FAQs On Standards of GRAP Updated Mar 2022

Frequently Asked Questions on the Standards of
GRAP
Disclaimer
These Frequently Asked Questions (FAQs) have been prepared by the Secretariat of the Accounting
Standards Board in consultation with the technical division of the Auditor-General of South Africa
(AGSA) and the Office of the Accountant-General at National Treasury (OAG). These FAQs have not
been approved by the Board. Consequently, they are not authoritative and do not form part of the
Standards of Generally Recognised Accounting Practice (GRAP).
The questions and responses outlined in this document are based on queries commonly received by
the Secretariat, the AGSA and the OAG and have been compiled to assist preparers of the financial
statements. The questions and responses provide a summarised analysis of topical issues and are not
comprehensive. Any examples provided are illustrative only and do not represent a comprehensive list
of scenarios or circumstances that may exist in practice. As a result, the examples are not prescriptive
and should not be used by analogy to other circumstances. In all instances, readers are encouraged to
refer to the relevant Standard of GRAP, Interpretation of the Standards of GRAP or Directive.
The Standards of GRAP apply only to material items. Consequently, the FAQs have been drafted on
the basis that a particular issue is material. When considering the FAQs, entities should apply
judgement in determining whether an issue outlined in the FAQs is material to its operations.
The questions and responses focus on issues that are of interest to public entities, constitutional
institutions, municipalities, municipal entities, Parliament and the provincial legislatures, trading entities
and Public Further Education and Training Colleges collectively called “entities” in this document
(unless indicated otherwise).
Action Date Description of change

Issued 15 February 2011 Publication of combined FAQs for all entities.
Updated 2 March 2022 Added Section 1 on the Conceptual Framework, and relocated
FAQs 1.11, 1.12 and 1.13 (renumbered as 1.1, 1.2 and 1.3) to
this new section. This resulted in the renumbering of all other
sections and FAQs.
Updated (now) section 2 for the 2021/2022 reporting
framework.
Added the following FAQs:
• FAQ 2.1 on the purpose and status of Directive 5.
• FAQ 2.5 on the impact of recently issued IPSAS and IFRS
Standards on the 2021/22 GRAP reporting framework
Updated references in (now) FAQs 4.11, 5.1, 7.1 and 8.1.
Amended (now) FAQ 8.3 to include living and non-living
resources.
FAQs on the Standards of GRAP
FAQ Subject
Section 1 – Conceptual Framework
1.1 What is the role of the Conceptual Framework and when is it applied?
1.2 What is the effective date of the Conceptual Framework?
1.3 What is the role of materiality in the reporting of information in the financial statements?
Section 2 – Reporting Framework and Related Issues
2.1 What is the status and purpose of Directive 5?
2.2 What reporting framework should be used by entities for the 2021/2022 reporting period?
2.3 Are entities allowed to early adopt Standards of GRAP for which the Minister of Finance has
determined an effective date?
2.4 What Standards of GRAP have been issued by the Board but are not yet effective, and what
effect do these Standards have on the GRAP Reporting Framework for 2021/2022?
2.5 What is the impact of recently issues IPSAS and IFRS Standards on the 2021/22 GRAP
reporting framework?
2.6 Do entities use IAS 20 on Government Grants to account for grants, transfers and other
types of non-exchange revenue?
2.7 Per Directive 5, what does it mean to formulate an accounting policy?
2.8 At what date should deemed cost be determined using Directive 7 if an entity did not
complete its adoption of Standards of GRAP within the specified time frame?
2.9 What is the intention of the phrase “effective for financial periods commencing on or after 1
April 201X”, when referring to the applicability of the GRAP Reporting Framework to different
entities?
2.10 When does the three-year transitional period relating to the initial adoption of Standards of
GRAP expire?
2.11 What are the implications on compliance with the Standards of GRAP when an exemption
is granted by the Minister of Finance?
2.12 What versions of the Standards of GRAP should be applied on first time adoption?
2.13 What disclosures should an entity provide on newly effective Standards of GRAP?
2.14 What should be disclosed about Standards of GRAP where no effective date has been
approved by the Minister of Finance?
Section 3 – Asset Related Accounting Issues (GRAP 12, 16, 17, 27, 31, Directive 11, IGRAP 18)
3.1 Must an asset always have a residual value?
3.2 What is the treatment of fully depreciated assets still in use (other than on the initial adoption
of the Standards of GRAP)?
3.3 How does a municipality account for rainwater?
3.4 Can the valuation roll be used to measure an entity’s assets at fair value?
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3.5 How should an entity apply the requirements in Directive 11 retrospectively in the absence
of cost records for assets on the date of adoption of the Standards of GRAP?
3.6 What are the implications of non-recognition of certain assets when permitted by Standards
of GRAP?
3.7 Should an entity always use an external valuer or expert to determine the fair value of an
asset?
3.8 Are changes to useful lives, residual values and depreciation methods changes in an
accounting policy or a change in accounting estimate?
3.9 Do land invasions affect whether an entity recognises land?
3.10 How should an entity account for servitudes?
3.11 How should an entity account for library books?
3.12 When should an entity start depreciating major spare parts and stand-by equipment?
3.13 How should information on the cumulative expenditure on assets in the process of being
constructed or developed be presented where an entity does not have this information for
prior years?
3.14 What amount should be disclosed for projects that are taking significantly longer to complete
than expected and what does “significantly longer” mean?
3.15 How should municipalities classify electricity and water meters?
3.16 Will the presentation of assets in the financial statements increase an asset’s risk profile?
3.17 Should assets on land be accounted for separately from the land?
Section 4 – Presentation and disclosure
4.1 In preparing the financial statements, should a municipality use the presentation
requirements and bases of preparation outlined in the Standards of GRAP or the budget
regulations?
4.2 How does an entity decide which accounting policies should be included in its financial
statements?
4.3 Should a municipality disclose the councillors’ remuneration on an individual basis or in
aggregate?
4.4 What does it mean to analyse expenditure by either nature or function?
4.5 What items should be included in “cash and cash equivalents”?
4.6 What are the requirements for entities to classify revenue as exchange or non-exchange?
4.7 What should be considered when presenting information in addition to what is required by
GRAP 24 on a comparison of actual and budget information?
4.8 How should entities determine the amount of repairs and maintenance expenditure
incurred?
4.9 When should an entity present revenue and receivables from exchange and non-exchange
transactions on the face of the financial statements or in the notes?
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4.10 Should all errors be accounted for using GRAP 3?

4.11 Are all adjustments related to the adoption of a new pronouncement a change in accounting
policy in accordance with GRAP 3?
