1. CIGFARO PUBLIC SECTOR FINANCE GRAP SEMINAR UPDATE ON ASB ACTIVITIES
2 July 2018

2. Disclaimer
The views and opinions expressed in this presentation are those of the individual. Official positions of the ASB on accounting matters are determined only after extensive due process and deliberation. 2

3. Content Changes to GRAP Reporting Framework 2017/2018 to 2019/2020
Changes to Frequently Asked Questions (FAQs)
Overview of current projects
Current Exposure Drafts available for comment

4. 1. Changes to GRAP Reporting Framework 2017/2018 to 2019/2020

5. Changes to GRAP Reporting Framework 2017/2018
No changes from 2016/2017 to 2017/2018 GRAP Reporting Framework

6. Changes to GRAP Reporting Framework 2018/2019
Two pronouncements effective 1 April 2018:
Improvements to the Standards of GRAP
Amendments GRAP 21 & GRAP 26 Impairment of Assets

7. GRAP Reporting Framework 2018/2019
1. Improvements to the Standards of GRAP
Measuring cost of assets acquired in exchange for other assets
Treatment of transaction costs - assets acquired in non-exchange transaction
Revenue based depreciation & amortisation methods
Restatement of asset’s carrying amount - revaluation model
Treatment of bearer plants
Guidance on classification of military assets
Acquisition of investment property
Contingent consideration in transfer of functions

8. GRAP Reporting Framework 2018/2019
2. Amendments GRAP 21 & 26 Impairment of Assets
Guidance on how to classify / designate assets as cash or non-cash generating
Added definition for commercial return: “positive cash flows expected to be significantly higher than cost of asset”
First apply GRAP 21 (assets most likely non-cash- generating)
Prospective application

9. Newly effective Standards of GRAP
Pronouncement
Effective date
Objective
GRAP 18 Segment Reporting
1 April 2020
Principles for reporting financial information by segments
GRAP 20 Related Party Disclosures
1 April 2019
Defines; & sets disclosure requirements
GRAP 32 Service Concession Arrangements
Accounting by grantor & operator
GRAP 108 Statutory Receivables
Defines; & sets principles for subsequent measurement
GRAP 109 Accounting by Principals & Agents
Defines; & outlines what to recognise
GRAP 110 Living and Non-living Resources
Requirements to recognise & measure living resources
Disclose information on living & non-living resources
Minister of Finance determined effective dates for these Standards in April 2018; not previously part of effective Standards in reporting framework. Will be reflected when Directive 5 updated for 2019/20 reporting framework.
Those affecting municipalities:
GRAP 18 Segment Reporting
1 April 2020: Municipalities and boards, commissions, companies, corporations, funds or entities under the ownership control of a municipality
1 April 2019: Trading entities, Parliament and the provincial legislatures [not forum’s attendees]
Report separately on identified segments.
Segment defined
Present info on reportable segments or those aggregated
Some specific disclosure requirements
Some disclosures about geographical areas in which an entity operates
GRAP 108 Statutory Receivables
Explains interaction with GRAP 9 & GRAP 23
Subsequent measurement at cost (initial measurement + interest – impairment and repayments)
Specific disclosures
GRAP 109 Accounting by Principals and Agents
Defines P/A arrangement; principal; and agent
Criteria to assess if agent
Outlines what should be recognised (using other Standards of GRAP)
GRAP 110 Living and Non-living Resources
Recognise and measure living resources (controlled & reliable measure of cost / fair value)
Except in scope of GRAP 27 / GRAP 12
GRAP 34 to 38 Interests in Other Entities
No submission made yet to MoF on effective date
Transitional provisions being finalised (May 2018)
Replace GRAP 6 to GRAP 8
Introduction of investment entity
Change in definition of control, but impact limited
Use equity method in separate financial statements
New classification of joint arrangements
Proportionate consolidation removed as method of accounting for a joint arrangement
Additional disclosures

10. Changes to GRAP Reporting Framework 2019/2020
Three pronouncements effective 1 April 2019:
IGRAP 18 Recognition and Derecognition of Land
IGRAP 19 Liabilities to Pay Levies
Guideline on Accounting for Arrangements Undertaken in terms of the National Housing Programme

