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ACCOUNTING STANDARDS BOARD MEETING HELD ON 26 JULY 2011

The Accounting Standards Board (the Board) considered the following at its meeting held on 26 July 2011. :

The proposed Improvements to the Standards of GRAP (2011).
A proposed Exposure Draft on the Proposal to Extend the Application of Standards of GRAP to Trading Entities.
The proposed Transitional Provisions for the Initial Adoption of the Standard of GRAP on Related Party Disclosures (GRAP 20).
The amended Preface to the Standards of GRAP and Preface to Interpretations of Standards of GRAP following the comment received on Exposure Drafts proposing amendments to these Prefaces.
A draft research paper on Differential Reporting in the Public Sector.

The Board also received an update on its project, Assets and Liabilities that Arise from Non-contractual Arrangements that have the Features of Financial Instruments.

Technical Activities

Improvements to the Standards of GRAP (2011)

The Board considered a draft Invitation to Comment and Exposure Draft on Improvements to Standards of GRAP and Interpretation of Standards of GRAP. The proposed Exposure Draft consisted of the following four sections:

Part one - Amendments that resulted from changes made to
- the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as part of its 2010 Improvements to IFRSs, and
- the International Public Sector Accounting Standards (IPSASs) issued by the International Public Sector Accounting Standards Board (IPSASB) as part of its 2010 Improvements to IPSASs.
Part two – Amendments to Standards of GRAP that required clarification following comment received on Discussion Paper 5 Comparison of the Standards of GRAP to the IFRS for SMEs (DP 5).
Part three –The full text of the revised Standards of GRAP on Agriculture (GRAP 101) and Intangible Assets (GRAP 102) aligning the accounting treatment and text with IPSASs on Agriculture (IPSAS 27) and Intangible Assets (IPSAS 31).
Part four – The proposed Interpretation of Standards of GRAP on Intangible Assets – Web Site Costs, about which interpretative guidance was previously included in GRAP 102.

As with the Board’s first Improvements Project, amendments are only proposed to those Standards of GRAP that have been issued by the Board and for which an effective date has been determined by the Minister of Finance.

The amendments proposed to the affected Standards of GRAP comprise matters of clarification. No matters of principle have been added or amended during this process as these matters have been added as separate projects to the Board’s work programme. The Board agreed with the project group’s proposal that parts one and two should be issued separately from parts three and four so that specific attention could be devoted by stakeholders to the amendments proposed in GRAP 101 and GRAP 102. The amendments proposed in parts one and two will be combined and issued in a single Exposure Draft while the amendments to GRAP 101 and GRAP 102 will be issued as two separate Exposure Drafts. The proposed Interpretation of Standards of GRAP will be issued as the fourth Exposure Draft forming part of this project.

The Board also agreed that the specific question requesting respondents’ views on whether entities should be allowed to change their accounting policy from the revaluation model to the cost model in cases in which it is concluded that an onerous accounting policy choice was made on the initial adoption of the Standard of GRAP on Property, Plant and Equipment (GRAP 17), should be expanded to other Standards of GRAP, namely the Standard of GRAP on Investment Property (GRAP 16) and GRAP 102. This is likely to be dealt with as part of the GRAP Simplification project if respondents support such an amendment.

On the specific amendments proposed in the Exposure Draft, the Board agreed that:

Amendments proposed to GRAP 16 and GRAP 17 should be applied prospectively.
The appendix that includes illustrative examples in GRAP 101 should be adjusted to illustrate a public sector scenario. If this is not workable, however, then the appendix should be deleted.
The amendments to the disclosure requirements proposed in GRAP 102 should also be included in GRAP 16 and GRAP 17 to ensure consistency between the three Standards.
if the transaction occurred within normal supplier and/or client/recipient relationships on terms and conditions no more or less favourable than those which can reasonably be expected if the entity deals with that individual entity or person under similar circumstances;
and when the terms and conditions, established by that reporting entity’s legal mandate, are within the normal operating parameters.

Subject to the above and other minor editorial changes, the four Exposure Drafts were unanimously approved for issue with a comment period of three months.

