Did you know that the Standards of GRAP are law?

There has been an increased debate over the last year about whether legal prescripts take precedence over the Standards of GRAP when preparing the financial statements.

In our article last week [Link to article on 16 March] we explained the principle of applying substance over form. Substance over form means that the financial statements should faithfully reflect the economic phenomena represented by transactions and events rather than their legal form. Entities obtain legal opinions to interpret the Standards of GRAP, the result being that lawyers often apply legal jurisprudence when providing opinions as opposed to understanding the principles in the Standards of GRAP (in their entirety).  There is also a lack of awareness about the legal status of the Standards of GRAP.

The ASB is mandated by the Public Finance Management Act to set Standards of GRAP for a variety of entities in the public sector. The Minister of Finance prescribes the application of the Standards to specific entities by issuing a regulation in a Government Gazette. This means that the Standards of GRAP are issued in terms of the law. As a result, they are “secondary legislation”. This means that the Standards of GRAP, along with any other pronouncements that the Board issue, are legally required to be applied by entities in preparing their financial statements. It also means that the views expressed by the Board in its pronouncements on accounting for specific transactions or events, the interpretation of certain matters, etc. have legal standing.