11. GRAP Reporting Framework 2019/2020
1. IGRAP 18 Recognition and Derecognition of Land
When to recognise and derecognise land
Based on control, not only legal title
Two criteria:
legal title, and / or
right to direct & restrict / deny access of others to land
Right should be for indefinite period → demonstrate entity has substantive rights
direct use of land’s FEB / SP to provide services
exchange, dispose of / transfer land
use land in any other way to generate FEB or SP

12. GRAP Reporting Framework 2019/2020
2. IGRAP 19 Liabilities to Pay Levies
Interpretation of GRAP 19 → recognition of liability to pay levy (uncertain timing or amount)
Levy: non-exchange transaction that results in outflow of FEB / SP, imposed by government
Excludes: employment related payments, fines, fees to acquire or use assets / goods & services
Obligating event – activity that triggers payment of levy

13. GRAP Reporting Framework 2019/2020
3. Guideline on Accounting for Arrangements Undertaken ito the National Housing Programme
Applicable to municipalities (level 1 & 2 accreditations & non-accredited)
Identify roles: project manager / developer
Project manager: agent for dept for both beneficiaries & service providers
Project developer: responsible for housing development (GRAP 11) & agent for dept with beneficiaries
Guidance on accounting for commission, accreditation, administration / transaction fee: GRAP 9 (or GRAP 11)
Guidance on accounting for land
lose control of existing land when enter into arrangement with dept.
no arrangement with department: recognise land acquired through USDG/ donation when acquired
Account for other infrastructure if controlled
Later of 1 April 2019 or when GRAP 109 becomes effective

14. 2. Changes to Frequently Asked Questions (FAQs)

15. Changes to Frequently Asked Questions
Updated FAQ document by:
Adding new FAQs
Amending existing FAQs
Other minor amendments
Latest issued June 2018
Available on ASB website
To discuss three sets of amendments:
December 2017
May 2018
June 2018

16. New FAQs FAQ 2.7 Use of valuer to determine FV
Standards allow use a valuer / another expert, including employee, if:
valuer is member of a valuation profession & holds recognised & relevant qualification; or
other expert has requisite competence to undertake appraisal i.a.w. requirements of Standards
From engagement with DAC

17. New FAQs (cont.) FAQ 3.5 Cash & Cash equivalents
Consider (a) definition & (b) purpose for holding
Disclose policy to classify cash & cash equivalents
Definition
Application
Short-term
Generally <3months from investment date
GRAP 2 not definitive
Highly liquid
Readily convertible
Convertible without undue notice / penalties
Amount known at time of investment
Known amount cash
Insignificant risk of changes in value
So similar to cash, change in value insignificant
Consider e.g. cancellation clause, termination fee
Purpose for holding:
An entity should assess why it is holding an investment, which would be reflected in the way in which the entity has invested the item. For example, if the purpose of holding an investment is to meet short-term cash commitments to fund on-going operations or settle liabilities in the short-term, an entity would invest it for only a short period of time in a way that resembles cash.

18. New FAQs (cont.) FAQ 6.4 Interaction of GRAP 32, 8 & 109
Service Concession Arrangements
(GRAP 32)
Interest in Joint Ventures
(GRAP 8)
Accounting by Principals & Agents
(GRAP 109)
Parties
Operator & Grantor
Investor or Venturer
Principal & Agent
Arrangement’s characteristics
Operator uses service concession asset to provide mandated function for grantor
2 / more parties jointly control i.t.o. binding arrangement
Agent undertakes transactions with 3rd parties on behalf & for benefit of principal
Accounting treatment
Asset recognised by party that controls and related obligations
Each party recognises revenue, expenses per arrangement
Investor: GRAP 104
Venturer: i.t.o. arrangement - could be jointly controlled operation, asset, or entity
Principal: revenue & expenses from transactions 3rd parties
Agent: portion revenue & expenses to execute function
Both: assets & liabilities that meet definition & recognition criteria
Each of the Standards apply to specific types of arrangements. It is, however, possible for certain types of arrangements to be in the scope of more than one Standard.
GRAP 32 applies to arrangements where an operator uses a service concession asset to provide a mandated function on behalf of the grantor for a specified period of time and is compensated for its services. The service concession asset could remain under the control of the grantor or it could be controlled by the operator. The entity that controls the asset will account for it, together with the related obligations. The grantor and operator each recognise revenue and expenses according to what they are entitled to in terms of the service concession arrangement.
GRAP 8 applies to binding arrangements where two or more parties have joint control. An entity that is party to a joint venture determines how to account for its share in the joint venture based on the entity’s role and the type of joint venture, in terms of the binding arrangement. An entity can be an investor in a joint venture (i.e. a party to a joint venture that does not have joint control) or a venturer (i.e. a party to a joint venture that has joint control). An investor accounts for its investment in the joint venture by applying the Standard of GRAP on Financial Instruments. A venturer accounts for its share of the joint venture based on the type of joint venture, which are jointly controlled operations, jointly controlled assets and jointly controlled entities.
GRAP 109 applies to arrangements where one entity (an agent), undertakes transactions with third parties on behalf, and for the benefit of, another entity (the principal). The principal recognises revenue and expenses that arise from transactions with third parties. The agent recognises only that portion of the revenue and expenses it receives or incurs in executing the transactions on behalf of the principal. The principal and the agent each recognises assets and liabilities arising from the arrangement in accordance with the requirements of other Standards of GRAP, i.e. they will each recognise assets and liabilities that meet the definition and recognition criteria in the applicable Standards of GRAP.
Joint ventures are therefore distinctly different from service concession arrangements where only one party to the arrangement controls the service concession asset and incurs the related obligations. Joint ventures are also distinctly different from principal-agent arrangements as joint control exists in joint ventures and not in principal-agent arrangements.
Service concession arrangements may be an example of a principal-agent arrangement. If a service concession arrangement is also a principal-agent arrangement, an entity assesses whether it is a principal or an agent in such an arrangement using GRAP 109 and accounts for the arrangement accordingly.

