The surplus or deficit for the year is the final result shown in the Statement of Financial Performance.

In the Statement of Changes in Net Assets, that result is added to the accumulated surplus or deficit. If there was a surplus, the accumulated balance grows. If there was a deficit, the accumulated balance becomes smaller.

Over time, this balance shows if the government’s financial position is getting stronger or weaker.

Sometimes the government may move some of their extra money from accumulated surplus into special savings called reserves. These could be housing reserves or capital replacement reserves. This is done to set the money aside for a specific purpose. These moves happen within net assets and do not change the surplus or deficit for the year.

Most government entities do not have owners like private companies. Some entities, however, have a “parent” in government. For example, a national department may act as the owner of a public entity.

Sometimes the parent-owner gives money to the entity. This may be to help it clear old loans or make its financial position stronger. This type of money is called an owner contribution.

The contribution increases the entity’s net assets, but it is not recorded as revenue. It also does not affect the surplus or deficit for the year. This is because the money was not earned from providing services. It was given by the parent-owner to support the entity.

Owner contributions are different from a grant or transfer. A grant is money given to pay for programmes or build assets like clinics, roads, or schools. Grants are recorded as revenue in the Statement of Financial Performance. They increase income for the year and affect the surplus or deficit.

This difference is important because:

• Owner contributions – Show support from the owner. They do not show how well the entity performed in delivering services.
• Grants and transfers – These are linked to operations or projects. They form part of the entity’s performance.

This difference helps citizens see if the government can support itself, or if it relies on extra help from its parent-owner.

Sometimes government finds a mistake in records from a previous year. The financial statements for that year would already have been finalised. Thus the mistake cannot be corrected through the current year’s surplus or deficit.

Instead, government adjusts the opening balance of net assets. This method is called a restatement.

A restatement fixes the past numbers as if the mistake never happened. This helps make sure that the current year’s results show only the current year’s activities and are not affected by past errors.

The details of these corrections are explained in the Notes to the Financial Statements. The government must clearly explain what was corrected and why.

The government follows accounting rules called GRAP Standards. These rules are issued by the ASB. Sometimes the ASB changes an existing rule. Sometimes the government decides there is a clearer way to record something. This may result in a change in accounting policy.

When this happens, the government usually applies the change to past years as well. This means it adjusts old numbers as if the new accounting rule was always used. It does this by:

• Adjusting the opening balance of the previous year; and
• Restating the old numbers.

It is important to do this because we want to compare “apples with apples” when looking at different years. If the numbers changed all of a sudden because of a new rule, it would be confusing.

Sometimes it is not practical to go back and adjust the old numbers. When this happens, the government must explain this clearly in the Notes to the Financial Statements.

Some assets, like land and buildings used to provide services, may increase in value over time. In some cases, the government updates these values to reflect current market conditions. This is known as revaluation.

If the value of an asset increases, the increase is recorded in a Revaluation Reserve within net assets. It is not treated as profit and does not affect the surplus or deficit for the year. Instead, it increases the entity’s overall net worth.

If the value decreases, the decrease first lowers any existing balance of the revaluation reserve for that asset. Any remaining decrease is recorded as an expense.

Over time, as the asset is used or sold, the amounts in the reserve are moved into accumulated surplus. This shows that net assets include more than just cash. They also include changes in the value of infrastructure, land, and buildings held for service delivery.

Reserves are special savings set aside for a specific purpose like housing or infrastructure repair. The statement shows if the government added money to these savings or spent some during the year.