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| ACCOUNTING STANDARDS BOARD MEETING HELD ON 23 November 2011 |
| The Accounting Standards Board (the Board) considered the following at its meeting held on 23 November 2011: |
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| Technical Activities |
| Proposed Discussion Paper on Assets and Liabilities Arising from Non-contractual Arrangements that have the Features of Financial Instruments |
| When the Standard of GRAP on Financial Instruments was developed, the Board agreed to deal with the accounting for receivables and payables that arise from non-contractual arrangements as part of a separate project. As the first step of the project, the Board considered a proposed Discussion Paper that outlines the key issues in accounting for these types of transactions, the practices in other countries, analysing possible alternatives and to requests respondents’ views on a number of proposals. Board members debated the appropriateness of the approach for the measurement of assets and liabilities. The Discussion Paper proposes the application of amortised cost in the Standard of GRAP on Financial Instruments (GRAP 104) for non-contractual receivables, and the application of either the Standard of GRAP on Provisions, Contingent Liabilities and Contingent Assets (GRAP 19) or amortised cost in GRAP 104 for non-contractual payables based on whether the timing and amount of the cash flows of the liability are uncertain. The Board debated whether a different approach for non-contractual receivables and liabilities was justified, specifically when considering the possible implications on consolidation. The fact that there are two Standards of GRAP that exist for liabilities, and only one for assets, resulted in a more complex approach to the measurement of liabilities. It was noted that simplifying the measurement of non-contractual liabilities could only be done by eliminating the application of either GRAP 19 or GRAP 104. After some debate, it was agreed that the section dealing with the measurement alternatives of non-contractual liabilities should propose the application of GRAP 104, and should also outline the possible implications of applying such an approach to other non-contractual payables, such as rehabilitation provisions. The question in this section will also be expanded to request respondents’ views on whether the same approach should be applied for non-contractual receivables and payables. Members also debated the impact that discounting may have on inter-governmental transfers. Some argued that since no credit terms are agreed or provided, there should be no discounting. Others believed that because no credit terms are granted/agreed for any inter-governmental transfers, either by legislation or in practice, the exemption that already exists in GRAP 104 could be extended to inter-governmental transfers. It was agreed that the section dealing with the application of discounting to appropriations should be amended to note that inter-governmental transfers should not be discounted, on the basis that no credit terms are provided for the settlement of such transactions. This would be consistent with both legislation and practice in the public sector, resulting in discounting being exempted in terms of the existing guidance in GRAP 104. A separate discussion will also be included to outline the impact of the proposed approaches on certain transactions on consolidation. Members also considered the application of discounting on initial recognition. Some members argued that the application of discounting on initial recognition might be onerous. Members noted that because the Standard of GRAP on Revenue from Non-exchange Transactions (Taxes and Transfers) (GRAP 23) and the Standard of GRAP on Revenue from Exchange Transactions (GRAP 9) already require fair value on initial recognition, it could be argued that entities should have already applied discounting. But others noted that because GRAP 23 is not specific about how fair value should be determined, it could be interpreted that the transaction price is fair value on initial recognition. After some debate, the members agreed that since GRAP 104 already exempts certain transactions from discounting on initial recognition, the effect of discounting may be minimal. Apart from symmetry and the effect of the proposed approaches on consolidation, the Board debated the appropriateness of amortised cost for non-contractual receivables and payables. After considering the effect of discounting on initial recognition, it was agreed that amortised cost should be retained as the preferred approach for non-contractual receivables and payables, but that the arguments for supporting this approach should be strengthened in the Discussion Paper. While the purpose of the Discussion Paper is to deal with non-contractual receivables, the Board also agreed that the section on accounting for non-contractual receivables should note that the section dealing with contractual receivables is provided for information purposes to enable a comparison with the approach for non-contractual receivables. A similar change will be made to the section dealing with non-contractual liabilities. Subject to other clarification matters and some editorial matters, the Discussion Paper was unanimously approved for publication. As there are inter-dependencies between this Discussion Paper and the proposed amendments to IGRAP 1 Amendments to the Interpretation of Standards of GRAP on Applying the Probability Test on Initial Recognition of Exchange Revenue, which deals with assessing the probability of revenue on initial recognition, it was agreed that the comment period for these documents should coincide. Based on the complexity of the issues, a comment period ending mid-May 2012 was agreed. |