4.12 When should GRAP 109 be applied?
4.13 Is VAT receivable or payable an exchange or a non-exchange receivable or payable?
4.14 When should geographical information be provided as required by GRAP 18?
4.15 What is the interaction of legislated disclosure requirements and disclosure requirements in
Standards of GRAP?
4.16 What is the interaction of Standards of GRAP where two or more Standards have similar
requirements?
4.17 What are the disclosure requirements in the Standards of GRAP on commitments?
4.18 How should the cash movement in consumer deposits be presented in the cash flow
statement?
Section 5 – Accounting for Non-exchange Revenue
5.1 How should entities account for non-exchange revenue, such as transfer payments
received?
5.2 Should revenue received from licence fees and similar transactions be accounted for as
exchange or non-exchange revenue by the issuer?
5.3 Do in-kind benefits only involve goods and services provided by individuals and how should
in-kind benefits be accounted for?
5.4 What is the effect of IGRAP 1 on traffic fines?
5.5 What is the interaction between GRAP 20 and GRAP 23 for services in-kind?
5.6 How should entities account for revenue related to donated assets, e.g. land and buildings?
Section 6 – Accounting for Employee Benefits
6.1 How should vacation leave be accounted for?
6.2 Must an entity appoint an actuary at every reporting date to measure its defined benefit
obligations?
6.3 Are informal arrangements to provide post-employment benefits within the scope of GRAP
25?
Section 7 – Sundry Accounting Issues
7.1 How should a municipality account for free or subsidised goods and services, as well as
rebates provided to its consumers and other foregone revenue?
7.2 Are there any accounting considerations relating to World Cup Stadiums after the World
Cup?
7.3 How should an entity account for expenses it incurs, but which are settled by another
entity?
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7.4 What is the interaction between GRAP 32, GRAP 36 and GRAP 37, and GRAP 109?
7.5 What should be considered when determining the discount rate for calculating provisions
in accordance with GRAP 19?
7.6 How should an entity account for renegotiated payment arrangements?
7.7 When should revenue be recognised for the sale of pre-paid electricity?
7.8 How should conditional grants be accounted for by the transferor when conditions have
not yet been fulfilled, or have been partially fulfilled by the recipient?
7.9 What accounting should a transferor apply in a transfer of functions between entities not
under common control?
7.10 When should a transfer of functions be accounted for in accordance with GRAP 105 and
when should GRAP 106 be applied?
7.11 What should be considered in deciding whether a transaction of event should be
accounted for as a merger?
7.12 What is the interaction between GRAP 11 and the Housing Guideline?
Section 8 – Heritage Assets
8.1 Should all assets that are designated as a heritage asset by legislation or similar means be
classified as a heritage asset in the entity’s financial statements?
8.2 Should an entity only classify an asset as a heritage asset if it is designated as such in
terms of legislation or similar means?
8.3 How should an asset be classified if it does not meet the definition of a heritage asset?
8.4 How should specimens held for research be classified in an entity’s financial statements?
8.5 Can a living animal or plant be classified as a heritage asset?
8.6 Are statues, sculptures, monuments, similar structures and replicas classified as heritage
assets?
8.7 How does an entity distinguish heritage assets from “old assets”?
8.8 What should be considered when determining a reliable value for a heritage asset?
8.9 How should items collected by an entity be classified in its financial statements?
Section 9 - Financial Instruments
9.1 When (and/or how) should receivables and payables be discounted in accordance with
GRAP 104?
Part A – How should entities determine when an initial credit period granted or received is
consistent with terms used in the public sector, either through established practices or
legislation for purposes of applying the discounting exemption in GRAP 104?
Part B – Can the exemption in GRAP 104.AG87 be applied to receivables if the interest
rate is not market-related?
Part C - What are some common misconceptions about the discounting requirements?
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9.2 What is the effective interest rate and how do you calculate it?
Section 10 – Interests in Other Entities
10.1 How should the definition of investment entities be applied?
Section 11 – Statutory receivables
11.1 How do statutory receivables arise?
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Section 1 – Conceptual Framework

1.1 What is the role of the Conceptual Framework and when is it applied?
The Board issued its new Conceptual Framework for General Purpose Financial Reporting (the
Conceptual Framework) in June 2017. It replaced the Framework for the Preparation and
Presentation of Financial Statements.
Objective of the Conceptual Framework
The purpose of the Conceptual Framework is to establish concepts that are to be applied in
developing Standards of GRAP for the preparation and presentation of general purpose financial
statements (GPFSs) of public sector entities. The Board broadened the scope of the Conceptual
Framework so that it covers concepts for the preparation and presentation of general purpose
financial reports (GPFRs) which deals with information reported outside the financial statements,
and which complements and supplements the information in the financial statements.
The Conceptual Framework can be applied by various parties. It is intended to:
(a) provide the Board with a conceptual basis for developing Standards of GRAP;
(b) promote the advancement of financial reporting so that the preparation and presentation of
GPFRs by preparers is comprehensive, cohesive and consistent with the concepts used to
prepare and present GPFSs;
(c) assist preparers of GPFSs in applying Standards of GRAP and in dealing with topics where
there is no Standard of GRAP;
(d) provide users of GPFSs with information on the basis on which GPFSs are prepared and to
assist them to hold entities accountable and make decisions;
(e) assist users of GPFSs in interpreting the information contained in GPFSs prepared in
conformity with the Standards of GRAP; and
(f) provide auditors with a framework to form an opinion as to whether financial statements
conform with Standards of GRAP.
Authority of the Conceptual Framework
The Conceptual Framework is not authoritative. This means that it is does not establish
authoritative requirements for financial reporting by public sector entities that adopt Standards of
GRAP, nor does it override the requirements of any specific Standard of GRAP.
The authoritative requirements relating to the recognition, measurement and presentation of
transactions are specified in the Standards of GRAP. However, the Conceptual Framework can
provide guidance when dealing with topics that are not covered in a particular Standard of GRAP.
In such cases, the Conceptual Framework may be considered by preparers and others to
determine the applicability of the definitions of the elements used in the financial statements,
recognition criteria, measurement principles and other concepts identified in the Conceptual
Framework.
Similarly, the Conceptual Framework does not override any existing legislative or similar
requirements issued by other organisations that prescribe requirements for the preparation and
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presentation of information in the GPFRs. As a result, it does not establish requirements for what
information should be included in the GPFRs – it only sets out the broad principles on how that
information can be prepared and presented.
