Reporting on principal-agent arrangements in the financial statements

Objective of providing information on principal-agent arrangements in the financial statements

An entity that is party to a principal-agent arrangement needs to provide information to users to enable them to make decisions about whether (a) the arrangements effectively meet their purpose of delivering services, and (b) public funds were used effectively to deliver those services. To meet users’ needs, information is included on principal-agent arrangements in the financial statements.

For the information to be useful, an entity provides information specific to the entity’s principal-agent arrangements (i.e. the information is not generic), and all relevant information is provided.

What information is required by GRAP 109?

1. General information provided by the principal and the agent

The principal and the agent in a principal-agent arrangement provide information on the nature and risks of the arrangement, including:

• The entity’s role in the arrangement and its judgements in making this assessment.
• The purpose, terms and conditions, significant risks and benefits and transactions undertaken from the arrangement, and whether any changes occurred during reporting period.

2. Information provided by the agent

The agent provides information to help users assess the accountability of the agent in relation to transactions undertaken with third parties on behalf of principal, including:

• Items recognised in the agent’s financial statements from the arrangement. These could include resources held on behalf of principal that the agent recognised and information on the remittance thereof; revenue recognised as compensation for the agency service and a description of liabilities incurred on behalf of principal that the agent recognised and any corresponding assets.
• Any risks transferred from the principal to the agent.
• An agent may also deem it necessary to disclose information about the revenue and expenses that relate to transactions with third parties and a reconciliation of the carrying amounts of any receivables or payables the agent recognises.

3. Information provided by the principal

The principal provides information on the resource implications of the arrangement for the principal, including:

• The resources of the principal that are held by the agent and information on the return of such resources.
• The fee paid as compensation to the agent.
• The resource implications for the principal if the arrangement is terminated.

Comment to the Board on ED 200

The ASB 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.

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 format 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.