The classification of VAT

24 August 2022
Accounting
Moneyweb

Questions have been raised about the classification of VAT – whether receivable or payable – as a financial instrument or something else, for example, a statutory receivable. The question arises for the classification of VAT on transaction date and subsequently, as well as whether the accounting answer differs between VAT vendors on the invoice (accrual) or payments (cash) basis of VAT.

A scenario is used to illustrate the issue.

The discussion is organised into the following headings:

What do the Standards say?
How do you know which Standard to apply?
Classification on initial recognition
Classification after initial recognition
Application to the payments for goods and services (payables) and input VAT
Presentation in the financial statements
There is also an annexure containing:
- Classification – Sales of Goods and/or Services
- Classification – Purchase of Goods and Services

This Fact Sheet explains the Secretariat’s views on the classification of VAT based on the principles in GRAP 104 on Financial Instruments (2019) and GRAP 108 on Statutory Receivables. This Fact Sheet accompanies, and is not a replacement for, the complete text of GRAP 104 and GRAP 108. This Fact Sheet has not been reviewed, approved or otherwise acted on by the ASB.

Click here to download the Factsheet:

https://www.asb.co.za/wp-content/uploads/2022/07/Fact-Sheet-11-Classification-of-VAT.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

You need to assess fair presentation and compliance with the Standards of GRAP.
This factsheet discusses some important aspects around the classification of VAT.
Non-compliance with GRAP standards may lead to a modified audit opinion.

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 factsheet discusses some important aspects around the classification of VAT.

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