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The Board recently approved amendments to GRAP 109 on Accounting by Principals and Agents. The amendments more clearly explain the assessment process in concluding whether an arrangement is a principal-agent arrangement. Guidance is now grouped by topic, and additional clarification is included in the areas noted below. |
Guidance on binding arrangements
- GRAP 109 explains that a binding arrangement, that establishes enforceable rights and obligations for the parties to an arrangement, may arise from a combination of mechanisms, such as a contract, legislation or similar means, and/or the operation of law. The amendments to GRAP 109 clarify that these mechanisms, as applicable, should be read together to identify all the rights and obligations to determine whether a principal-agent arrangement exists.
- New guidance clarifies that assessing whether a binding arrangement exists requires judgement.
Assessing whether the definition of a principal-agent arrangement is met
The following clarifications are included:
- First assess whether an arrangement is a principal-agent arrangement before accounting for the arrangement using GRAP 109.
- Substance over form is applied to assess the nature of the arrangement, irrespective of legal opinions or legally assigned terms.
- When an arrangement is modified, reassess the arrangement to determine whether the arrangement continues to be a principal-agent arrangement. The amendments also include examples that illustrate a modification.
- The “direction” by the principal to the agent, as described in the definitions, does not imply an active instruction – it can be established through the rights and obligations in the binding arrangement.
- A single binding arrangement may establish multiple rights and obligations for different activities and related transactions. However, not all of these activities and transactions will necessarily meet the definition of a principal-agent arrangement. The arrangement is analysed for each activity, transaction, or group of similar transactions.
- A principal’s rights and obligations in relation to transactions with third parties are substantive, while the agent’s rights and obligations in relation to these transactions are protective or administrative in nature.
Next steps
The Minister of Finance needs to determine an effective date for the amendments to GRAP 109 – until a date is set, entities may not early adopt the amendments. In the meantime, entities can familiarise themselves with the amendments.
Disclaimer
This post 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.