Can a public sector entity that applies IFRS use a Standard of GRAP to formulate an accounting policy?

Some public sector entities apply International Financial Reporting Standards (IFRS^® Standards). To do so, entities apply IFRS if they meet the requirements in Directive 12 on The Selection of an Appropriate Reporting Framework by Public Entities. These entities often undertake transactions for which an IFRS Standard does not exist. Questions have been raised about whether they may formulate an accounting policy using Standards of GRAP in the absence of an IFRS Standard that deals with the specific transaction or event.

What should an entity consider when it wants to formulate an accounting policy?

IAS 8 on Accounting Policies, Changes in Accounting Estimates and Errors indicates that an entity may formulate an accounting policy using the pronouncements of other standard-setting bodies in the absence of an IFRS Standard after considering, in descending order:

• the requirements in IFRS dealing with similar and related issues; and
• the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework for Financial Reporting (hereafter referred to as “the IFRS Conceptual Framework”).

The accounting policy should result in information relevant to the economic decision-making needs of users while also meeting the qualitative characteristics of the IFRS Conceptual Framework.

When can a Standard of GRAP be used to formulate an accounting policy?

Directive 14 on The Application of Standards of GRAP by Public Entities that Apply IFRS^® Standards explains that a Standard of GRAP cannot be considered to formulate an accounting policy if:

• the definitions, recognition criteria, measurement concepts of assets, liabilities, income and expenses in the IFRS Conceptual Framework have not been considered; and
• applying a Standard of GRAP does not meet the qualitative characteristics in the IFRS Conceptual Framework, and/or is not relevant to the economic decision-making needs of users.

In addition, the principles in a Standard of GRAP cannot be considered if:

• the principles in the Standard of GRAP, and/or the GRAP Conceptual Framework conflict with the requirements in the IFRS Standards and/or the IFRS Conceptual Framework. For example, when an entity receives an asset that can be used without directly giving approximately equal value in return, the principles in GRAP 23 on Revenue from Non-exchange Transactions (Taxes and Transfers) may not be considered to develop an accounting policy. This is because the principles in GRAP 23 conflict with the requirements in IAS 20 on Accounting for Government Grants and Disclosure of Government Assistance;
• an IFRS Standard exists for the transaction, other event or condition, or when the entity wants to achieve a specific outcome that will be different had the requirements in the IFRS Standards and/or the IFRS Conceptual Framework been applied. For example, when an entity needs to develop an accounting policy on impairment of an asset that is used for service delivery rather than to generate cash inflows.
• an IFRS Standard exists that deals with a similar or related issue, for example, when an entity acquires an art collection considered a National Heritage and it intends to hold the collection indefinitely for capital appreciation; and
• the Standard of GRAP deals with specific presentation and disclosures requirements for which an equivalent IFRS Standard does not exist, for example, GRAP 24 on Presentation of Budget Information in Financial Statements, or the Standard is not applicable to all entities, for example, GRAP 18 on Segment Reporting.

When the pronouncements of other standard-setters are used to formulate an accounting policy, the entity should not adopt the Standard as part of its IFRS Reporting Framework – the Standard is merely considered to develop an accounting policy.

Directive 14, which should be read in conjunction with the requirements in IAS 8, became effective for reporting periods commencing on or after 1 April 2021. The Directive can be accessed on Directives – ASB.