GRAP Compliance: Preparing for your 2014/15 audit Mariëtte Muller BCom Hons, CTA, Professional Accountant (SA), GTP(SA), CET, PCT Senior Manager - Altimax IMFO Seminar

Today’s presentation GRAP standards effective 2014/15 year GRAP standards effective 2015/16 year What will you do differently on GRAP this year? Who is Altimax? 2

GRAP standards effective 2014/15 3

New GRAPs Amendments to Standards effective 1 April 2014: GRAP 5 – Borrowing Costs GRAP 100 – Discontinued Operations 4

GRAP 5 (revised) Benchmark treatmentAllowed alternative treatment Recognise borrowing costs as an expense -Capitalise borrowing cost if attributable to the acquisition, construction or production of a qualifying asset -Expense in all other instances 5 Apply prospectively

GRAP 100 (revised) GRAP 100 now only deals with discontinued operations Will no longer be required to reclassify assets as held for sale Certain disclosure must be made if, at the reporting date, management has taken a decision to dispose of a significant asset or a group of assets and liabilities These disclosures will be included in GRAP 1 6 Apply measurement requirements prospectively and presentation and disclosure requirements retrospectively

New GRAPs Standards that may be used in developing an accounting policy in 2014/15: GRAP 32 – Service Concession Arrangements: Grantor GRAP 108 – Statutory Receivables IGRAP 17 – Service Concession Arrangements: Grantor Controls Significant Residual Interest GRAP 105 – Transfers of Functions Between Entities Under Common Control GRAP 106 – Transfers of Functions Between Entities Not Under Common Control GRAP 107 – Mergers GRAP 20 – Related Party Disclosures 7

GRAP 32 - Service Concession Arrangements: Grantor Applies to a contractual arrangement between grantor and operator Operator uses service concession asset to provide a mandated function on behalf of the grantor for a specified period of time Operator can be either a private party or another public sector entity 8

GRAP 32 Link to PPP (public-private-partnership) agreements: Under PPP agreements, the definition thereof refers to “private party” and “entity" GRAP 32 uses the terms “operator” and “grantor”, but these include other public entities as well Therefore not limited to private entities as under PPP agreements 9

GRAP 32 PPP agreements fall under the PFMA and MFMA There is also a guideline on accounting for PPP agreements issued by the ASB PPP agreements governed and regulated i.t.o. the PFMA and MFMA, are some of the arrangements that fall within the scope of GRAP 32 Any other arrangements that meet the control criteria in paragraph.07 of GRAP 32 should also apply the principles in the standard 10

GRAP 32 Recognise asset if: Grantor controls or regulates: –what services the operator must provide with the asset –to whom it must provide the services –at what price Grantor controls—through ownership, beneficial entitlement or otherwise—any significant residual interest in the asset at the end of the term of the arrangement 11

GRAP 32 If one or both of these criteria are not met, consider principles in IGRAP 3 - Determining whether an arrangement contains a lease If not a lease, consider the principles in the Framework 12

GRAP 32 Recognise corresponding liability as follows: 13 Financial liability modelGrant of right to operator model -Unconditional obligation to pay cash or another financial asset -To operator for the construction, development, acquisition, or upgrade of a service concession asset -Recognise as financial liability under GRAP 104 -No unconditional obligation to pay cash or another financial asset -To operator for the construction, development, acquisition, or upgrade of a service concession asset -Grants the operator right to earn revenue from third party users -Recognise as unearned portion of revenue arising from exchange of assets

GRAP 32 Proposed transitional provisions: The new standard is based on IFRIC 12 and the Guideline on Accounting of PPPs issued by ASB Consequently proposing no “special” transitional provisions Apply retrospectively 14

GRAP Statutory Receivables Dealing with receivables arising from legislation or similar means, which require settlement in cash or another financial asset To be statutory in nature, specific legislation should require the entity to undertake the transactions, such as outlining who should be taxed and at what rates and amounts 15

GRAP 108 Excludes those arsing from contractual arrangements (i.e. financial assets) and lease receivables Contractual arrangements would normally meet the definition of a financial asset, and would then be within the scope of GRAP 104 Statutory receivables are not voluntarily entered into as with contractual receivables, because they arise as a result of specific legislative requirements 16

GRAP 108 Examples of revenue types for which the receivable will be statutory in nature and therefore accounted for under GRAP 108: –taxes, including property rates –fines –penalties –appropriations and grants –fees charged in terms of legislation 17

