GRAP 104(R) – the word all finance people dread this year! We know that entities are adopting the revised Standard and preparers have been generous in sharing their experiences on various platforms, including our interactive sessions. During our sessions, we heard views being expressed or questions asked that we thought needed clarification.
The myths
At the outset, it is important to remember that while all entities probably have financial instruments because they have a bank account, creditors and maybe a few debtors, not all entities have complex financial instruments. If entities do not have complex financial instruments, the application of the Standard is straight forward. Even if entities have complex financial instruments like large debtors’ books, loans, etc., these types of entities often employ highly skilled financial professionals that can understand and apply the requirements of the Standards. When we talk about the adoption of the revised Standard, the complexity, the extent (volume), skills and capacity of finance officials at entities and materiality are important considerations.
Myth #1 – Entities will not be able to adopt the revised Standard if they don’t appoint a consultant
This is not true, specifically if an entity has simple financial instruments. Consultants may be needed where entities, for example, have specialised instruments, large volumes of instruments, and they do not have specialist skills and capacity internally. We have brief guidance on our website explaining The Use of Consultants which may help to understand when using consultants may be appropriate.
Myth #2 – Actuaries and actuarial models must be used
Actuaries and complex mathematical models are not needed for simple instruments. Complex models are likely needed where there is a high degree of estimation needed to measure an instrument (or group of instruments). Mathematical models are not necessary, for example, when measuring the values of bank accounts, investments in low-risk financial institutions, and small debtors’ books.
Myth #3 – The length of entities’ financial instruments will increase because of all the new financial instrument disclosures
There are some new disclosures in GRAP 104(R); they mostly relate to changes to the classification of instruments and impairment. If entities have a range of instruments and significant financial assets where the new impairment model was applied, then there could be different (not necessarily more) information disclosed. Entities must apply materiality when they prepare their financial statements. If they only have simple financial instruments, then the disclosure should reflect this simplicity; certain disclosures will not be relevant to the users of the financial statements. Each disclosure requirement should be evaluated against the types of instruments held and whether providing the information adds value to users.
Where to find help?
There are a range of resources available on the ASB’s website to support the adoption of the Standard. There are also tools available on the Knowledge Hub. Keep an eye on our social media pages and website (www.asb.co.za) to join any events we may host on financial instruments (or other topics).