Guidance on Principal-Agent Arrangements

05 July 2022
Accounting
South African Accounting Academy

This is applicable to both departments applying MCS and other entities applying GRAP.

Legislation or cabinet decisions, municipal council decisions, or even the strategic or performance plans of the department/entity often set out the mandate and/or service delivery requirements of a department/entity.

In fulfilling these requirements, a department/entity may carry out the activities using its own resources or may require the assistance of an external party (or a combination thereof).

Engaging with an external party is not an automatic principal-agent arrangement, and the existence of Chapter 16/GRAP 109 does not infer that all external parties are “agents” of a department/entity.

Chapter 16/GRAP 109 is important as it aims to ensure that the rights and obligations are recognised/recorded by the appropriate reporting entity.

Click here to download the Presentation:

https://ag.treasury.gov.za/org/tss/SiteAssets/Lists/Updates%20and%20Announcements/AllItems/Accounting%20by%20Principals%20and%20Agents%20guidance%20for%20department%20and%20entities.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.
As an auditor and independent reviewer, you need to consider and assess compliance with the departments that use the MCS, as required by the PFMA.
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 presentation provides some clarity on the application of GRAP 109 and MCS Chapter 16 has on Principal-Agent Arrangements.

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 presentation provides some clarity on the application of GRAP 109 and MCS Chapter 16 has on Principal-Agent Arrangements.

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