GRAP Transaction is exchange transaction Transaction is non- exchange transaction None of the previous mentioned Apply GRAP 9Apply GRAP 23Only recognise the receivable when: -Definition of asset is met -It is probable that the future economic benefits or service potential associated with the asset will flow to the entity and the transaction amount can be measured reliably

GRAP 108 Recognised at transaction amount After initial recognition measured using the cost method Cost method - only change initial measurement of receivables for: –Interest and other charges –Impairment losses –Amounts derecognised 19

GRAP 108 Impairment Carrying amount less estimated future cash flows (not present value of estimated future cash flows as is the case in GRAP 104) Will only need to calculate the present value of future cash flows –Effect of time value of money is material 20

GRAP 108 Proposed transitional provisions: Apply retrospectively, except for: –Derecognition –Impairment Three year transitional period with regards to classification and measurement of statutory receivables (SR) 21

GRAP 108 Proposed transitional provisions: Disclosure follows complying with classification and measurement requirements May continue to apply previous accounting policies for classifying and measuring SR that don’t comply with GRAP 108 as yet 22

GRAP standards effective 2015/16 23

New GRAPs Standards effective for periods beginning on or after 1 April 2015: GRAP 18 – Segment Reporting (public entities and constitutional institutions only) GRAP Transfer of Functions between Entities under Common Control GRAP Transfer of Functions between Entities not under Common Control GRAP 107 – Mergers GRAP 1, 2, 3, 10, 11, 13, 17, 19, 21, 23, 24, 25, 26, 31, 103,104 (minor amendments – early adoption is permitted)

New GRAPs… New directive effective 1 April 2015: Directive 11 - Changes in the Measurement Bases Following the Initial Adoption of the Standards of GRAP (early adoption is permitted)

Directive 11 Currently in GRAP 3 - change in accounting policy from revaluation model or fair value model to cost model can only be made if: –Required by GRAP –Will result in AFS providing reliable and more relevant information Difficult to prove the latter 26

Directive 11 If inappropriate accounting policy choice was made on initial adoption of GRAP 16, 17, 31 or 103 Is allowed to make a once-off change from revaluation model or fair value model to cost model Apply retrospectively and provide relevant disclosure 27

Directive 11 Subsequently can only change accounting policy if it meets the requirements in GRAP 3 Can only take advantage of the provisions in Directive within a period of three years following: –Expiry of transitional provisions applied on initial adoption of GRAP, or –Effective date of the directive – 1 April 2015 –Whichever is later 28

New GRAPs Standards that may be used in developing an accounting policy in 2015/16: GRAP 32 – Service Concession Arrangements: Grantor GRAP 108 – Statutory Receivables IGRAP 17 – Service Concession Arrangements: Grantor Controls Significant Residual Interest 29

New GRAPs Standards that may be used for disclosure in financial statements for 2015/16: GRAP20 – Related Party Disclosures 30

What will you do differently on GRAP this year? GRAP is a way of living not a way of doing GRAP has nothing to do with Finance 31

What will you do differently on GRAP this year?... You do not need a consultant to be GRAP compliant You do not need a degree to be GRAP compliant 32

What will you do differently on GRAP this year?... Start 1 July 2015 for 2016 Detailed action plan based on Audit Report and Management Letter 33

Who is Altimax? Accounting - Advisory - Training Level 1 B-BBEE Operated for 11 years in public sector > 110 public entities > 110 municipalities Involved in >10% of the municipalities with a clean audit Over the past number of years served on GRAP panels for NT, KZN Treasury, NW Treasury

Who is Altimax?… GRAP training for Auditor General – 2006 to 2013 GRAP manuals for NT –First 26 and New 8 Provider of LGAC and LGAAC for SAICA Provider of MFMP Pre issuance for the Auditor General since 2006

What Altimax can do for you Unqualified to Clean –Controls –HR –SCM –Compliance –Sustainability

What Altimax can do for you… Training / skills development – Duration: ½ day to 5 day courses – Type: Short courses and FASSET or LG SETA accredited courses – Topics: MFMP / Technical skills / Soft skills and leadership – Audience: Councillors / audit coms / management / support staff – Where: On site or off site – When: Your choice

Skills Transfer LEARN Principle 1 SHARE Principle 2 DO Principle 3

Skills Transfer…

The Altimax value proposition Values driving excellence Peace of mind Getting it right the 1 st time Client 1 st approach Strategic partnership

Contact details Tel: +27 (0) Follow us on Facebook Join us on LinkedIn