Since the Conceptual Framework introduces new concepts, including new recognition criteria and
measurement bases, there may be inconsistencies between the concepts in the Conceptual
Framework and the existing principles in the Standards of GRAP. In such cases, the principles in
the Standards will take precedence up until the Board amends the principles in existing
Standards.
1.2 What is the effective date of the Conceptual Framework?
Since the Conceptual Framework is not authoritative, it does not have an effective date or
transitional provisions. The Conceptual Framework is applicable from the date when it was issued
by the Board, i.e. June 2017.
1.3 What is the role of materiality in the reporting of information in the financial statements?
In the public sector, resources are raised from taxpayers, donors, and other resource providers
and allocated to entities for use in the provision of services to citizens and other service
recipients. The objective of financial reporting is to provide relevant information about the entity
that is useful to the users of the financial statements to hold management accountable and to
make decisions.
The diagram below illustrates the financial reporting process.
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The Standards of GRAP set out the principles for the preparation of financial statements. The
Standards ensure that relevant, credible and consistent information is provided in the financial
statements which enhances accountability1, comparability and informed decision-making.
Legislation sets out which entities are required to prepare financial statements using the
principles in the Standards of GRAP. Management is responsible for the preparation of the
financial statements that comply with the requirements in the Standards of GRAP. This means
that management is responsible for ensuring that the financial statements provide relevant
information about the resources entrusted to an entity for service delivery, and compliance with
legislation, regulation, or other authority that governs the entity’s operations and service delivery.
The relevance of the information included in the financial statements is affected by its nature and
materiality. Information is material if its omission or misstatement could influence the discharge
of accountability by management, or the users’ decisions. Materiality is considered both when
preparing and auditing the financial statements.
The Guideline on The Application of Materiality to Financial Statements provides guidance to
preparers when making materiality assessments and decisions in applying the Standards of
GRAP. The Guideline introduces a process that may be followed by preparers when applying
materiality in the financial statements.
The Standards of GRAP set out accounting policies that the Board has concluded result in
financial statements containing relevant and reliable information about the transactions, other
events, and conditions to which they apply. The requirements of the Standards apply only to
material items, transactions and events. Items, transactions and events are material if their nature
or size (or both) affects users’ decisions. Materiality therefore ensures that the most relevant
information is provided to users in the financial statements.
Preparers should consider materiality in (a) developing accounting policies, which dictate how
items, transactions and events are recognised, measured, presented and disclosed in the
financial statements, and (b) assessing misstatements, errors and omissions. When transactions
and events occur, they are recorded by entities. Preparers apply the accounting policies
developed in identifying, aggregating and summarising the information about those transactions
and events in the financial statements.
Since the accounting policies set out in the Standards of GRAP are subject to materiality
considerations, management may conclude that those requirements need not be applied when
the effect of applying them is immaterial. However, it is inappropriate to make, or leave
uncorrected, immaterial departures from the Standards to achieve a particular presentation of an
entity’s financial position, financial performance, or cash flows. Applying the Guideline will ensure
that materiality is applied properly when applying the Standards and improve the quality of the
financial statements by reducing clutter.
By law, the financial statements are required to be audited as this will give the users of the
financial statements assurance that management has fairly presented the state of affairs of an
entity. Auditors consider materiality in the context of expressing an audit opinion, and in
1
Accountability is the cornerstone of financial reporting in the public sector. It is based on the belief that citizens have the right to
know, a right to receive openly declared facts that may lead to a public debate.
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determining the nature, timing and extent of their audit procedures. As a consequence, auditors
assess materiality based on whether the omission or misstatement of information could influence
the decisions of users, and they evaluate the information in the financial statements against the
principles in the Standards of GRAP to determine whether or not the financial statements are
materiality misstated.
While the definition of materiality is the same for both preparers and auditors, they consider
materiality from different perspectives. As a result, differences in the application and assessment
of material by preparers and auditors are inevitable.
Note: This FAQ only deals with materiality in relation to the application of the Standards of GRAP.
It does not apply to assessments or decisions related to materiality in relation to legislation,
regulations or similar.
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Section 2 – Reporting Framework and Related Issues
2.1 What is the status and purpose of Directive 5?
Sections 89(1)(a) and (b) of the Public Finance Management Act, Act No. 1 of 1999 (PFMA)
require the Board to set Standards of GRAP, and prepare and publish directives and guidelines
concerning the Standards of GRAP. GRAP 1 defines Standards of GRAP as comprising the
Standards, Interpretations of the Standards of GRAP and Directives issued by the Accounting
Standards Board2. Directives issued by the Board in terms of section 89(1)(b) of the PFMA
therefore have the same authority as the Standards. This means that Directives are authoritative
and entities have to apply them when preparing their financial statements, as far as they are
applicable.
Directive 5 determines the GRAP reporting framework for a particular reporting period. The
Appendices list the standards and pronouncements that form the GRAP Reporting Framework
for that particular reporting period. They are updated each year to include the reporting framework
for the upcoming reporting period.
Entities therefore have to apply Directive 5, and the list of pronouncements in the applicable
Appendix to prepare financial statements for a particular reporting period.
2.2 What reporting framework should be used by entities for the 2021/2022 reporting period?
Entities use Directive 5 in preparing their financial statements for the financial years ended 31
March, 30 June and 31 December 2022. Appendix C: 1 April 2021 to Directive 5 lists the
Standards of GRAP and other pronouncements that should be used by entities to prepare
financial statements for the years ended 31 March, 30 June and 31 December 2022.
2.3 Are entities allowed to early adopt Standards of GRAP for which the Minister of Finance
has determined an effective date?
Entities are not prohibited from early adopting the Standards of GRAP for which the Minister of
Finance has determined an effective date.
Entities may not early adopt Standards of GRAP if the Minister of Finance has not determined
an effective date for that Standard, but may consider that Standard in developing an accounting
policy3.
2.4 What Standards of GRAP have been issued by the Board but are not yet effective, and
what effect do these Standards have on the GRAP Reporting Framework for 2021/2022?
Directive 5 determines the GRAP reporting framework for a particular reporting period. This FAQ
has been developed in accordance with Directive 5 for 2021/2022. Refer to the ASB website:
https://www.asb.co.za/wp-content/uploads/2021/10/Directive-5-Determining-the-GRAP-
Reporting-Framework-1-April-2021.pdf.
Standards of GRAP that have been issued by the Board but for which the Minister of Finance
has not determined an effective date cannot be early adopted. They may however be used to
2
Guidelines are not included as they are not authoritative. The Board may, however, include particular Guidelines in the GRAP
Reporting Framework, making them authoritative.
3
GRAP 104 was revised in 2019. The effective date of the Standard was determined by the Minister of Finance as 1 April 2025.
