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Commentary for 31 March 2020 reporting by institutes of technology and polytechnics

The Education (Vocational Education and Training Reform) Amendment Act received Royal Assent on 24 February 2020.

The Minister of Education (the Minister) has determined the contents of the disestablishment final report for institutes of technology and polytechnics (ITPs). At a high level, only audited financial statements and a statement of responsibility are required.

We provide comments below on reporting matters related to the final report, including guidance on disclosures related to the disestablishment basis of preparation, revenue accounting policies, Covid-19, and standards issued and not yet effective.

Final report contents
  • The final report is required to cover the three-month period from 1 January 2020 to 31 March 2020.
  • Audited financial statements are required. In particular, the financial statements must:
    • comply with generally accepted accounting practice (GAAP);
    • include the forecast financial statements prepared at the start of the financial year;
    • include comparative year information for the year ended 31 December 2019;
    • present both parent and group financial statements when an ITP has one or more subsidiaries;
    • include disclosures to highlight the fact that a shorter period (three months) is being reported and therefore the comparative and budget amounts are not entirely comparable with the 31 March 2020 actuals;
    • include any other information or explanations needed to fairly reflect the financial operations and financial position; and
    • be accompanied by a statement of responsibility.
  • Service performance information is not required. However, performance information will be reported in the first report of the new corresponding NZIST subsidiary for the period ending December 2020.
  • Other annual accountability requirements, such as equal employment disclosures, are not required.
Disestablishment basis of preparation The financial statements included in the final report will be prepared on a disestablishment basis of preparation, consistent with the basis of the 31 December 2019 financial statements.

We would not expect any changes to the measurement or classification of items between current/non-current due to the disestablishment basis of preparation. This also means disclosures, such as commitments, would continue to be disclosed as normal.

A disclosure highlighting the disestablishment basis of preparation, similar to the 31 December 2019 disclosure, will be required. An example disclosure is provided below:

Disestablishment basis of accounting

The Minister of Education announced the Government’s decisions on the Reform of Vocational Education proposals on 1 August 2019. The Education (Vocational Education and Training and Reform) Amendment Act (the Act) was enacted on 24 February 2020, to give effect to those reforms.


In essence, the Act reforms the delivery of vocational education in New Zealand by:
  • creating a new Crown entity, the New Zealand Institute of Skills and Technology (NZIST), and
  • converting all existing institutes of technology and polytechnics (ITPs) into crown entity companies, which will take over the operational activities of existing ITPs.
The Act disestablished the [Name of Entity] and transfers its assets and liabilities to a new company, [company name,] on [date]. As a result, the [Name of Entity] has prepared its financial statements on a disestablishment basis.

However, because vocational education will continue to be provided through the [company name], no change needs to be made to the measurement or classification of assets and liabilities. Decisions about the future of these assets and liabilities will be the responsibility of the new entity.
Revenue recognition The Minister and the Tertiary Education Commission (TEC) communicated prior to balance date that the TEC will not recover 2020 funding because of either, non-achievement of education performance indicators, or under-delivery during the 2020 year.

We have provided updated revenue accounting policies for these decisions:

Student Achievement Component funding

Student Achievement Component (SAC) funding is the Institute’s main source of operational funding from the Tertiary Education Commission (TEC). The Institute considers SAC funding to be non-exchange revenue.

31 December 2019 comparative year
The Institute recognises SAC funding as revenue when the course withdrawal date has passed, based on the number of eligible students enrolled in the course at that date and the value of the course.

31 March 2020 period
In response to the Covid-19 pandemic, the TEC has confirmed that it will not seek repayment of 2020 investment plan funding, which includes SAC funding, due to under-delivery in the 2020 year. Therefore, the Institute has recognised a receivable and revenue for the period ended 31 March 2020, for the remaining 2020 funding to be received after balance date.

Fees-free revenue

The Institute considers fees-free revenue is non-exchange revenue and has presented funding received as part of tuition fees. This is on the basis that receipts from the TEC are for payment on behalf of the student, as specified in the relevant funding mechanism.

31 December 2019 comparative year
The Institute recognises revenue when the course withdrawal date for an eligible student has passed.

31 March 2020 period
In response to the Covid-19 pandemic, the TEC has confirmed that it will not seek repayment of 2020 fees-free funding. Therefore, the Institute has recognised a receivable and revenue for the period ended 31 March 2020, for the remaining 2020 funding to be received after balance date.

