Accounting for non-exchange expenses is one of the last areas where the Standards of GRAP do not provide specific guidance. Entities developed accounting policies to account for these expenses and related liabilities based on Standards that deal with similar transactions, and the Conceptual Framework for General Purpose Financial Reporting.
Internationally, IPSAS 42 on Social Benefits fills this gap in IPSAS and became effective on 1 January 2023. The Accounting Standards Board approved an Exposure Draft on Social Benefits (ED) at the July 2023 meeting. Even though guidance from IPSAS 42 was used in certain areas of the ED, such as the definitions, the ED mostly proposes guidance specific to the South African environment.
This article explains what the ED proposes to define as social benefits and which social benefits will be in scope.
Social benefits in the Standards of GRAP
At present, there is no definition for social benefits in the Standards of GRAP. GRAP 19 on Provisions, Contingent Liabilities and Contingent Assets includes a wide-ranging description which includes cash and in-kind benefits that meet broad social policy objectives of government. Learning from the IPSASB’s deliberations on the definitions in IPSAS 42, the Board agreed that the definitions in the ED should be narrow and specific, so that the accounting requirements would result in meaningful information in the financial statements.
The ED proposes to define social benefits in a similar manner to IPSAS 42:
| Definition | What does this mean? | |
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Cash transfers and in-kind benefits provided to: | Social benefits could be paid in cash or provided as goods or services in-kind. |
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Specific individuals and/or households who meet eligibility criteria; |
Only benefits to individuals and/or households can be social benefits. An entity may use an agent (which may be an entity) to provide these benefits to individuals and/or households. There must be eligibility criteria to qualify for benefits. |
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Mitigate the effect of social risks; and |
Social risks are separately defined as events or circumstances that: a) relate directly to the characteristics of individuals and/or households (e.g. age, health, poverty, employment status); and b) may adversely affect the welfare of individuals and/or households, either by imposing additional demands on their resources or by reducing their income. Social risks are distinguished from other risks where the condition, event or circumstance that leads to or contributes to an unplanned or undesired event arises from something other than the characteristics of an individual or household. For example, unemployment benefits are social benefits because the condition, event or circumstance addressed by the benefit arises from the characteristics of the individuals and/or households directly – an individual’s employment status. Benefits that respond to a natural disaster such as flooding are not social benefits. The condition, event or circumstance that leads to or contributes to an unplanned or undesired event (flooding) arises directly from a geographical risk. |
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Address needs of society as a whole |
Social benefits meet the needs of society as a whole, rather than specific individuals. This distinguishes social benefits from insurance, and benefits similar to insurance, that meet the needs of specific individuals. Addressing the needs of society as a whole means that social benefits do not consider an individual’s specific circumstances. Contributions (where applicable) and benefits are set at levels that relieve a societal need. Benefits address the needs of society as a whole when contribution and benefit parameters are determined in legislation in a way that is affordable and sustainable for society as a whole, while somewhat relieving the impact of social risk for those affected. These levels may be the same for all participants in all circumstances, or may distinguish categories of individuals and/or households based on predetermined factors. For example, an injury on duty benefit that is standardised based on an individual’s injury addresses the needs of society as a whole. Benefits that reflect the risks and characteristics associated with individuals do not address the needs of society as a whole. For example, as a loss of earnings benefit that is calculated through an individualised process that considers employment, level of education, pain and suffering and similar elements based on an individual’s specific circumstances do not address the needs of society as a whole. |
Social benefits in the scope of the ED
The ED includes guidance on accounting for cash social benefits. In-kind social benefits are outside the scope of the ED. This distinction is made as the accounting consequences for in-kind social benefits differ from cash social benefits. An entity procures in-kind goods or services in an exchange transaction, and then provides those goods or services in a non-exchange transaction to individuals and/or households.
The ED proposes that an entity applies GRAP 19 to account for in-kind social benefits.
An entity may also apply GRAP 19 to account for benefits that do not meet the definition of social benefits as explained above.
Provide your comment on the proposals
Comment is due by 17 November 2023. Contact elizna@asb.co.za for more information.
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.