1. Generally Recognised Accounting Practice 103
DEPARTMENT OF ARTS AND CULTURE
10/30/2017
Generally Recognised Accounting Practice 103
14 FEBRUARY 2017

2. PRESENTATION OUTLINE Background Stakeholder Engagement
Entities largely affected by GRAP 103
DAC Support to Entities
Request for Exemption
GRAP 103 Impact on the sector
GRAP 103 DAC intervention
Public Entities Qualified due to GRAP 103
Resources Requires
Conclusion

3. BACKGROUND
The Accounting Standard Board is empowered in terms of section 89 of the Public Finance Management Act, 1999(Act No. 1 of 1999) to set standards of Generally Recognised Accounting Practice as required by section 216(1)(a) of the Constitution, for the annual financial statements of Public Entities and recommend to the Minister of Finance effective dates of implementation of these standards for the different categories of institutions to which this standards apply.

4. BACKGROUND
The Accounting Standard Board introduced the Generally Recognised Accounting Practice 103 that is applicable to Public Entities in the Arts, Culture and Heritage sector.
Public Entities reporting to the Department of Arts and Culture must comply with the requirements set out in the standards.
GRAP 103 is an accounting standard that prescribes the uniform accounting standard for classifying and accounting for heritage assets and related disclosure requirements.

5. BACKGROUND
The Auditor-General undertook to audit public entities’ compliance with the GRAP 103 starting from the 2014/15 financial year. Public Entities were thus expected to be fully compliant with the GRAP 103 standard.
Auditor-General indicated that its auditors will continue to perform audit on heritage assets but no opinion will be expressed should the Minister of Finance exempt Public Entities from complying with the standard.
Due to challenges associated with the implementation of GRAP 103, the majority of Public Entities, more especially museums were faced with the reality of getting adverse audit opinions

6. STAKE HOLDER ENGAGEMENT
On 12 March 2015, the DAC held a meeting with all stakeholders (National Treasury Public Finance Unit, Chief Financial Officers of Public Entities, Auditor-General and Office of the Accountant General) involved with a view to find a solution to challenges presented by GRAP 103.
All the stakeholders agreed that the implementation date of the standard and the expression of audit opinion by Auditor-General on compliance with GRAP 103 should be deferred.
The meeting resolved that Public Entities be exempted from full compliance with GRAP 103 for a period of three years (1 April 2015 – 31 March 2018). A formal request to the Minister of Finance was forwarded for exemption.
The exemption would assist Public Entities to avoid potential audit qualifications and also present an opportunity to the affected institutions to adopt a phased-in approach in implementing the standard using their limited financial resources.

7. ENTITIES LARGELY AFFECTED BY GRAP 103
MUSEUMS
OTHER
LIBRARIES
National English Literary Museum
South African Heritage Resources Agency
National Library of South African
William Humphreys Art Gallery
Die Afrikaanse Taalmuseum
Iziko Museums
War Museum
Msunduzi Museum
Nelson Mandela Museum
KwaZulu Natal Museum
Ditsong Museums
Robben Island Museum
Luthuli Museum
National Museum Bloemfontein
Freedom Park

8. DAC SUPPORT TO ENTITIES
The Department of Arts and Culture has issued a directive to its entities to ensure compliance with GRAP 103.
Public entities were requested to compile progress reports for DAC’s consideration pertaining to the implementation of GRAP 103.
The Department also requested the National Treasury to provide technical and financial assistance to entities affected by GRAP 103.
GRAP 103 is a standing Agenda item in the DAC Chief Financial Officers Forum where financial matters including compliance issues are discussed.
Some entities have deferred their programmes / projects so that the funds can be redirected for the implementation of GRAP 103.
These entities appointed heritage experts and audit firms to assist with GRAP 103 implementation
Entities that already had policies were encouraged to share their Policies with struggling entities.

