial Statements (FRS-42).

These forecast financial statements are prepared under New Zealand equivalents of International Financial Reporting Standards (NZ IFRS). The Commission early adopted NZ IFRS on 1 July 2005.

Basis of preparation
The preparation of forecast financial statements in conformity with FRS-42 requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual financial results achieved for the period covered are likely to vary from the information presented, and the variations may be material.

The accounting principles recognised as appropriate for the measurement and reporting of results and financial position on a historic cost basis have been applied.

These financial statements are presented in New Zealand dollars, which is the entity's functional currency. All financial information presented has been rounded to the nearest thousand.

Accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

Forecast and estimate figures
The forecast and estimate 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 financial statements. The Commission is responsible for the financial statements presented, including the appropriateness of the assumptions underlying the financial statements and all other required disclosure. It is not intended to update these financial statements subsequent to publication of these statements.

Judgements and estimations
The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Subsequent actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The Commission has made the following critical accounting estimates and judgements when preparing these financial statements:

Impairment on library
The Commission estimates there are no significant impairment issues in respect of the carrying values of its library collection.

Litigation
The Commission has settled the Tranz Rail insider trading case and expects to recover its costs totalling $2,200,000 (excl. GST).

Property, plant and equipment
Property, plant and equipment are shown at cost or deemed cost less depreciation and less any impairment losses (see Impairment page 27).

Library collections that were revalued to fair value immediately prior to 1 July 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation.

The following classes of property, plant and equipment have been depreciated over their economic lives on the following bases:

• - office furniture - 20 percent of diminishing value,
• - office equipment - straight line over three years,
• - leasehold improvements - straight line over remaining life of lease,
• - library collections - straight line over ten years,
• - motor vehicle - straight line over five years.

Intangible assets
Computer software that is not integral to the operation of the hardware is recorded as an intangible asset and amortised on a straight line basis over a period of three years.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances on hand and held in bank accounts in which the Commission invests as part of its day-to-day cash management. This includes any short term deposits held by the Commission that have maturities less than or equal to three months.

Term deposits
This category only includes term deposits with maturities greater than three months. These deposits are loans and receivables under NZ IFRS. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method.

Short-term employee benefits
Employee entitlements represent the Commission's liability for employee annual leave entitlements. This has been calculated on an accrued entitlement basis which involves recognising the undiscounted amount of short-term employee benefits expected to be paid in exchange for service that an employee has already rendered. This is calculated at current remuneration rates.

Operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term after taking into account any lease inducements.

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.

The statement of cash flows has been prepared on a net GST basis. That is, cash receipts and payments are presented exclusive of GST. A net GST presentation has been chosen to be consistent with the presentation of the statement of financial performance and statement of financial position. The net GST component of operating activities reflects the net GST paid to and received from the Inland Revenue Department. The GST component has been presented on a net basis as the gross amounts would not provide meaningful information for financial statement purposes.

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.

Income tax
The Commission is exempt from income tax under the Income Tax Act 1994.

Revenue recognition
Government grant is recognised as revenue in the year in which it is appropriated. Revenue from application fees and costs recoverable and from administrative services to the Takeovers Panel is recognised when the relevant services are provided.

Interest income is accrued using the effective interest rate method. The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income each period.

Cost allocation policy
For the purposes of the statement of forecast service performance direct costs are charged directly to outputs. Indirect costs are allocated on the basis of direct labour hours spent on each output.

Litigation fund
Reimbursements from the Crown to top up the fund are shown as income in the period in which the Commission's claim for reimbursement is accepted by the Crown. The balance of the fund is disclosed as a component of equity in the statement of financial position.

Impairment
The Commission considers at each reporting date whether there is any indication that a non-financial asset may be impaired. If any such indication exists, the asset's recoverable amount is estimated. Given that the future economic benefits of the Commission's assets are not directly related to the ability to generate net cash flows, the value in use of these assets is measured on the basis of depreciated replacement cost.

At each balance date financial assets such as receivables are assessed for impairment. The recoverable amount is the present value of the estimated future cash flows.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount. Any reversal of impairment losses is also recognised in the income statement.

Changes in accounting policy
There have been no changes in accounting policies since the date of the last audited financial statements prepared under NZ IFRS.

Note 1 Other operating expenses

Statement of Forecast Service Performance

Performance standards and measures for the outputs of the Commission

Expected revenue and proposed expenses (for class of output)

Class of output - Performance of Securities Market Functions (Vote Commerce)

Litigation fund

This information is provided pursuant to section 142(2)(b), Crown Entities Act 2004.

Glossary