19. New FAQs (cont.) FAQ 6.6 Renegotiated payment arrangements
New FL / amendment of original?
Substantially different terms: extinguish original & recognise new
How measure new FL initially?
@ FV (normally transaction price)
Not transaction price: estimate with valuation technique
Consider if concessionary loan
Explain what it is: Entities in the public sector often have short term payables with a supplier that they are unable to service. Entities sometimes renegotiate the payment of their short term payables to a longer term loan. For example, an entity has a short term payable with a supplier with a 30 day credit period that it is unable to service. The entity renegotiates the payable with the supplier and agrees on a payment arrangement with a term of five years
New financial liability, or an amendment of the original financial liability?
GRAP : “An exchange between an existing borrower and lender of debt instruments with substantially different terms shall be accounted for as having extinguished the original financial liability, and a new financial liability recognised. Similarly, a substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the debtor) shall be accounted for as having extinguished the original financial liability and having recognised a new financial liability.”
When considering whether substantial modification made, consider GRAP 104.AG149: For the purpose of paragraph .81, the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability.”
b) How should an entity measure a renegotiated payment arrangement initially when it is a new financial liability
At fair value
GRAP 104.AG 81 guidance: The fair value of a financial instrument on initial recognition is normally the transaction price (i.e. the fair value of the consideration given or received). However, if part of the consideration given or received is for something other than the financial instrument, the fair value of the financial instrument is estimated, using a valuation technique. For example, the fair value of a long-term loan or similar receivable that carries no interest can be estimated as the present value of all future cash receipts discounted at the prevailing market rate(s) of interest for a similar instrument (similar as to currency, term, type of interest rate and other factors) with a similar credit rating...”
An entity that determines fair value of a loan using a valuation technique establishes an appropriate discount rate with reference to a loan that is similar, for example, a loan that is in a similar currency, for a similar period of time, has a similar type of interest rate, and with a similar credit rating. A government bond rate may be appropriate to use as a discount rate, but an entity should adjust it for specific circumstances of the financial liability.
Entities should also consider whether a renegotiated payment arrangement meets the definition of a concessionary loan. GRAP requires an entity to initially analyse a concessionary loan into its component parts and account for each component separately.

20. New FAQs (cont.) FAQ 7.3 Classifying asset not heritage
Based on intended use; apply principles in Standards
Asset decision tree
PPE (GRAP 17)
Use >1 period, &
Asset / significant portion used:
production/supply of goods/services;
rental to others; or
administrative purposes
IP (GRAP 16)
Earn rentals/
Hold asset / significant portion for capital appreciation/
Both
Rather than PPE
Inventory (GRAP 12)
Hold for sale / distribution in ordinary course of operations, or
Use in production process / rendering of services
Intangible (GRAP 31)
Capable of separated / divided from entity & sold, transferred, licensed, rented / exchanged; or
Arises from binding arrangement regardless rights transferable / separable from entity
From engagement with DAC

