CIGFARO WC Branch Seminar 5 to 6 June 2017 GRAP Implementation for 2016/17 & what is coming in 2017/18 & 2018/19 Presented by: George Ducharme CA (SA)

GRAP Implementation Topics for discussion What is new in the 2016/17 GRAP Reporting Framework and what are the related implementation challenges? What changes will take place to the 2017/18 and 2018/19 GRAP Reporting frameworks and what are the related implementation challenges municipalities can expect? Are there any recently developed, not yet effective Standards of GRAP that a municipality/ municipal entity should consider at this point in time? CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 ASB Directive 5 Appendix C lists the Standards of GRAP and other promulgations effective for 2016/17. Municipalities and municipal entities apply Appendix C2 The GRAP Reporting Framework for 2016/17 is the same as what it was for 2015/16, except as amended for: Standards amended: GRAP 16 and 17 CIGFARO WC Seminar 5 to 6 June 2017

Standards also available in: isiZulu, Sesotho and Afrikaans ASB Directive 5 Appendix C2 – Applicable to Municipalities, municipal entities Standards also available in: isiZulu, Sesotho and Afrikaans Standards Directives Interpretations Guide Accounting policies Disclosure GRAP 1 – 14, 16, 17, 19, 20, 21, 23 – 27, 31, 100, 103 – 107 Directive 1 – 11 IGRAP 1 – 16 Guide 1 GRAP 32, 108, 109 IGRAP 17 GRAP 20 or IPSAS 20 IFRS 4, 6 IAS 12 SIC 25, 29 IFRIC 12, 20, 21 CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 – Amendments Amendments to GRAP 17 Property, Plant and Equipment Review of Residual Value and Useful Life OLD: The residual value and the useful life of an asset shall be reviewed at least at each reporting date NEW: An entity shall assess at each reporting date whether there is any INDICATION that the entity’s expectations about the residual value and the useful life of an asset have changed since the preceding reporting date. If any such indication exists, the entity shall revise CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 – Amendments Amendments to GRAP 17 Property, Plant and Equipment Disclosure of repairs and maintenance OLD: Users measure the adequacy of repairs and maintenance by comparing this expenditure to the value of assets recognised in the statement of financial position. There WAS however no requirement to separately present this information in the financial statement NEW:R&M incurred on PPE to be disclosed separately in the notes to the AFS. Disclose in notes to AFS information about the specific costs included in the amount of R&M, e.g. amounts paid to service providers, amounts spent on materials, time spent by employees. GRAP 17.88 and 89. CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 – Amendments Amendments to GRAP 17 Property, Plant and Equipment Use of external Valuers when using FV OLD: The standard was ambiguous about whether external valuers must be used to determine the fair values of assets or whether this is encouraged. NEW: An appraisal of the value of the asset may be undertaken by a member of the valuation profession, who holds a recognised and relevant professional qualification, or by another expert with the requisite competence to undertake such appraisals in accordance with the requirements of the applicable Standards of GRAP. The valuer or other expert may be employed by the entity. GRAP 17.35 CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 – Amendments Amendments to GRAP 17 Property, Plant and Equipment More comprehensive disclosure required for capital WIP The cumulative expenditure recognised in the carrying value of property, plant and equipment. These expenditures shall be disclosed in aggregate per class of asset. The carrying value of property, plant and equipment that is taking a significantly longer period of time to complete than expected, including reasons for any delays. The carrying value of property, plant and equipment where construction or development has been halted either during the current or previous reporting period(s). The entity shall also disclose reasons for halting the construction or development of the asset and indicate whether any impairment losses have been recognised in relation to these assets. CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 – Amendments Amendments to GRAP 17 Property, Plant and Equipment Encouraged disclosures on PPE removed, i.e. the following no longer required: municipalities no longer need to disclose PPE that remained idle for significant period; CA of fully depreciated assets still in use; CA of assets retired from use & not classified as part of discontinued operation and FV of PPE where FV is significantly different from CA of PPE measured on cost model. Apply these amendments retrospectively in accordance with GRAP 3. CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2016/17 – Amendments (cont.) Amendments to GRAP 16 Investment Property. Review of residual value and useful life. Same principles apply as for PPE where IP is accounted for on cost model. Disclosure of repairs & maintenance on IP for properties that generated rental revenue and separately for those that did not generate rental revenue. Use of external valuer when using FV. Same as for GRAP 17. See GRAP 16.45 Disclosure for WIP. Same as for GRAP 17. Encouraged disclosure of FV of properties accounted for according to the cost model longer required. CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2017/18 – What is coming? The amended ASB Directive 5 becomes effective from 1 Apr 2017 (1 July 2017). An appendix prescribing the GRAP Reporting Framework for financial periods commencing on or after 1 April 2017, approved by the Board on 29 September 2016, has been added to Directive 5 as Appendix B2. There are no changes to Directive 5 for 2017/18 compared to 2016/17. For 2017/18 municipalities and municipal entities will have to ensure that their AFS disclosure and presentation adheres to the requirements of MSCOA for that year and where practical retrospectively. CIGFARO WC Seminar 5 to 6 June 2017

GRAP Reporting Framework 2018/19 – What is coming? The amended ASB Directive 5 that will become effective for 2018/19 is not yet available, however the following amendments to certain Standards of GRAP become effective for financial periods commencing on or after 1 April 2018 (i.e. 1 July 2018 for municipalities and municipal entities): Amendments to GRAP 21 Impairment of non-cash generating assets and GRAP 26 Impairment of cash generating assets; and Improvements to the Standards of GRAP (2016). CIGFARO WC Seminar 5 to 6 June 2017

