ASB Review Report: PIR of GRAP 109 Accounting by Principals and Agents

ASB Review Report: PIR of GRAP 109 Accounting by Principals and Agents

• 22 October 2024
• Financial Reporting
• South African Accounting Academy

Summary:

The Accounting Standards Board (ASB) has published the Review Report on the post-implementation review (PIR) of GRAP 109 Accounting by Principals and Agents.

Article:

In the public sector, entities frequently have certain activities executed by another entity, or undertake activities on behalf of other entities. The ultimate responsibility for the various activities rests with the entities identified in legislation as responsible for the activities.

The Standard of GRAP on Accounting by Principals and Agents (GRAP 109) requires entities to assess whether one party acts on behalf of and for the benefit of another in an arrangement, before applying the other Standards of GRAP. GRAP 109 is only applied when an entity is party to a principal-agent arrangement. The correct application of GRAP 109 is critical to ensure relevant and useful information is provided in the financial statements about entities’ roles in these arrangements, so that entities can be held accountable for the resources they were allocated to deliver services.

The Board undertook a post-implementation review of GRAP 109 as a result of challenges identified by stakeholders with the application of the Standard. The Board used the information obtained through this review to identify the key issues and required actions.

The key finding from the review was that stakeholders do not correctly identify principal-agent arrangements. The assessment of whether an arrangement meets the definition of a principal agent arrangement is complex and requires judgement. There are many elements to the definition that need to be assessed and met to apply GRAP 109 - refer to PIR document for more detail. The Board received rich feedback from the post-implementation review and will take various next steps to address the issues raised.

Other useful resources from the post-implementation review, such as a presentation on the outcomes, and the detailed analyses of written and verbal comment are available on the ASB website at https://www.asb.co.za/ed-200/.

Click here to download the 21-page Review report:

https://www.asb.co.za/wp-content/uploads/2023/08/Review-Report-GRAP-109-Post-implementation-Review-1.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

• The PFMA is yet another piece of legislation that your relevant national and provincial departmental clients must comply with, and which you must assess compliance with.  If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
• GRAP is applicable to all entities preparing their financial statements (and where applicable, consolidated and separate financial statements) on the accrual basis of accounting in accordance with the Standards of GRAP.
• This report summarises the findings from the post-implementation review and the Board's responses to the issues identified, to enhance compliance and understanding of the Standard.

Relevance to Your Clients:

• GRAP is applicable to all entities preparing their financial statements (and where applicable, consolidated and separate financial statements) on the accrual basis of accounting in accordance with the Standards of GRAP.
• This report summarises the findings from the post-implementation review and the Board's responses to the issues identified, to enhance compliance and understanding of the Standard.

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