9. CHALLENGES FACED BY ENTITES
Entities did not have funding to conduct valuation of heritage assets.
Entities were requested to obtain estimated costs from reputable companies to conduct valuations; e.g. based on the quotation obtained by Iziko Museums of South Africa, the cost for valuations ranged from R3 million to R13 million depending on the number of Heritage Assets.
During the augmentation window period, the Department submitted a bid (to National Treasury) for additional funding to the tune of R205 million on behalf of public entities for the purposes of rolling out GRAP 103.
Entities indicated that additional Human Resources and equipment are required to conduct physical verification of the Heritage Assets at their disposal.
The heritage assets in terms of quantities range from 7 to 2 million objects.
Measuring / valuing items of Library collections classified as heritage Assets in accordance with the standard
National Treasury has approved an allocation of R200 million for GRAP 103 implementation in the year 2017/18.

10. IMPACT OF GRAP 103 ON THE SECTOR
It must be noted that most of the entities received qualified audit opinions in the 2014/15, 2015/16 related to compliance with GRAP 103.
The Audit outcomes are expected to be the same for the affected entities
Safety and security of collections presented by the disclosure of the value of Heritage Assets on Public Entities financial statements;
Unaffordable high insurance premium on insured collections;
Damage to heritage assets during stock takes;
Lack of training on the side of auditors and officials regarding museum professional practices;
Outsourcing of Audit by Auditor-General for Heritage Assets;
Impact on Audit costs.

11. DAC INTERVENTION AND PROGESS
GRAP 103
CHALLENGE
CONTRIBUTING FACTORS
DAC INTERVENTION AND PROGESS
The GRAP 103 standard was approved without due consideration of the cost implications.
Funding was not made available to implement GRAP 103 in the 2014/15, 2015/16 and 2016/17 financial years.
National Treasury was consulted and an amount of R200 million has been allocated to implement the standard
The aforementioned funds are only available in the 2017/18 financial year
The heritage assets should be valuated by professional/expert valuators in the heritage sector
There are limited professionals with the required skills
Moreover, the R200 million allocation is once off. No funds have been made to sustain the implementation of the standard.
Safeguarding of high value heritage assets
The knowledge of the high valued heritage assets will create a risk of theft by local and international syndicates
National Treasury to be approached to provide funding for safe keeping and proper upgrade of the safety of these national heritage assets

12. DAC INTERVENTION AND PROGESS
GRAP 103
DESCRIPTION
CONTRIBUTING FACTORS
DAC INTERVENTION AND PROGESS
Entities were required to develop heritage assets policies in line with the standard
There were no benchmarks that would serve as guidelines
Entities were advised to consult with Auditing Firms/Heritage Experts to check if they can be able to offer the required services
The large museums will face challenges because the valuation of assets will take longer than one financial year
The quantities of heritage assets in some entities are very large and are stored in different buildings and locations
The re-valuation of assets should be done after three to five years
Heritage assets do not depreciate and as such, the valuation exercise must be done in 3-5 year intervals
National Treasury to be approached to provide funds for re-evaluations

13. PUBLIC ENTITIES QUALIFIED DUE TO GRAP 103
National Library of SA (H)
Msunduzi/Voortrekker Museum (H)
KZN Museum (H)
Iziko Museum (H)
William Humphreys Arts Gallery (H)
Nelson Mandela National Museum (H)
National English Literary Museum (H)
National Museum (H)
War Museum of the Boer Republics (H)
Ditsong Museum of South Africa (H)

14. RESOURCES REQUIRED
A budget is required for the purpose of procuring accounting services to assist with the assessment of assets deemed to be Heritage Assets and to:
Identify collections;
Conduct physical stock take;
Repeat stock take every four years;
Maintain physical register for all collections;
Perform reconciliation of registers between stock takes;
Conduct assessment (including assessment of subsequent acquisitions in future periods);
Perform assessment and accounts for damaged assets;
Convert the physical asset registers to electronic assets registers; and
Procure necessary software and upgrade existing systems

15. CONCLUSION
The GRAP 103 matter is being dealt with at the level of CFOs under the leadership of DAC

16. DEPARTMENT OF ARTS AND CULTURE
10/30/2017
THANK YOU 16