| Proposed Invitation to Comment and Exposure Draft on Amendments to the Interpretation of Standards of GRAP on Applying the Probability Test on Initial Recognition of Exchange Transactions (IGRAP 1)....... |
| The Board approved the Interpretation of Standards of GRAP on Applying the Probability Test on Initial Recognition of Exchange Revenue (IGRAP 1) 2009. This provided guidance on how an entity applies the probability test on initial recognition of exchange revenue that arises on the provision of goods and services provided on credit where there is uncertainty that the revenue will eventually be collected. However, with GRAP 23 becoming effective on 1 April 2012, and to ensure that the probability test is applied consistently to all revenue on initial recognition, the principles in IGRAP 1 needed to be extended to non-exchange transactions. At this meeting, the Board considered the proposed Invitation to Comment (ITC) and Exposure Draft on Amendments to the Interpretation of Standards of GRAP on Applying the Probability Test on Initial Recognition of Exchange Transactions (IGRAP 1). Even though some project group members proposed the retrospective application of the principles in the proposed IGRAP, the Board agreed that the amended IGRAP 1 should propose the prospective application of the principles as not all entities may have the information available to assess probability in prior periods. The ITC and the Exposure Draft were unanimously approved for issue, with comment due by mid-May 2012. |
| The Invitation to comment on the Proposed Reporting Framework for 2012/13 and Amendments to Directive 5 |
| The reporting framework that should be applied by entities in preparing their financial statements for a particular reporting period is issued on an annual basis by the Board. At its November meeting, the Board considered the proposed reporting framework for 2012/2013 to be issued for exposure. This was done so that the final reporting framework for 2012/2013 is available for publication by 1 April 2012. This Exposure Draft also propose the deletion of appendices A to D (which outline the reporting frameworks for the 2008/09, 2009/10 and 2010/11 reporting periods). In doing so, the assumption was made that if entities have not prepared financial statements for these periods, they should use the most recently published appendix to prepare their financial statements. The effective date of the following Standards of GRAP has been published:
There are no differences between these Standards applied by the various entities that are required to apply Standards of GRAP. Consequently, the Exposure Draft contains only one appendix setting out reporting framework for the 2012/13 period. The Exposure Draft was unanimously approved for publication with comment due by 15 February 2012. |
| Amended transitional provisions for the initial adoption of GRAP 18, GRAP 20, GRAP 105, GRAP 106 and GRAP 107 |
| An Invitation to Comment on the proposed transitional provisions for the initial adoption of the Standards of GRAP on Segment Reporting (GRAP 18)(2011), Transfer of Functions Between Entities Under Common Control (GRAP 105), Transfer of Functions Between Entities Not Under Common Control (GRAP 106) and Mergers (GRAP 107) (ED 85) was approved by the Board at its June 2011. Two comment letters were received at the close of the comment period from respondents who supported the proposed transitional provisions. The Board unanimously approved the inclusion of the transitional provisions for GRAP 18, 105, 106 and 107 in Directives 2 to 4 and 8. The ASB also considered the comment received on ED 86. This outlines the proposed transitional provisions for the initial adoption of the Standard of GRAP on Related Party Disclosures (GRAP 20). In addition to comment received during discussions held with stakeholders at various meetings and workshops, five written comment letters were received on this Exposure Draft. The proposed transitional provisions required retrospective application of the Standard, except for the detailed disclosures of transactions undertaken with various categories of related parties. As a result of possible differences between IPSAS 20 Related Party Disclosures (which entities have been applying) and GRAP 20, the Exposure Draft noted that comparative information should only be provided for these disclosures if such information was previously disclosed in the financial statements. A respondent noted that, as drafted, the transitional provisions do not provide sufficient clarity about the information that should, or should not, be disclosed about certain related party transactions that are exempt from disclosure. The Board unanimously approved the transitional provisions on the initial adoption of GRAP 20 for inclusion in Directives 2 to 4 and 8 subject to clarifying the transitional provisions on this matter. |
