Identifying principal-agent arrangements – the GRAP 109 definition

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.

GRAP 109 defines a principal-agent arrangement as follows:

A binding arrangement in which one entity (an agent), undertakes transactions with third parties on behalf, and for the benefit of, another entity (the principal).

There are other definitions and descriptions for principal-agent arrangements/relationships in, for example, legal or other accounting literature.

Entities that prepare financial statements using Standards of GRAP only consider the GRAP 109 definition to assess whether their arrangement is a principal-agent arrangement for financial reporting purposes.

Elements of the definition

The GRAP 109 definition has the following elements:

• There is a binding arrangement.
• There are transactions (financial or otherwise) with third parties.
• The agent undertakes the transactions with third parties on behalf of and for the benefit of the principal.

These elements were discussed in previous articles.

Only if an arrangement meets all the elements of the GRAP 109 definition is it a principal-agent arrangement for financial reporting purposes.

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 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.