mSCOA Reference Group Meeting Alignment of Annual Financial Statements to mSCOA Chart 30 October 2017 Presented by: F Khan

Problem Statement Municipalities face a number of challenges in preparing their annual financial statements which impacts the timely preparation and submission of high quality set of annual financial statements to stakeholders. This late preparation of the financial statements impacts the effectiveness of the governance review processes established by the MFMA and the municipalities. The late preparation results from year-end process not being defined and/or adhered to; municipalities being unable to reconcile the opening balances as adjustments were recorded outside the system and the financial system was not updated and/or vice versa; some municipalities do not have the “capacity” to prepare financial statements and make extensive use of consultants with no transfer of skills. In addition, the reported information does not/may meet the requirements of the relevant stakeholders. Municipalities face a number of challenges in preparing their annual financial statements which impact on the submission of high quality financial statement to all relevant stakeholders in a timely manner. Challenges faced by municipalities include (not limited to) Late submission of information which impacts the effectiveness of the governance review processes Year-end process not defined. Unable to reconcile the opening balance because adjustments were recorded outside the system and the financial system was not updated and vice versa. Some municipalities do not have the capacity to prepare financial statements and make use of consultants with no transfer of skills. There is no consistency in the manner in which reported information, but more importantly the reported information does not meet the requirements of the relevant stakeholders.

Enabling Regulation mSCOA Municipal Regulations on a Standard Chart of Accounts, 2014 “Object of these Regulations 2. The object of these Regulations is to provide for a national standard for the uniform recording and classification of municipal budget and financial information at a transaction level by prescribing a standard chart of accounts for municipalities and municipal entities which- (a) are aligned to the budget formats and accounting standards prescribed for municipalities and municipal entities and with the standard charts of accounts for national and provincial government; and (b) enable uniform information sets recorded in terms of national norms and standards across the whole of government for the purposes of national policy coordination and reporting, benchmarking and performance measurement in the local government sphere.” Its important that we keep messaging what mSCOA is trying to do. The presenter must make reference to the regulation as this is the basis for starting any mSCOA conversation. All conversation must start and end with the regulation. If we cannot justify why we are doing in terms of the regulation, then it means that there is no basis for our action or that we have omitted certain aspects that needs to be regulated. The highlighted sections shows that as NT, we have to ensure that the mSCOA chart complies not only with the budget formats but with the accounting standards as well. It is important to note that the budget is being prepared in terms of GRAP and no other standard. It is our task as NT to ensure that what we prescribe meets that requirements. Vendors can state that they have products that can do this. We accept the comment and we will engage in terms of how best we can incorporate what vendors do. To select a single vendor for this process, may result in the vendor gaining an unfair advantage over its competitors and we cannot give preference to a vendor over another. In our process, we will endeavour to engage all stakeholders.

Framework of reference ASB Website Directive 5 Accounting Standards Reference Framework GRAP Directive 5 Financial Statements mSCOA St. of Financial Performance, St. of Financial Position, Cash Flow St., St. of Changes in Net Assets Disclosure notes IS Assets, IS Liabilities, IS Revenue, IS Expenditure, IS Gains and Loss This will an interactive process. The preparation of the annual financial statements is governed by GRAP. That will be basis of where we start. The standards applicable in each financial year is governed by directive 5. Refer to the following this link:  http://www.asb.co.za/LinkClick.aspx?fileticket=VUjHf6bSOGo%3d&portalid=0 Using this , we will confirm the changes to the standards and its impact on the financial statements. The annual financial statements consists of the following sections, namely: St. of Financial Performance, St. of Financial Position, Cash Flow St., St. of Changes in Net Assets Accounting policy notes Disclosure notes Our process will not focus at accounting policy notes as this is the prerogative of the municipality. We will then compare this to mSCOA chart focusing with the item segments: IS Assets, IS Liabilities, IS Revenue, IS Expenditure, IS Gains and Loss, We will then check the other segments No focus at accounting policy notes

Engagements with stakeholders Vendors Municipalities ASB Regulatory authorities How? Workshops Reference groups Communicate unique situations that we may not identified

Timeframes Release Final Update Apr 2018 Prepare AFS Stakeholder engagement Update and release for comments Final Update Release Apr 2018 Mar 2018 Feb 2018 Discussion of timeframes Jan 2018 Nov – Dec 2017

Discussion

Thank you