Accounting Standards Board requests stakeholder comment on accounting by principals and agents
- March 13, 2023
- Posted by: Julianne Vissie
- Category: Blog
The Standard of GRAP on Accounting by Principals and Agents (GRAP 109) was effective 1 April 2019. Stakeholders asked the Accounting Standards Board (the Board) to assess if the Standard is achieving its intended objectives and to identify difficulties experienced in applying the Standard across all spheres of government. In response, the Board approved the Invitation to Participate in the Post-implementation Review of GRAP 109 (ED 200) with a comment deadline of 15 September 2023.
What are the focus areas of the review?
The Board welcomes comment from all stakeholders on any aspect of GRAP 109.
From initial work done by the Board to understand issues that exist with the application of GRAP 109, ED 200 focuses on the following areas:
| Area | Issue |
| Identifying principal-agent arrangements |
There is uncertainty about when an arrangement meets the definition of a principal-agent arrangement. In particular: – When is an arrangement a binding arrangement? – How are principal-agent arrangements distinguished from other arrangements where three or more parties are involved? – How should substance over form be applied? – What types of transactions could be undertaken with third parties in a principal-agent arrangement? |
| Identifying roles of parties to a principal-agent arrangement | Only if an arrangement is a principal-agent arrangement does an entity assess whether it is acting as the principal or as the agent. However, this assessment is sometimes made without first assessing whether an arrangement is in fact a principal-agent arrangement. |
| Applying materiality to principal-agent arrangements | Materiality applies to accounting by principals and agents but it may not be clear how it should be applied. |
| Recognising assets and liabilities as an agent | GRAP 109 provides guidance on the circumstances when it would be appropriate for an agent to recognise assets and liabilities from the arrangement and includes indicators to help an agent with the assessment. However, there is uncertainty about the circumstances when the indicators would be met. |
| Disclosing information about principal-agent arrangements in the financial statements | Principals and agents need to provide information in financial statements to enable users to make decisions about whether principal-agent arrangements effectively meet the purpose of the arrangements in delivering services, and to hold the parties accountable. The information provided is not useful when it is boilerplate and when the disclosures are incomplete. |
A series of articles that unpack each of the above focus areas will follow in coming months.
Based on the results of the review, the Board will decide whether amendments are required to GRAP 109, and whether any other actions should be taken. This will be a next phase of the project.
Who should comment and how can you comment on ED 200?
The ASB invites all preparers, users and auditors of financial statements to participate in ED 200. Preparers are those responsible for preparing financial statements and those that prepare information used in the financial statements. Users of financial statements are service recipients, resource providers and their representatives. These users comprise lenders, creditors, donors and others that provide resources voluntarily, Parliament, legislatures, municipal councillors or other relevant authorities and taxpayers.
The Secretariat will obtain feedback from stakeholders through questionnaires (available on the ED 200 webpage on the ASB website), roundtable discussions and direct consultations. Contact elizna@asb.co.za to be invited to a roundtable discussion.
Disclaimer
The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.