Applying materiality to principal-agent arrangements

The Accounting Standards Board 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 requirements to consider materiality

Entities apply materiality when accounting and reporting on transactions in the financial statements. This is necessary to ensure the information provided to users is relevant for decision making purposes and to hold entities accountable.

GRAP 1 on Presentation of Financial Statements requires entities to present each material class of similar items separately in the financial statements. Items of a dissimilar nature or function are presented separately unless they are immaterial. Applying the concept of materiality also means that a specific disclosure requirement in a Standard of GRAP need not be satisfied if the information is immaterial. GRAP 109 similarly requires the information to be provided for each material principal-agent arrangement and in aggregate for other principal-agent arrangements. The Guideline on The Application of Materiality to Financial Statements explains materiality further and provides considerations to assist entities to determine materiality qualitatively and quantitatively.

Assessing whether the information on principal-agent arrangements is material

The requirements of GRAP 1 and GRAP 109 mean that materiality should be applied when making accounting and reporting decisions about principal-agent arrangements, and entities should consider both the qualitative and quantitative aspects of each arrangement.

In the public sector, the principal may not remunerate the agent for the agency service, or the remuneration may be nominal. The transactions that the agent undertakes for the benefit of the principal with third parties may also not be financial transactions, but rather interactions where the agent represents the interest of the principal. In these instances the assessment of the qualitative aspects of the arrangement may be particularly relevant, even more so than the assessment of the quantitative aspects.

Comment to the Board on ED 200

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 format 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.