When is an arrangement a principal-agent arrangement (Part 3)?

Over the last two weeks we have discussed the key actions an entity should undertake to assess whether GRAP 109 on Accounting by Principals and Agents should be applied.

In summary, to meet the requirements to apply GRAP 109, entities should:

a. Identify how the arrangement arose, i.e. contract, legislation or otherwise.

b. Identify how the definition of a principal-agent arrangement is met, i.e. which are the three parties in the arrangement.

c. Analyse whether there is more than one principal-agent relationship in a single agreement. This is often the case where an entity is required to contract with an external service provider to provide goods/services to a beneficiary.

d. Analyse the rights and obligations outlined in the binding arrangements. Attention is often given to administrative actions such as the review, approval and making of payments, how technical or other support is provided, or how service providers are appointed, rather than understanding what the contractual (or other) rights and obligations are of the various parties and their role in fulfilling these rights and obligations.

e. Apply substance over form. Reference to an entity being the “implementing agent” or similar terminology is insufficient to conclude that a principal-agent arrangement exists for accounting purposes.

See previous posts on this topic (Part 1 and Part 2).

The Secretariat has issued FAQ 3.12 on accounting by principals and agents. Access it here.