The transitional provisions require adoption of the revised Standard taken as a whole. Partial or incremental adoption is not
permitted.
formulate an appropriate accounting policy 4, but only if a specific IPSAS or IFRS has not been
included in the Appendix to be applied for a particular reporting period.
As a result of the timing when Directive 5 is finalised, some Standards of GRAP approved and
issued by the Board but not yet effective may not be included in the Directive. An entity may
consider such Standards in formulating its accounting policy4.
For the 2021/2022 reporting period, the following pronouncements are not yet effective or are not
authoritative but may be used in formulating an accounting policy by public entities, constitutional
institutions, Parliament and provincial legislatures, municipalities and municipal entities, trading
entities and public TVET colleges:
Document Title of pronouncement Impact on GRAP Reporting Framework

Guideline Accounting for Landfill Sites Compliance with the Guideline is not required but
entities may consider it in formulating an
accounting policy.
Guideline The Application of Materiality The Guideline is not authoritative, but entities are
to Financial Statements encouraged to consider it when preparing financial
statements.
2.5 What is the impact of recently issues IPSAS and IFRS Standards on the 2021/22 GRAP
reporting framework?
Directive 5 is updated each year to include the reporting framework for the upcoming reporting
period. The Appendices outlines the pronouncements issued by the ASB, the IPSASB and IASB
that should either be applied or considered by entities in preparing their financial statements for
a particular reporting period. Pronouncements of other standard-setters can only be used to
formulate accounting policies; they cannot be adopted by entities.
There are several IPSAS and IFRS Standards that have been issued recently and questions
have been raised about whether they should be considered by entities. IPSAS or IFRS Standards
are used to formulate an accounting policy in the absence of a Standard of GRAP dealing with
an issue. Any IPSAS or IFRS Standards which the Board believes should be considered by
entities in formulating accounting policies are included in the relevant Appendix to Directive 5.
Any IPSAS or IFRS Standards not included in the relevant Appendix to Directive 5 may not be
considered by entities in formulating accounting policies.
The following recently issued IPSAS and IFRS Standards should not be applied by entities, either
by directly adopting them or using them to formulate accounting policies, for the 2021/22 reporting
period.
4
GRAP 25 was revised in 2021. Due to the timing of the approval of the revised GRAP 25 it is not included in Directive 5, And
therefore the GRAP reporting framework, for 2021/22. The effective date of the Standard is yet to be determined by the Minister
of Finance. The transitional provisions require adoption of the revised Standard taken as a whole. Partial or incremental ado ption
is not permitted.
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Title of Standard Status and rationale

IPSAS 39 on GRAP 25 was revised in 2021 to align it with IPSAS 39. The Minister
Employee Benefits of Finance is yet to determine an effective date. Once the effective date
is known, relevant changes will be made to the reporting framework.
IPSAS 40 on Public GRAP 105, GRAP 106 and GRAP 107 deal with “public sector
Sector Combinations combinations”
IPSAS 41 on GRAP 104 was revised in 2021 to align it with IPSAS 41. See FAQ 2.3.
Financial Instruments
IPSAS 42 on Social The Board did not support aspects of both the insurance and general
Benefits approaches in IPSAS 42. The application of the general approach to
some schemes locally may not result in the fair presentation of the
scheme’s liabilities. As a result, IPSAS 42 should not be applied. The
Board has started a project to develop a Standard of GRAP on social
benefits.
IFRS 13 on Fair The IPSASB issued ED 77 on Measurement which includes proposed
Value Measurement guidance on fair value which is based on IFRS 13. ED 77 also includes
guidance on other measurement bases for assets and liabilities in the
public sector. As the Standards of GRAP are based on IPSAS, until a
Standard of GRAP has been issued, the approach to measuring fair
value (or other bases) is unchanged.
IFRS 14 on The Standard only applies to first-time adopters of IFRS Standards. It
Regulatory Deferral is not applicable to entities that apply Standards of GRAP.
Accounts
IFRS 15 on Revenue The IPSASB issued ED 70 on Revenue with Performance Obligations.
from Contracts with As the Standards of GRAP are based on IPSAS, until the Standards
Customers of GRAP on revenue are revised, the approach to recognising and
measuring revenue, both exchange and non-exchange, is unchanged.
IFRS 16 on Leases The IPSASB issued IPSAS 43 on Leases which is based on IFRS 16.
Until a revised Standard of GRAP is issued, the accounting for leases
is unchanged.
IFRS 17 on Insurance IFRS 17 is only effective from 1 January 2023. The ASB will consult
Contracts with entities that undertake insurance-like activities about the potential
implications of IFRS 17.
2.6 Do entities use IAS 20 on Government Grants to account for grants, transfers and other
types of non-exchange revenue?
No, entities should apply the requirements of GRAP 23 to account for grants, transfers and other
non-exchange revenue (e.g. taxes and fines received). Paragraphs .16 and .17 of Directive 5
indicate that IFRS Standards should not be applied if they are in conflict with the ASB’s
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Framework for the Preparation and Presentation of Financial Statements5 or existing Standards
of GRAP or IPSAS. IAS 20 may therefore not be applied.
2.7 Per Directive 5, what does it mean to formulate an accounting policy?
To formulate an accounting policy using Standards of GRAP that are not yet effective means
that:
• Entities use the Standards of GRAP that are not yet effective (as outlined in FAQ 2.4) to
determine the recognition, measurement and presentation of a transaction or event.
Accounting policies should describe, depending on the nature of the item, transaction or
event, the classification, recognition, initial and subsequent measurement and
derecognition.
• Entities consider the disclosure requirements in the Standards of GRAP that are not yet
effective for disclosing a particular transaction or event.
Where an entity changes its accounting policy, it must consider the requirements of GRAP 3.
When an entity has not applied a new Standard of GRAP that is not yet effective, GRAP 3.32
requires the entity to disclose:
(a) this fact; and
(b) known or reasonably estimable information relevant to assessing the possible impact that
application of the new Standard will have on the entity’s financial statements in the period of
initial application.
An entity is only required to disclosure this information for Standards that are applicable to the
entity.
2.8 At what date should deemed cost be determined using Directive 7 if an entity did not
complete its adoption of Standards of GRAP within the specified time frame?
Directive 7 allows an entity to determine the deemed cost of its assets when cost information is
not available for these assets on the initial adoption of Standards of GRAP. The deemed cost of
the assets is determined at the “measurement date” and is defined in Directive 7 as follows:
Measurement date is either (a) the date that an entity adopts the Standards of GRAP
and is the beginning of the earliest period for which an entity presents full
comparative information, in its first financial statements prepared using Standards of
GRAP; or (b) the transfer date or the merger date.
