Updated FAQs on MCS published

02 June 2022
Accounting
South African Accounting Academy

The Frequently Asked Questions (FAQs) are based on queries commonly received from the stakeholders involved with preparation and finalisation of financial statements in accordance with the Modified Cash Standard (MCS).

These FAQs should be considered for preparation and finalisation of the Annual Financial Statements for the 2020/21 financial year and reporting periods thereafter (effective from 1 April 2021).

This modified FAQ has added some clarity on Chapter 3 (Financial Statement Presentation).

The previous version of this FAQ document was issued in April 2022 and provided clarity on Chapter 11 (Capital Assets) and Chapter 12 and the changes made to the Appropriation Statement. Click here to access our previous technical alert of 12 April 2022.

Click here to download the new FAQ Document:

https://ag.treasury.gov.za/org/tss/Shared%20Documents/Modified%20Cash%20Standard%20Reporting/For%20financial%20year%20ending%2031%20March%202022/FAQs%20MCS%20AFS%202021_22%2021%20Published%20April%202022.pdf

Background on the Modified Cash Standard:

The Public Finance Management Act (PFMA), No 1 of 1999, requires departments to “prepare financial statements for each financial year in accordance with generally recognised accounting practice”. The Treasury Regulations require the accounting officer of a department to ensure that the annual financial statements are prepared on a modified cash basis in accordance with the formats prescribed by the National Treasury.

The Office of the Accountant-General (OAG) in the National Treasury has accordingly developed and issued the Modified Cash Standard (hereafter ‘the Standard’) which sets out the principles for the recognition, recording, measurement, presentation and disclosure of information required in terms of the prescribed formats.

Departments that claim compliance with the modified cash basis of accounting must adhere fully with the principles, presentation and disclosure requirements contained in this Standard in order to achieve fair presentation, and compliance with the PFMA and its regulations.

As provided in our alert of 30 April 2021, you can click here to download the Modified Cash Standard:

https://oag.treasury.gov.za/Publications/01.%20Annual%20Financial%20Statements/03.%20For%20Prov.%20And%20Nat.%20Departments/02%20%20MCS%20and%20related%20material%20for%20year%20ending%2031%20March%202022/MCS%202021_2022%20Final%20for%20publishing.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.
This FAQ provides some clarity on Chapter 3 (Financial Statement Presentation), Chapter 11 (Capital Assets) and Chapter 12 and the changes made to the Appropriation Statement.

Relevance to Your clients:

A department that must compile their annual financial statements in accordance with the Modified Cash Standard, need to be aware of the clarity that is provided in the FAQs on Chapter 3 (Financial Statement Presentation), Chapter 11 (Capital Assets) and Chapter 12 and the changes made to the Appropriation Statement.

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