Amendments to GRAP 21 & GRAP 26 ASB has amended GRAP 21 & GRAP 26 and the crux of the amendment lies in the amended definition of a cash-generating asset: “Cash-generating assets” are assets used with the objective of generating a commercial return. Commercial return means that positive cash flows are expected to be significantly higher than the cost of the asset. Definition of non-cash generating assets remains the same, i.e.: “Non-cash-generating assets” are assets other than cash-generating assets. Above distinction is important to determine which Standard is applied to calculate potential impairment loss on asset. CIGFARO WC Seminar 5 to 6 June 2017

Amendments to GRAP 21 & GRAP 26 (cont.) Classification will be done at initial recognition of the asset, therefore municipalities will have designate assets as cash generating or non cash generating at initial recognition. NB therefore for all new assets acquired. Develop classification criteria for the following: Objective of using the asset (commercial return or service delivery) Calculation of the positive cash flows What does “Significantly higher” mean What is the Cost of the asset. Historical cost or FV Determining commercial return: At initial recognition, analyse the positive cash flows that will be generated from the asset over its useful life. Estimates, assumptions and judgement will be required and will need to be substantiated for auditing purposes. CIGFARO WC Seminar 5 to 6 June 2017

Improvements to Standards of GRAP Improvements affected by the Board are periodic revisions to effective Standards of GRAP. Last improvements to GRAP were made in 2013. Improvements that will become effective from 1 April 2018 (1 July 2018) include changes resulting from: general improvements IPSASB’s amendments IASB’s amendments Transitional provisions: improvements are either retrospective or prospectively applicable, depending on the specific improvement – refer to the detailed text found on ASB website www.asb.co.za. CIGFARO WC Seminar 5 to 6 June 2017

Improvements to Standards of GRAP Improvements have been made to: GRAP 12 GRAP 16 GRAP 17 GRAP 18 GRAP 21 GRAP 26 GRAP 27 GRAP 31 GRAP 103 GRAP 106 GRAP 110 CIGFARO WC Seminar 5 to 6 June 2017

Summary of Improvements to Standards of GRAP GRAP 12,16,17,31,103,110 all contain similar improvements. To clarify the treatment of transaction costs and other costs incurred on assets acquired in non-exchange transactions to be in line with the principle in GRAP 23 (paragraph .12).  To clarify the measurement principle when assets may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. CIGFARO WC Seminar 5 to 6 June 2017

Summary of Improvements to Standards of GRAP GRAP 12 Improvement as an example. An international aid agency may donate medical supplies to a public hospital in the aftermath of a natural disaster. Under such circumstances, the cost of the inventory is its fair value as at the date it is acquired. Any transaction costs incurred are recognised in accordance with the requirements of paragraphs .25 to .26 of GRAP 12. Paragraph 25 lists transaction costs that may be included in the cost of the asset. Paragraph 26 lists examples of costs that are expensed. CIGFARO WC Seminar 5 to 6 June 2017

Important not yet effective Standards of GRAP to consider iGRAP 18 Recognition and De-recognition of Land iGRAP 18 effective from 1 April 2019 (1 July 2019), i.e. for 2019/20 Will be read along with Standards of GRAP also dealing with land, e.g. GRAP 13, 16, 17 etc. Even though only effective in 2019/20, due to uncertainties on how to establish control over land, consider indicators of control outlined in iGRAP 18. iGRAP 18 states that there are uncertainties experienced in practice about legal title versus control when accounting for land. CIGFARO WC Seminar 5 to 6 June 2017

Important not yet effective Standards of GRAP to consider iGRAP 18 Recognition and De-recognition of Land (cont.) In assessing control over land, the following two control indicators exist – apply judgment in applying these indicators: legal ownership, e.g. holding the existing title deed. the right to direct access to land, and to restrict or deny the access of others to land. (Custodianship) If one entity has the right to direct access to, and restrict or deny the access of others to land while another entity is the legal owner of land, substance over form determines that the land is controlled by the entity that has the right to direct access to land, and to restrict or deny the access of others to land. CIGFARO WC Seminar 5 to 6 June 2017

Important not yet effective Standards of GRAP to consider iGRAP 18 Recognition and De-recognition of Land (cont.) Legal ownership versus custodianship over land: Custodian responsibilities in terms of legislation or similar means typically involve acquiring land, managing the land throughout its life cycle, and disposing of land subject to the relevant legislative requirements. These responsibilities therefore give the custodian the right to direct access to and restrict or deny access of others to land. As such the custodian, rather than the legal owner, controls the land. CIGFARO WC Seminar 5 to 6 June 2017

Important not yet effective Standards of GRAP to consider GRAP 110 Living and non-living resources Living resources are resources that undergo a biological transformation, e.g. animals and plants used for research which are not accounted for by another Standard of GRAP. Non-living resources are those resources that occur naturally and have not been extracted, e.g. land, and water, minerals, oils and gas and other non-regenerative resources which have not been extracted. Recognition and measurement of living resources very similar to requirements of GRAP 17 PPE, i.e. relating to initial costs part of initial measurement, subsequent measurement models (cost or revaluation models, which includes depreciation, impairment etc.) & de-recognition requirements. CIGFARO WC Seminar 5 to 6 June 2017

Important not yet effective Standards of GRAP to consider GRAP 110 Living and non-living resources (cont.) Non-living resources, other than land, shall not be recognised as assets. Instead, certain information shall be disclosed in the notes to the AFS on such resources (i.e. type, liabilities arising from such resources & compensation received on disposal). Transitional provisions currently in ED format – ED 154, closing for comment 31 July 2017. Proposes retrospective application in accordance with GRAP 3 with 3 year measurement relief period. CIGFARO WC Seminar 5 to 6 June 2017

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