Entities may be permitted a three-year period within which to measure certain assets. If an entity
is required to adopt Standards of GRAP on 1 April 20x1, applying this transitional relief period,
along with the relief to use deemed cost, means that the measurement date is 1 April 20x0.
If an entity has not determined the deemed cost of those assets within the scope of Directive 7,
they should consider GRAP 3, and consider whether this change in accounting policy can be
5
In June 2017, the Board replaced the Framework for the Preparation and Presentation of Financial Statements with the
Conceptual Framework for General Purpose Financial Reporting.
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applied retrospectively from the measurement date, or whether it is impracticable to do so.

GRAP 3.26 states that:
When it is impracticable to determine the period-specific effects of changing an
accounting policy on comparative information for one or more prior periods
presented, the entity shall apply the new accounting policy to the carrying amounts
of assets and liabilities as at the beginning of the earliest period for which
retrospective application is practicable….
An entity should consider whether it is impracticable to retrospectively adjust comparative
information using the following criteria, which are defined in GRAP 3:
Impracticable: Applying a requirement is impracticable when the entity cannot apply
it after making every reasonable effort to do so. For a particular prior period, it is
impracticable to apply a change in an accounting policy retrospectively or to make a
retrospective restatement to correct an error if:
(a) the effects of the retrospective application or retrospective restatement are not
determinable;
(b) the retrospective application or retrospective restatement requires
assumptions about what management’s intent would have been in that period;
or
(c) the retrospective application or retrospective restatement requires significant
estimates of amounts and it is impossible to distinguish objectively information
about those estimates that:
(i) provides evidence of circumstances that existed on the date(s) as at
which those amounts are to be recognised, measured or disclosed; and
(ii) would have been available when the financial statements for that prior
period were authorised for issue from other information.
In applying GRAP 3, an entity assesses whether it is impracticable to determine the deemed cost
of assets retrospectively as at the measurement date (1 April 20x0) as required by Directive 7. It
may be impracticable to determine the deemed cost retrospectively if, for example, the following
circumstances exist:
(a) Relevant data may not have been collected in the prior period and cannot be obtained by
alternative means that allows for retrospective application.
(b) The entity is required to make significant estimates and assumptions about conditions that
existed at a point in time in the past and cannot do so objectively without using hindsight.
However, it should be kept in mind that impracticability regarding the retrospective determination
of deemed cost can only be claimed after the entity has made, and can demonstrate that it made,
every reasonable effort to comply with the requirements of Directive 7.
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2.9 What is the intention of the phrase “effective for financial periods commencing on or after
1 April 201X”, when referring to the applicability of the GRAP Reporting Framework to
different entities?
Directive 5 prescribes the Standards of GRAP and pronouncements that are applicable to entities
effective for financial periods commencing on or after 1 April of each year.
An entity’s financial period is the period of time for which information is reported in its annual
financial statements. Annual financial statements cover the accounting cycle of an entity from the
start to the end of the reporting period. The start date is the first day of a financial period and the
end date, which is also known as the “reporting date”, is the last day of an entity’s financial period.
The application of the meaning of “effective for financial periods commencing on or after” can be
illustrated using the following scenarios:
• Entities, such as public entities, constitutional institutions, Parliament and the provincial
legislatures, have a financial period commencing on 1 April. They are required to apply the
GRAP Reporting Framework that is prescribed from 1 April 2021 in preparing their financial
statements for the 2021/2022 financial period.
• Municipalities and municipal entities have a financial period commencing on 1 July. They
are required to apply the GRAP Reporting Framework that is prescribed from 1 April 2021
in preparing their financial statements for the 2021/2022 financial period.
• Public TVET colleges have a financial period commencing on 1 January. They are required
to apply the GRAP Reporting Framework prescribed from 1 April 2021 in preparing their
financial statements for the year 1 January 2022 to 31 December 2022.
2.10 When does the three-year transitional period relating to the initial adoption of Standards
of GRAP expire?
Directives outline the transitional provisions and transitional arrangements for the different
entities that adopt Standards of GRAP.
In some of the Directives, the transitional provisions are such that entities are not required to
measure items for reporting periods beginning on or after a date within three years following the
date of initial adoption of the relevant Standard of GRAP.
This three-year transitional period commences on the date that an entity initially adopts the
Standards of GRAP, i.e. at the beginning of a reporting period. Full compliance with the relevant
Standard of GRAP is required by the end of the third year. For example, if an entity adopts
Standards of GRAP on 1 April 20X1 and decides to take advantage of the relief period in the
Directive, it must comply in full with the Standards of GRAP by 31 March 20X4.
2.11 What are the implications on compliance with the Standards of GRAP when an exemption
is granted by the Minister of Finance?
Background
The Minister of Finance (the Minister) has in some instances granted entities exemption from
applying a Standard(s) of GRAP or a requirement thereof. This FAQ provides guidance on the
implications of such an exemption on asserting compliance with the Standards of GRAP.
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Requirements
GRAP 1.26 states the following:
Departures from the requirements of a Standard of GRAP in order to comply with
statutory or legislative reporting requirements do not constitute departures that
conflict with the objective of financial statements set out in paragraph .21 of this
Standard. If such departures are material an entity cannot claim compliance with
Standards of GRAP.
Section 92 of the Public Finance Management Act, Act No. 1 of 1999 (PFMA) grants the Minister
the power to approve an exemption from any specific provision of the PFMA, including an
exemption from applying a Standard(s) of GRAP or a requirement thereof, for a period as
determined by the Minister.
An exemption granted by the Minister can be seen as a departure from applying a Standard(s)
of GRAP, or a requirement thereof, as a result of statutory or legislative reporting requirements.
The Framework for the Preparation and Presentation of Financial Statements6 (the Framework)
describes the objective of financial statements and materiality as:
.26 The objective of financial statements is to provide information … that is useful to
a wide range of users. Financial statements also show the results of the stewardship
of management, and the accountability of management for the resources entrusted
to it.
.47 Information is material if its omission, misstatement, or non-disclosure could
influence the decisions of users made on the basis of the financial statements.
Materiality depends on the size of the item or error judged in the particular
circumstances of its omission, misstatement, or non-disclosure in the financial
statements.
