GRAP for small entities: What did the Board decide?

The Board researched the financial reporting environment of small entities to understand if they should have different reporting requirements (see article on “Small entities”: Should there be different reporting requirements for them? [ 3 November article]). The Research Paper has been published on the ASB’s website and can be accessed here.

The Board considered a number of factors in deciding whether there should be different requirements for small entities. These factors included the legislative environment, the impact on consolidations and other reporting requirements, the effectiveness of solutions to address the problem, and stakeholder views.

• Legislative environment

The Board noted that, to support current legislative reporting requirements, a consistent reporting framework is needed to hold entities accountable.

• Impact on consolidations and other reporting requirements

To meet existing reporting requirements, areas were identified where consistent information should be available for all entities, including small entities. For example, legislated consolidations prepared by National and provincial treasuries in terms of the Public Finance Management Act, and consolidations of an economic entity as required by Standards of GRAP.

• Effectiveness to address the problem

The Board considered the challenges and issues (i.e. the problem) in the environment and the actions that could best address the problem. See a previous article on Small entities: What challenges and issues do these entities have to prepare GRAP financial statements? [17 November article]

Since the problem mostly relates to constrained human and financial resources, it would not be solved by introducing a different reporting framework or guidance for small entities. It was further noted that the issues are not unique to small entities and many entities in the public sector struggle with similar issues.

• Stakeholder views

Most stakeholders did not support a different reporting framework for small entities, for the following reasons:

• Concerns expressed by users about the information they need for small entities no longer being available in financial statements.
• Entities cannot get the basics right and adding another framework would not resolve the issues.

What did the Board decide?

The Board decided not to introduce reporting requirements or guidance for small entities. The Board instead identified other actions that would be more appropriate for the environment, including:

• A number of the Board’s projects and related guidance would assist entities with their accounting challenges. These are identified in the Research Paper. Most notably, the Guideline on The Application of Materiality to Financial Statements contains guidance that would be useful to address some of these challenges.
• Publishing the results of the research and the resources available in the Research Paper may assist entities.
• Issues that are outside the Board’s mandate to address (inherent to small entities and their environment) have been communicated to stakeholders that may be able to assist small entities.

The views expressed in this article are those of Secretariat and not the ASB Board.