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Guideline on Materiality: Modified Cash Standard
- 01 December 2022
- Accounting
- South African Accounting Academy
This MCS Guideline on Materiality addresses the application of materiality when preparing financial statements. While the individual chapters of the MCS set out the recognition, recording, measurement, presentation and disclosure requirements, this Guideline clarifies the MCS’s overarching provisions pertaining to materiality.
The objective of this Guideline is to provide guidance that will assist departments to apply the concept of materiality when preparing financial statements in accordance with the MCS. It outlines a process that may be considered by departments when applying materiality to the preparation of financial statements.
This Guideline was developed based primarily on the Guideline on the Application of Materiality to Financial Statements issued by the Accounting Standards Board (ASB). Since the materiality principles in the Standards of GRAP clarified by the aforementioned guideline are accrual-based, in developing this MCS Guideline on Materiality the relevant modified cash concepts and principles were applied.
This Guideline includes examples and diagrams to illustrate how a department may apply the principles in this Guideline, based on specific facts presented.
Click here to download the Guideline:
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, including consideration of materiality.
- While assurance providers such as auditors may use similar principles as preparers when applying materiality, the manner in which judgement is applied by assurance providers and preparers of financial statements can result in differences in their materiality assessments. It is therefore inappropriate for departments to rely solely on the same materiality considerations and assessments used by assurance providers in making decisions about materiality when preparing financial statements.
Relevance to Your clients:
- Applies to all departments that must compile their annual financial statements in accordance with the Modified Cash Standard.
- The Guideline assists departments to make the decisions about the material information to be included in the financial statements.
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