When an entity departs from a requirement of a Standard of GRAP in accordance with
GRAP1.21, it shall make the following disclosures as per GRAP 1.22:
(a) that management has concluded that the financial statements present fairly
the entity’s financial position, financial performance and cash flows;
(b) that it has complied with applicable Standards of GRAP, except that it has
departed from a particular requirement to achieve a fair presentation;
(c) the title of the Standard of GRAP from which the entity has departed, the
nature of the departure, including the treatment that the Standard of GRAP
would require, the reason why that treatment would be so misleading in the
circumstances that it would conflict with the objective of financial statements
in the Framework for the Preparation and Presentation of Financial
Statements, and the treatment adopted; and
6
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(d) for each period presented, the financial impact of the departure on each item
in the financial statements that would have been reported in complying with
the requirement.
Assessment of the requirements and disclosure
Although an exemption granted by the Minister would make it permissible and within the
regulatory framework of an entity to depart from applying a Standard(s) of GRAP or a requirement
thereof, an entity would still need to assess such a departure with reference to GRAP 1.21.
Therefore, even though an exemption granted by the Minister may be legal, it remains necessary
for an entity to assess the impact thereof on compliance with the Standards of GRAP for financial
reporting purposes.
In the extremely rare and exceptional circumstances that an entity departs from a Standard of
GRAP, or a requirement thereof, because of an exemption granted by the Minister, an entity
assesses (with reference to GRAP 1.21) if it is necessary because compliance with a Standard
of GRAP, or a requirement thereof, would be so misleading that it would conflict with the objective
of financial statements and the qualitative characteristics as described in the Framework.
In addition, an entity should also determine how it would have accounted for the transactions if it
complied with all the requirements of the Standards of GRAP and discloses this information to
the users, together with the rest of the disclosures required by GRAP 1.22. This is to ensure that
the objective of financial statements is still met.
Conclusion
If an entity concludes that an exemption granted by the Minister meets the objective of financial
reporting, the entity shall assert compliance with the Standards of GRAP in the notes, in
accordance with GRAP 1.18, and shall disclose the information required by GRAP 1.22.
If an entity concludes that an exemption granted by the Minister is not in terms of GRAP 1.21 or
is unable to disclose the information required by GRAP 1.22, the objective of financial statements
will not be met and an entity that applies such an exemption is not able to assert compliance with
the Standards of GRAP.
2.12 What versions of the Standards of GRAP should be applied on first time adoption?
An entity that adopts the Standards of GRAP for the first time should apply the versions of the
Standards effective for the first GRAP reporting period. The versions of the Standards that are
applicable can be determined with reference to the annexure to Directive 5 and by reference to
the ASB’s website.
An entity should use the same accounting policies, based on the versions of the Standards of
GRAP effective at the end of the entity’s first GRAP reporting period, for both the current and
comparative information presented.
An entity is not permitted to apply earlier versions of the Standards of GRAP that were effective
at earlier dates. An entity may, however, early adopt a new Standard of GRAP for which the
Minister of Finance has determined an effective date which is in the future. Other Standards of
GRAP for which the Minister of Finance has not yet determined an effective date, may be used
by an entity to formulate its accounting policies.
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The following example illustrates the principle.

The end of Entity A’s first GRAP reporting period is 31 March 20X8. Entity A presents
comparative information in those financial statements. Therefore, its date of transition to the
Standards of GRAP is 1 April 20X6. Entity A is required to apply the Standards of GRAP in
Directive 5 effective for the 31 March 20X8 period in preparing and presenting its:
(a) statement of financial position, statement of financial performance, statement of changes in
net assets, statement of cash flows and notes for 31 March 20X8 (including comparative
information for 31 March 20X7); and
(b) a comparison of budget and actual amounts and notes for the year 31 March 20X8.
The transitional provisions in other Standards of GRAP apply to changes in accounting policies
made by an entity that already applies the Standards of GRAP.
2.13 What disclosures should an entity provide on newly effective Standards of GRAP?
GRAP 3 requires entities to make certain disclosures related to Standards of GRAP that are
issued but not yet effective, as follows:
.30 When initial application of a Standard of GRAP has an effect on the current
period or any prior period, would have such an effect except that it is impracticable
to determine the amount of the adjustment, or might have an effect on future periods,
an entity shall disclose:
(a) the title of the Standard;
(b) when applicable, that the change in accounting policy is made in accordance
with its transitional provisions;
(c) the nature of the change in accounting policy;
(d) when applicable, a description of the transitional provisions;
(e) when applicable, the transitional provisions that might have an effect on future
periods;
(f) for the current period and each prior period presented, to the extent
practicable, the amount of the adjustment for each financial statement line
item affected;
(g) the amount of the adjustment relating to periods before those presented, to
the extent practicable; and
(h) if retrospective application required by paragraph .21(a) or (b) is impracticable
for a particular prior period, or for periods before those presented, the
circumstances that led to the existence of that condition and a description of
how and from when the change in accounting policy has been applied.
Two issues have arisen regarding these disclosures.
Issue #1 – Quality of the required disclosures
Notwithstanding GRAP 3.30, when an entity has not applied a new Standard of GRAP that has
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been issued but is not yet effective, GRAP 3.32 and 3.33 require entities to disclose:
(a) the existence of issued but not yet effective Standards of GRAP, and
(b) known or reasonably estimable information relevant to assessing the possible impact of the
application of the new Standard of GRAP on the entity’s financial statements in the period
of application.
(Note: “Standards of GRAP” includes all pronouncements issued by the Board.)
It has been observed that entities generally only comply with part (a) listed above. A list of issued
but not yet effective Standards is provided in the financial statements, but the impact of the
requirements is not often provided. It is insufficient to merely list the Standards. Entities should
consider what the potential impact of the new Standard would be on their financial statements.
This means both qualitative (e.g. what transactions might be affected, how different the old and
new accounting policies could be regarding recognition, measurement etc.) and quantitative
information (e.g. if determinable, an estimate of the potential Rand-value of the impact).
The provision of this information in the financial statements serves two purposes:
• Preparers are able to assess the implications of new Standards early. This helps to ensure
that accounting policies, systems and processes are changed in time to accommodate new
accounting requirements.
• Users are provided with predictive information that is useful for planning and making
decisions. It also ensures users can adequately understand the new requirements and
assess entities’ readiness.
Issue #2 – Extent of the required disclosures
Directive 5 is issued in September each year. The Annexures to Directive 5 outline the Standards
issued but not yet effective. It is possible that the Board issues new Standards of GRAP after the
update of Directive 5, i.e. there may be more issued but not yet effective Standards compared to
the list included in the Annexures to Directive 5 when an entity prepares its financial statements.
Questions have been raised about whether only the list in Directive 5 should be applied, or
whether the disclosures required by GRAP 3 apply to all issued but not yet effective Standards.