Covid-19

The Covid-19 pandemic has affected the ITP sector and will affect an ITP’s financial statements. ITPs will need to consider how to effectively communicate the impact of Covid-19 to the users of the financial statements, including the uncertainties regarding future impacts and providing additional disclosures when required by GAAP.

A starting point for a Covid-19 disclosure is provided below. ITPs will need to ensure that their disclosure appropriately captures their specific facts and circumstances.

The effects of Covid-19 on the Institute

On 11 March 2020, the World Health Organisation declared the outbreak of Covid-19 a pandemic and two weeks later the New Zealand Government declared a State of National Emergency. The country was in lockdown at Alert Level 4 from 26 March to 27 April, and then remained in lockdown at Alert Level 3 until 13 May.

During this period, the Institute closed all delivery sites and brought forward the mid-semester break to align with the new timing of the school holidays in New Zealand. Most staff moved to a "work from home" model, and teaching was moved online after the mid-semester break.

After 13 May, the Institute has […Describe how operations have changed during Levels 2 and 1.]

The effect on our operations is reflected in these financial statements, based on the information available to the date these financial statements are signed. At this time, it is difficult to determine the full on going effect of Covid-19 and therefore some material uncertainties remain. There could also be other matters that affect the Institute in future, of which we are not yet aware.

We have also disclosed in the financial statements our significant assumptions and judgements regarding the future potential impacts that may have a material impact on the Institute. These uncertainties might have a material impact on the Institute in future.

The main impacts on the Institute’s financial statements due to Covid-19 are explained below:

Government funding
  • The TEC has confirmed that 2020 funding for Investment Plans and Fees Free will continue. The TEC has informed ITPs that it will not recover 2020 funding because of either non-achievement of Education Performance Indicators or under-delivery during the 2020 year.

    This provides the Institute with certainty that it can continue to deliver to students despite disruption caused by Covid-19. As a consequence of this, the Institute has recorded a receivable and revenue for the year ended 31 March 2020 of $xx for the remaining 2020 funding (both Investment Plan and Fees Free) to be received after balance date.
Student fees
  • [Disclose information about the extent of declines in international or domestic student fee revenue and plans to address this].
Accommodation revenue
  • [Disclose information about any significant changes in accommodation revenue].
Operating expenses

As a result of Covid-19, the Institute has incurred additional expenditure of $ … on:
  • [Describe the direct cost impact on salaries for staff, leases, and developing alternative methods of delivery to students.]
Valuation of investment property
  • The level of property transactions had significantly reduced during the Level 4 lockdown resulting in a material valuation uncertainty over commercial property values at 31 March 2020. Further information about the key valuation assumptions used in estimating the fair value of investment property at 31 March 2020 are provided in [cross reference to investment property note].
Valuation of land and buildings
  • The level of property transactions had significantly reduced during the Level 4 lockdown resulting in a material valuation uncertainty over land values at 31 March 2020.
  • [Disclose information about any building valuation uncertainties]
  • Further information about the key valuation assumptions used in estimating the fair value of land and buildings at 31 March 2020 are provided in [cross reference to the property, plant and equipment note].
Impairment of tangible and intangible assets
  • An impairment assessment has been completed for tangible and intangible assets. The result of this assessment was [explain whether any impairment loss has been recognised and cross-reference to where the impairment disclosures are made].
Other
  • [Include information on any other financial statement item that has been significantly affected. For example:
    • Financial investments, such as significant fair value movements in bonds, shares/funds before and after balance date. Significant movements since balance date should be explained.
    • Debtors, such as significant provisions for impairment.]
Standards issued and not yet effective disclosures Other than those noted below, the standards issued and not yet effective disclosures of the most recent 2019 TEI model financial statements remain relevant.

The New Zealand Accounting Standards Board has issued an exposure draft proposing to defer the adoption of PBE FRS 48 Service Performance Reporting by one year. Illustrative text for PBE FRS 48 is provided below for those ITPs that have not adopted PBE FRS 48 early.

PBE FRS 48 Service Performance Reporting


PBE FRS 48 replaces the service performance reporting requirements of PBE IPSAS 1 and is currently effective for reporting periods beginning on or after 1 January 2021.

The New Zealand Accounting Standards Board has recently issued an exposure draft that proposes to defer the adoption date of PBE FRS 48 by one year to reporting periods beginning on or after 1 January 2022.


The Institute has not yet determined how application of PBE FRS 48 will affect its statement of service performance. It does not plan to adopt the standard early.

Page created: 3 July 2020