HomeNewsBlogMessage from CEO – Do exemptions from the Standards really help entities?

Message from CEO – Do exemptions from the Standards really help entities?

Increasingly, the National Treasury and the ASB are asked by specific entities to grant them exemptions from part or all of a Standard of GRAP. The exemptions usually relate to preparers that find the requirements of the Standards complex and impracticable to apply. The granting of an exemption is not a simple process, and most often will not have the relief desired by individual entities.

How are exemptions granted?

Firstly, it is not the ASB that grants exemptions from the Standards. The Standards of GRAP are issued in terms of the PFMA. As a result, they are ‘secondary legislation’. The Minister of Finance approves the effective dates of the Standards, which essentially ‘sign the Standards into law.’ As the Minister of Finance legislates the use of the Standards, the Minister is the one who grants exemptions. However, it is not as simple as the Minister himself or herself granting the exemption; there is a public consultation process that must be followed (regardless of the type of exemption) and will result in a Gazette being published outlining the exemption.

How do exemptions affect the financial statements?

Applying the Standards of GRAP should result in fair presentation of an entity’s financial affairs. If an exemption affects the fair presentation of the financial statements, the entity will need to provide additional disclosure about how the financial statements would have been presented if the exemption was not applied. The Secretariat published a Frequently Asked Question explaining how exemptions affect the financial statements. [Access FAQ 2.11 What are the implications on compliance with the Standards of GRAP when an exemption is granted by the Minister of Finance?]

Do exemptions really help? Are they really needed?

While the exemption may be ‘legally’ valid, if it does not result in fair presentation of the financial statements, there is additional disclosure required in the financial statements. This likely does not provide the desired relief from the Standards requested by entities.

Some of the exemptions requested in the past relate to the recognition and/or measurement of items in the financial statements. The Standards have built in ‘assistance’ that guides when it may be inappropriate to recognise items because there is no reliable measure, or no reliable data available before or at a particular point. The overarching principle is that items should not be recognised or reflected in the financial statements if the measure is unreliable, would mislead users, or not result in fair presentation. For example, if the range of possible values for an asset is so wide, reflecting any value would be inappropriate and would mislead users. The other ‘assistance’ available to preparers is the application of materiality [Access the Fact Sheet on Materiality].

As a closing remark, if the principles in the Standards are applied as intended, there is no need for exemptions!