As Directive 5 is formally approved by the Board, the list included in the Annexures is authoritative
and outlines the minimum disclosures required in the financial statements. Entities may
voluntarily provide information on other issued but not yet effective Standards not yet included in
the Annexures if they are relevant to the entity. In those instances, entities should however still
provide the disclosures outlined in (a) and (b) above.
2.14 What should be disclosed about Standards of GRAP where no effective date has been
approved by the Minister of Finance?
The ASB sets and issues Standards of GRAP and other pronouncements. The Standards of
GRAP – or amendments to the Standards - are approved for implementation by the Minister of
Finance by approving their effective dates.
At any point in time, there may be a number of Standards of GRAP, or amendments, that have
been issued by the ASB, but that need to be approved for implementation by the Minister of
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Finance.
In terms of GRAP 3, the following disclosures are required for Standards of GRAP that are not
yet effective:
.32 When an entity has not applied a new Standard of GRAP that has been issued
but is not yet effective, the entity shall disclose:
(a) this fact; and
(b) known or reasonably estimable information relevant to assessing the
possible impact that application of the new Standard will have on the entity’s
financial statements in the period of initial application.
.33 In complying with paragraph .32, an entity considers disclosing:
(a) the title of the new Standard;
(b) the nature of the impending change or changes in accounting policy;
(c) the date by which application of the Standard is required;
(d) the date as at which it plans to apply the Standard initially; and
(e) either:
(i) a discussion of the impact that initial application of the Standard is
expected to have on the entity’s financial statements; or
(ii) if that impact is not known or reasonably estimable, a statement to that
effect.
Based on the requirements of GRAP 3, there are potentially two elements that need to be
addressed in the disclosures, i.e. the timing of the change based on the effective dates of the
Standards, as well as the potential impact of the change in accounting policies because of the
adoption of a new Standard.
If the Minister of Finance has not yet approved the implementation of a Standard (or a revision
thereto) by announcing an effective date, entities will not be able to fully meet the requirements
of the disclosures in paragraphs .32 and .33.
While entities are not precluded from providing information about these Standards, the
information value to users should be considered. Simply providing a list of Standards that are not
yet effective without any additional information about their impending adoption may not be useful
to users.
An example of a Standard for 2021/22 for which no effective date has been approved includes
the revision of GRAP 25 (revised 2021).
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Section 3 – Asset Related Accounting Issues (GRAP 12, 16, 17, 27, 31, Directive 11, IGRAP 18)
3.1 Must an asset always have a residual value?
No, an asset does not always have a residual value. There are also different requirements for
residual values of tangible assets and intangible assets.
For tangible assets, such as property, plant and equipment or investment property, an asset only
has a residual value when the useful life of an asset (the period the asset is used or available for
use by the entity) is shorter than the economic life of an asset (the period the asset is used or
available for use by all users or owners of the asset). As entities in the public sector often plan to
use an asset for its entire economic life, the residual value may be negligible or even zero.
For intangible assets with a finite useful life, the residual value is always deemed to be zero
unless:
(a) a third party has committed to purchase the asset at the end of its useful life; or
(b) there is an active market for the asset and:
(i) the residual value can be determined by reference to that market; and
(ii) it is probable that such a market will exist at the end of the asset’s useful life.
3.2 What is the treatment of fully depreciated assets still in use (other than on the initial
adoption of the Standards of GRAP)?
The response to this question has been developed on the basis that the assets, and any facts
and circumstances surrounding those assets, are material.
An entity may have fully depreciated assets that are still being used. The decision tree and related
discussions outline when and how an entity should adjust its financial statements.
Principles to be considered in the Standards of GRAP
In terms of GRAP 17, an entity is required to assess the useful lives, residual values and
depreciation methods of assets at every reporting date. This is done by assessing at each
reporting date whether there is any indication that the entity’s expectations about the useful lives
and residual values of an asset have changed since the preceding reporting date. Indications of
a change in the expected useful life or residual value of an asset are included in GRAP 17.57
and .58. When such indications exist, an entity is required to revise the expected useful life and/or
residual values accordingly.
If an entity has fully depreciated assets at the reporting date that it continues using, appropriate
adjustments to the financial statements may be required, if those assets are material.
In deciding whether any adjustments are required, and entity considers whether the existence of
fully depreciated assets results from a change in estimate or an error in the application of the
Standards.
GRAP 3 defines estimates and errors as follows:
A change in accounting estimate is an adjustment of the carrying amount of an asset
or a liability, or the amount of the periodic consumption of an asset, that results from
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the assessment of the present status of, and expected future benefits and obligations
associated with, assets and liabilities. Changes in accounting estimates result from
new information or new developments and, accordingly, are not corrections of errors.
Prior period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a failure to use, or misuse of,
reliable information that:
(a) was available when financial statements for those periods were authorised for
issue; and
(b) could reasonably be expected to have been obtained and taken into account
in the preparation and presentation of those financial statements.
Such errors include the effects of mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud.
Determining whether adjustments are required to fully depreciated assets in use
The following decision tree, along with the narrative that accompanies it, illustrates whether
adjustments are required to fully depreciated assets still in use:
1. Were the principles in GRAP 17 appropriately applied?
An entity is required to assess the appropriateness of the useful lives, residual values and
depreciation methods of assets at every reporting date.
Where an entity has fully depreciated assets because it did not appropriately apply the principles
of GRAP 17, and as a result did not assess the useful lives or residual values of assets at previous
reporting dates, any adjustment is treated as an error. The manner in which an error is adjusted
is discussed in (5) below.
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Fully depreciated assets still being

used by the entity
Were the principles in GRAP 17 appropriately

applied? [1]
Yes
No
Were all the relevant facts and circumstances
considered in previous years in determining the
useful lives of the assets? [2]
Yes No
Treat any adjustment Treat any
as a change in adjustment as an
estimate error
No
No
No adjustment
Are the assets required to the Are the assets
material? [3] financial statements material? [3]
Yes Yes
Apply estimate Apply adjustment

adjustment of error
prospectively [4] retrospectively
[5]
2. Were all the relevant facts and circumstances considered in previous years in
determining the useful lives of the assets?
The useful life of an asset is defined in terms of the asset’s expected utility to the entity and may
be shorter than its economic life. However, when an entity intends using an asset for its entire
life, the useful life and economic life are the same. The estimation of the useful life of an asset is
a matter of judgement based on the experience of an entity with similar assets. An entity considers
all facts and circumstances in estimating the useful lives of assets, which could include technical,
financial and other information. For example:
• Technical information from engineers about the performance, maintenance and replacement
of assets can affect the useful lives of assets. Such information could also signal new
developments with certain assets that change the period over which the asset will be used.