Exposure Draft on the Proposal to Extend the Application of Standards of GRAP to Trading Entities

The Preface to the Standards of GRAP currently requires trading entities to apply Statements of Generally Accepted Accounting Practice (GAAP). An exemption to apply Standards of GRAP has been granted in the past by the National Treasury on the basis that such entities operate on a cost recovery basis, as opposed to a profit generating one. At its meeting in June, the Board agreed that an Exposure Draft should be issued requesting respondents’ views on a proposal to change the Reporting Framework for trading entities from Statements of GAAP to Standards of GRAP. The Board also agreed that comment should be requested on proposed transitional provisions for those trading entities that migrate from:

Statements of GAAP to Standards of GRAP, and

a modified cash basis of accounting to Standards of GRAP.

At its most recent meeting in July, the Board considered the proposed Exposure Draft reflecting its previous decisions. It approved the Exposure Draft with comment closing on 31 October 2011.

The Board acknowledged that the Treasury Regulations would require amendments to reflect the proposed requirement to change the Reporting Framework. A paragraph was included in the Exposure Draft explaining that the amendments proposed are based on the assumption that changes will be made to the Treasury Regulations.

Proposed Transitional Provisions for the Initial Adoption of the Standard of GRAP on Related Party Disclosures (GRAP 20)

Following the Board’s approval of the Standard of GRAP on Related Party Disclosures (GRAP 20) at its June Board meeting, the Board considered the proposed transitional arrangements to be applied by entities on the initial adoption of GRAP 20.

In recent years entities were required to apply IPSAS 20 Related Party Disclosure in terms of the GRAP Reporting Framework prescribed in Directive 5 Determining the GRAP Reporting Framework. The Board agreed to the retrospective application of GRAP 20, except for the requirement to disclose the nature of related party relationships and information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect on the financial statements of the relationship. Since these disclosure requirements are not as specific in IPSAS 20, some entities may not have disclosed this information. The proposed transitional provisions require that, for the disclosure required by GRAP 20.27 and .28 the following transitional provisions should be applied.

Where an entity previously disclosed this information in the financial statements (eg as a result of specific legislative requirements), then comparative information is required in the year that an entity adopts the Standard.
If an entity previously did not disclose this information in the financial statements, information is only provided for the current year when the entity initially adopts the Standard.

Assets and Liabilities that Arise from Non-contractual Arrangements that have the Features of Financial Instruments

At its February meeting, the Board considered an Issues Paper on Assets and Liabilities that Arise from Non-contractual Arrangements that have the Features of Financial Instruments. These assets and liabilities typically include receivables and are payable for taxes, fines, appropriations, grants and fees paid in terms of legislation. The Board agreed that a Discussion Paper, focusing on assets only, should be developed. This would propose that the accounting alternatives should be developed based on the principles included in existing Standards of GRAP, ie using the principles in GRAP 104 on Financial Instruments, or using the principles in GRAP 9 Revenue from Exchange Transactions, GRAP 23 on Revenue From Non-exchange Transactions (Taxes and Transfers) and GRAP 26 Impairment of Cash-generating Assets).

The Secretariat developed a draft Discussion Paper that was discussed at a project group meeting held on 6 July 2011. At the project group, the participants noted the following.

The project should deal with both assets and liabilities.
The project group members expressed a clear preference regarding the approach to measuring these assets and liabilities. It was agreed that the financial instrument approach should be put forward in the Paper as the preferred view, although alternative approaches should also be included with explanatory comment as to why they were not supported.
The guidance issued by the Board could possibly be in the form of an Interpretation of GRAP 104.

The proposed Discussion Paper will be tabled at the November Board meeting.

General

Next ASB Meeting

The next meeting of the Board is scheduled for 23 November 2011. Observers are welcome at these meetings, but space is limited. In order to accommodate observers at ASB meetings interested parties are asked to complete the registration form available on its website.

Accessing documents issued by the ASB

Persons and organisations interested in the activities of the ASB should monitor the website, www.asb.co.za, or contact info@asb.co.za, to be advised of the release of the latest Exposure Drafts for public comment.