21. New FAQs (cont.) FAQ 7.4 Classifying research specimens
Heritage asset definition
Before research, cannot conclude that
has cultural, environmental, historical, natural, scientific, technological or artistic significance; &
to be held indefinitely for benefit of present & future generations

22. Amend existing FAQs FAQ 3.4 analysing expenses by nature / function
Explains what nature and function mean
Examples added illustrating inappropriate presentation:
Repairs & maintenance, grant expenses, contracted services, project expenses
Nature
Function
By character; direct goods / services acquired / assets consumed
By programme, activity / purpose for which incurred
Nature: identifies costs and expenses in terms of their character and groups expenses according to the kinds of economic benefits or service potential received in incurring those expenses, irrespective of their application in the entity’s operations and/or where the expenses are incurred. The entity therefore analyses the direct goods or services acquired or assets consumed – i.e. the main inputs that are consumed in order to accomplish an entity’s activities (what has been bought or used), and not the ultimate use thereof.
Function: analyses expenses according to the programme, activity from which the item arises, or purpose for which they were incurred, i.e. ultimately how used.
Examples of inappropriate line items by nature: repairs and maintenance, project expenditure, grant expenditure. These items are inappropriate when combining a number of different items by nature, e.g. consumable items, wages, administrative expenses and other overheads.

23. Amend existing FAQs (cont.)
FAQ 4.3 Services received in-kind
Align to GRAP 23 & clarify:
Recognise when:
significant to operations / service delivery objectives;
probable that FEB / SP will flow to entity; and
fair value of assets can be measured reliably
Disclose for recognised and unrecognised:
nature & type of major classes of goods/ services received in-kind
The previously FAQ was not updated to reflect the current requirements of GRAP 23 and referred to recognition being encouraged, but not required.
Recognition is required when the services received in-kind are significant to an entity’s operations and/or service delivery objectives as assets and revenue when it is probable that the future economic benefits or service potential will flow to the entity and the fair value of the assets can be measured reliably. As these services are immediately consumed, an entity will recognise an asset and revenue, as well as a decrease in the asset and an expense. [Note: asset refers to the receivable.]

24. Amend existing FAQs (cont.)
FAQ 6.1 Free basic services
Clarify expenses relating to free basic services not reclassified from nature to another line item such as “free basic services”
In the presentation in SFPER project, it was noted that sometimes an expense line item “free basic services” is included, which is presumably a reclassification of the expenses required to provide the free basic services (e.g. bulk water or electricity purchased, wages, etc.), reclassified into this line item.
This is incorrect. The expenditure should remain by their nature and should not be reclassified to such a line item.

25. Amend existing FAQs (cont.)
Assets designated as heritage by legislation not necessarily classified as heritage in financial statements
Not only heritage assets designated as such in legislation classified as heritage in financial statements
FAQ 7.1 & 7.2 Classify asset as heritage
Move from FAQ 2.9
7.1
7.2
In the presentation in SFPER project, it was noted that sometimes an expense line item “free basic services” is included, which is presumably a reclassification of the expenses required to provide the free basic services (e.g. bulk water or electricity purchased, wages, etc.), reclassified into this line item.
This is incorrect. The expenditure should remain by their nature and should not be reclassified to such a line item.

26. Amend existing FAQs (cont.)
FAQ 7.5 Classify living resource as heritage
Move from FAQ 2.6
Heritage asset definition
Held indefinitely for benefit of present & future generations NOT demonstrated in living animals & plants
have distinct lifecycles; cannot be held indefinitely

27. Amend existing FAQs (cont.)
FAQ 7.6 Classifying statues, sculptures, monuments, similar structures & replicas as heritage assets
Move from FAQ 2.5
Person / event commemorated, or object duplicated, may have significance
Assess if statue, sculpture, monument, similar structure / replica also has

28. Other minor amendments
Updated section 1 Reporting Framework and Related Issues for:
Update for 2017/18 GRAP Reporting Framework
Clarify FAQ 1.3 status of Standards not in reporting framework & reflect approval by Minister of Finance
Delete FAQ 1.7; relevant info included in FAQ 1.3
Add disclosure requirements to (now) FAQ 1.7
Footnote ref to new Conceptual Framework
Move FAQ 7.1 to section 6 as FAQ 6.5; rename section 7 to Heritage Assets
FAQ 1.3 on GRAP 105, 106 and 107
FAQ 7.1 on determining the discount rate for calculating provisions to section 6 as question 6.5 (was only question in section; now used for heritage asset issues)

