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2007 Annual Report

Notes to the Financial Statements
for the year ended 30 June 2007

NOTE 2   BUDGET FIGURES

The budget figures are those approved by the Commission on 15 June 2006 and published in the Commission’s Statement of Intent 2006-2009. 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

2007 Budget $000's			Note	2007 Actual $000's	2006 Actual $000's
		Other income
-		Gain on disposal of fixed assets		-	2
-		Miscellaneous income		1	11
-				1	13
		Personnel expenses
4,155		Staff expenses		3,945	3,243
655		Members’ fees		654	650
4,810				4,599	3,893
		Depreciation and amortisation
389		Depreciation	11	345	406
		Amortisation	12	19	23
389				364	429
		Other operating expenses
16		Auditors - audit fees		15	13
–		Auditors - fees for transition to NZ IFRS		1	11
65		Communication charges		54	58
340		Printing and stationery		320	328
873		Professional services		666	371
629		Services and supplies		581	578
451		Travel and accommodation		477	397
2,374				2,114	1,756

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. 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:

		2007 $000's	2006 $000's
Opening balance		844	844
Government grant revenue		243	459
Interest income		49	37
Settlements and cost recoveries		-	289
Expenditure on eligible litigation		(292)	(785)
Closing balance		844	844
Comprising
Cash and cash equivalents
-	Current account	92	69
-	Call account	91	-
-	Short term deposits	-	550
Term deposits		575	-
		758	619
Trade and other receivables		93	279
		851	898
Trade and other payables		(7)	(54)
Balance		844	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 Aa3, Standard & Poors A1+ short term and AA- long term,.

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 ongoing 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, 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
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
2006
Cash and cash equivalents
- Current account	3.50%	55	55	-
- Short term deposits	7.23%	1,400	1,400	-
		1,455	1,455	-
Cash and cash equivalents - litigation fund
- Current account	3.50%	69	69	-
- Short term deposits	7.03%	550	550	-
		619	619	-

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.

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 the Commission’s objectives, policies and processes for managing the risk and the methods used to measure the risks.