| Amended Directive on The Application of the Standards of GRAP by Trading Entities |
| At its July 2011 meeting, the Board approved an Exposure Draft that outlined proposals to extend the application of Standards of GRAP to trading entities. At its November meeting, the Board considered the oral comment received on proposals outlined in the Exposure Draft as received during various meetings and workshops, together with the written comment received from stakeholders. The Board noted that most of the amendments proposed were of an editorial nature or entailed additional guidance to clarify areas of potential confusion. In response to requests from stakeholders to defer the effective date by one year in line with the Board’s operating principle that new requirements should be available in the public domain one year before the effective date for implementation the final Directive on The Application of the Standards of GRAP by Trading Entities was unanimously approved with an effective date of 1 April 2013. |
| Project plan for the GRAP Simplification Project |
| As part of the Board’s deliberations on the comment received on Discussion Paper 5 Comparison of the Standards of GRAP to the IFRS for SMEs, it concluded that differential reporting and the IFRS for SMEs as a reporting framework, is not appropriate for the South African public sector. The Board acknowledged, however, that certain changes may need to be made to the existing Standards of GRAP in assessing whether they could be simplified. Consequently, a “GRAP simplification” project was added to the Board’s work programme. At this meeting, the Board considered the project plan for the “GRAP simplification” project and agreed that the project should comprise two components:
These components will be treated as two separate phases of the project. The known amendments will form part of Phase I of the project because work on the known amendments can be progressed faster than amendments that are yet to be identified. It is anticipated that while work and consultation is being undertaken on the Phase I Exposure Draft, preliminary consultation work can be undertaken on Phase II, which will address the broader simplification project. Phase I of the project will include amendments to some principles in the existing Standards of GRAP:
Phase II of the project will initially involve research using information such as the General Reports published by the Auditor-General to identify specific areas where simplification may be necessary. This phase will also involve discussions with consultants and specific stakeholders to identify specific focus areas that the project should focus on. The next step will then be to develop a type of questionnaire or standard document that can be used during the consultation process to prompt discussion on the various principles within the Standards dealing with the specifically identified areas. Board members again confirmed the need for adequate liaison between the Board and its Secretariat and the team developing the Information Financial Management System (IFMS) to ensure that any new or amended principles are adequately built into the system. |
| International Developments |
| The International Public Sector Accounting Standards Board (IPSASB) has recently issued two pronouncements which were issued concurrently by the Board. The purpose of this is to obtain comment from a South African perspective that can be fed into the international process. The Proposed Recommended Practice Guideline (Guideline) on Reporting on the Long-Term Sustainability of a Public Sector Entity’s Finances (IPSAS ED 46) deals with the reporting on the long-term sustainability of a government entity’s finances. This reporting is important since it provides information about the sustainability of a government’s activities over a longer time horizon compared to the snapshot of the assets and liabilities that are provided in the financial statements at a particular point in time. Comment on the local concurrent Exposure Draft (ED 92) is due by 15 February 2012 to enable the Board to review and collate responses received before making its submission to the IPSASB. The IPSASB also issued a Consultation Paper on Reporting Service Performance Information. This proposes a principles-based approach in developing a consistent framework for reporting service performance information of public sector entities. The IPSASB proposes that the reporting framework includes information on the scope of the service performance information reported, the public sector entity’s objectives, the achievement of those objectives and a narrative discussion of such achievement. The Consultation Paper also proposes standardised service performance information terminology and working definitions to enhance users’ understanding of the service performance information to be reported as outlined in the proposed reporting framework. Comment on the local concurrent Exposure Draft (ED 93) is due by 15 March 2012. |
| Next ASB Meeting |
| The next meeting of the Board is scheduled for 27 March 2012. Observers are welcome at these meetings, but space is limited. In order to accommodate observers at 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. |