29. 3. Overview of other current projects

30. Overview of current projects
Revision of GRAP 104 on Financial Instruments
Interpretation on Adjustments to Revenue
Amendments to IGRAP 1
Guideline on Accounting for Landfill Sites
Guideline on The Application of Materiality in the Preparation of Financial Statements 30

31. 1. Revision of GRAP 104 Revision of GRAP 104 to align with:
IFRS 9, and IAS 32, IFRS 7
Aligned where appropriate for local circumstances
Proposed Exposure Draft to be issued for comment

32. High level changes Area Key changes Scope
Now in: Financial guarantee contracts & some loan commitments
Initial measurement
Concessionary investments
Credit impaired concessionary loans
Classification of financial instruments
FA: Based on (a) management model, and (b) characteristics of contractual cash flows
FL: depends on instrument
Subsequent measurement
Amortised cost, fair value, & cost for some financial assets (no change)
Incurred -> expected credit loss impairment model
Recognition of gains & losses for own credit risk on designated financial liabilities

33. High level changes (cont.)
Area
Key changes
Presentation
Guidance on offsetting financial assets & financial liabilities
Disclosure
Changes in classification resulted in changes in disclosure
New disclosures on credit risk management practices, evaluation of credit losses on financial performance & position, & credit risk exposure
Offsetting financial assets & financial liabilities

34. 2. Interpretation on Adjustments to revenue
Relates to revenue levied i.t.o. legislation
Provides guidance on when adjustments:
corrections of errors
Did not follow legislated process, tariff, basis, etc. incorrectly applied
changes in estimates
New information available, changes in circumstances
Proposed IGRAP for comment

35. 3. Guideline on Accounting for landfill sites
Objective: provide guidance to address inconsistent accounting practices
Scope: General & hazardous waste
Accounting for:
Land in a landfill
Landfill site asset
Rehabilitation provision
Format guideline; Board’s due process
ED 166
Objective: provide guidance to address inconsistent accounting practices
Improve comparability
Provide necessary information to users
Scope:
Landfill sites handling general & hazardous waste
Entities required to comply Waste Act & Environmental Conservation Act
By analogy, other rehab provisions, but mindful of specific legislation

36. 4. Guideline on Materiality
Guideline on The Application of Materiality in the Preparation of Financial Statements
Currently under development  July 2018 for comment
How to apply materiality in preparing financial statements, including case studies

37. 4. Current Exposure Drafts

38. Current Exposure Drafts Comment deadline (locally)
ED no
Title
Type of doc
Comment deadline (locally)
ED 161
Leases
IPSASB ED
15 June 2018
ED 162
Strategy and work plan
1 June 2018
ED 163
Improvements to IPSAS 2018
30 June 2018 38

39. Current Exposure Drafts (cont.) Comment deadline (locally)
ED no
Title
Type of doc
Comment deadline (locally)
ED 164
Proposed Interpretation on Accounting for Adjustments to Revenue
Exposure Draft
31 August 2018
ED 165
Proposed amendments to IGRAP 1 39

40. Current Exposure Drafts (cont.) Comment deadline (locally)
ED no
Title
Type of doc
Comment deadline (locally)
ED 166
Proposed Guideline on Accounting for Landfill Sites
Exposure Draft
30 November 2018
ED 167
Proposed amendments to GRAP 104
7 December 2018 40

41. Stakeholder outreach and communication

42. Outreach activities
Continuous promotion of GRAP by improving outreach to stakeholders (workshops, meetings, seminars, SAICA webinars)
Stakeholders should liaise with ASB when requiring any engagements
Newsletters & Meeting Highlights
Social media
Handbook (order form available on website or on request)

43. Translation Standards translated into isiZulu, Sesotho and Afrikaans
The official version is the English language version
Available on website

44. Website
Overview of changes made to Standards with effect from 1 April 2016
Three set of Standards:
Those entities with a December year-end
The Standards applicable for the current year
The Standards applicable for the next financial year
Please register on website if you want to be advised of changes:

45. Submitting comments
Visit our website for more information on these Exposure Drafts
Submit your comments to

46. THANK YOU

47. Contact details Tel: (011) 697-0660 Fax: (011) 697-0666
Website: