An agent may need to recognise assets and liabilities from a principal-agent arrangement – but when and what?

A previous article on Applying GRAP 109 with other Standards of GRAP explained the transactions that each party to a principal-agent arrangement accounts for. An agent accounts for the revenue and expenses associated with performing the agency service, and may account for assets and liabilities from the arrangement in certain circumstances. GRAP 109 provides further guidance on two particular circumstances.

1. An agent holds resources on behalf of the principal

A principal-agent arrangement may give rise to the agent holding resources on behalf of the principal to undertake transactions with third parties. This may mean that the agent recognises assets and related liabilities for these resources. When the assets held by an agent for the principal are indistinguishable from the agent’s own assets, it may be appropriate for the agent to recognise such items as assets under its control. A corresponding liability is recognised when there is an obligation to transfer resources to the principal or third parties in respect of the assets held.

Example     The agent holds inventory items that are homogenous (identical) and cannot be separately identified, such as water reserves held by the agent to distribute to both its customers as well as to those of the principal.

2. An agent has certain rights and obligations in the arrangement

An agent may need to recognise assets and liabilities as a result of rights and obligations arising from principal-agent arrangements. The agent should assess whether it is appropriate to recognise receivables and payables for these rights and obligations by considering relevant facts and circumstances. GRAP 109 provides indicators that may be useful to assess whether an agent should recognise a receivable or a payable, as follows:

1. Debt is due to, or due by, the agent (i.e. the agent is the counterparty in the transaction with the third party).
2. The agent has a legal right to enforce collection of debt, or a legal obligation to settle debt.
3. The agent determines the amount that must be paid by, or to, the third party, based on policies determined by principal.
4. The agent determines the manner and timing of settlement.
5. The agent has the power and discretion to write off debts owing by third parties.
6. The agent has the obligation to undertake certain activities in terms of the binding arrangement.

Example     Where an agent is required to collect amounts owing to a principal or another entity, consideration is given to whether or not it is appropriate for the agent to recognise the amounts to be collected as a receivable, along with the corresponding liability to pay over the amounts still-to-be collected to the principal.

 Similarly, an agent may need to consider whether it should recognise a payable, along with a corresponding receivable, for amounts which it is obligated to settle on behalf of the principal.

Comment to the Board on ED 200

The ASB is conducting its post-implementation review of GRAP 109 Accounting by Principals and Agents. ED 200 is available on the ASB website with a comment deadline of 15 September 2023.

The Board welcomes comment from all stakeholders on any aspect of GRAP 109.

Comment may be provided in writing through questionnaires (available on the ED 200 webpage on the ASB website) or in any other written form to info@asb.co.za. Comment may also be provided through roundtable discussions. 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.