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• Financial information such as budgets, forecast, plans, and any other relevant information.
Policy decisions to delay the disposal or replacement of assets due to budgetary constraints
affect the period over which the asset may be used (as well as its residual value).
• Other information indicating how an entity intends using its assets.
If the requirements of GRAP 17 were correctly applied in prior periods, and all available
information and relevant facts and circumstances considered, but expectations of how the asset
is or will be used is subsequently changed, then the adjustment is a change in accounting
estimate. The manner in which a change in accounting estimate is accounted for is discussed in
(4) below.
If all the available information and relevant facts and circumstances were not considered by the
entity, then any adjustment is treated as an error.
If an entity is not able to determine if the information, and facts and circumstances available at
previous reporting dates were appropriately considered, an entity treats any adjustment as an
error as discussed in (5) below.
3. Are the fully depreciated assets still in use material?
Fully depreciated assets still in use may be material quantitatively and/or qualitatively. These
assets, and their effect on the statement of financial performance and statement of financial
position, may be:
• Qualitatively material if, as a result of their nature, the asset is critical to an entity’s operations
and delivering on its mandate.
• Quantitatively material if the extension in the asset’s useful life results in an adjustment to
depreciation and accumulated depreciation that is material in value and would affect users’
decisions of the statement of financial position and statement of financial performance.
An entity should correct the effects of fully depreciated assets still in use unless their possible
effects are immaterial.
4. Prospective adjustments for a change in accounting estimate relating to fully
depreciated assets still in use
When management has assessed that it needs to adjust the financial statements for the effect of
fully depreciated assets still in use, and that adjustment is a change in estimate, an adjustment
is made to the carrying amount of the asset.
In the year in which the change is made, a portion of the accumulated depreciation is reversed
to surplus or deficit. The cost or revalued amount of the asset is then depreciated over its revised
useful life.
The portion of the accumulated depreciation that is reversed is calculated as the difference
between:
• the total depreciation recognised in the previous periods using the previous expected useful
life of the asset; and
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• the total depreciation that would have been charged for those periods based on the revised
useful life of the asset.
The depreciation is recognised in accordance with GRAP 17.
In addition to the disclosure requirements prescribed in GRAP 3, an entity should, in the year
during which the adjustment is made, disclose the gross movements in depreciation relating to
the asset in the notes to the financial statements.
For assets other than those that are fully depreciated and are still in use, an entity may continue
to apply its existing method when making prospective adjustments relating to a change in
accounting estimate.
5. Retrospective adjustments relating to an error
An entity corrects material prior period errors retrospectively in the first set of financial statements
authorised for issue after their discovery by:
(a) restating the comparative amounts for the prior period(s) presented in which the error
occurred; or
(b) if the error occurred before the earliest prior period presented, restating the opening
balances of assets, liabilities and net assets for the earliest prior period presented.
A prior period error is corrected by retrospective restatement except where it is impracticable to
determine either the period-specific effects or the cumulative effect of the error.
When it is impracticable to determine the period-specific effects of an error on comparative
information for one or more prior periods presented, the entity restates the opening balances of
assets, liabilities and net assets for the earliest period for which retrospective restatement is
practicable (which may be the current period).
When it is impracticable to determine the cumulative effect of an error on all prior periods at the
beginning of the current period, an entity restates the comparative information to correct the error
prospectively from the earliest date practicable.
3.3 How does a municipality account for rainwater?
Part of the definition of an asset is that “...it is a resource controlled by an entity ...”. Control is
demonstrated by an entity’s ability to access and regulate the benefits of an asset. It may be
difficult to argue that naturally occurring resources are always under all circumstances under the
control of a municipality.
A municipality would therefore only recognise inventory once it can demonstrate that it controls
the resource, for example, once the water enters the purification process, and that the recognition
criteria in GRAP 12 have been met. Once the municipality can demonstrate that it controls the
water, it is recognised and initially measured as follows:
• As a gain, using a replacement cost model; plus
• Costs of conversion and other costs incurred to bring the inventory to its current location
and condition.
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The water is initially recognised as a gain and not as non-exchange revenue because no
transaction has occurred. A municipality has, however, obtained control of an asset which gives
rise to a gain.
Note: The example is illustrative only; other circumstances may indicate that control exists and
that the recognition criteria have been met.
3.4 Can the valuation roll be used to measure an entity’s assets at fair value?
GRAP 16 and GRAP 17 allow an entity to subsequently measure its assets using the fair value
(investment property) or revaluation model (property, plant and equipment). These Standards
require fair value to be used in either of these models, unless there are items of property, plant
and equipment that are of a specialised nature, in which case depreciated replacement cost can
be used.
It has been noted in practice that many entities use the municipal valuation roll to determine fair
value for purposes of revaluing their assets in accordance with GRAP 16 or GRAP 17. The
suitability of the valuation roll as a basis for measuring assets depends on both the measurement
basis that is used to value properties in the valuation roll, as well as how often the values in the
valuation roll are updated. An entity should assess whether the measurement basis and valuation
frequency are consistent with, or aligned to the concept of fair value envisaged in the Standards.
“Fair value” in GRAP 16 and GRAP 17 means: “The amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length
transaction”.
GRAP 16 states that: “Fair value of investment property shall reflect market conditions at the date
of reporting.” GRAP 17 states that: “The fair value of land and buildings is usually determined
from market based evidence by appraisal” and that “revaluations should be made with sufficient
regularity to ensure that the carrying amount does not differ materially from that which would be
determined using fair value at the reporting date.”
From both GRAP 16 and GRAP 17, it is clear that fair value should reflect market conditions. Fair
value should also reflect the market conditions that exist at a reporting date, which means that
periodic valuations should be undertaken. The Municipal Property Rates Act outlines the basis
on which a municipal valuation roll should be prepared, including the basis on which properties
should be valued and the frequency of the valuations. Each municipality develops its own policies
in implementing the provisions of the Municipal Property Rates Act.
Where an entity intends using the municipal valuation roll in measuring assets for accounting
purposes, it should assess the municipality’s policies for preparing the valuation roll and
determine whether the measurement basis used in the valuation roll is consistent with, or aligned
to, both these criteria in determining fair value.
3.5 How should an entity apply the requirements in Directive 11 retrospectively in the absence
of cost records for assets on the date of adoption of the Standards of GRAP?
Directive 11 allows an entity that has initially adopted the fair value model for investment property
or the revaluation model for property, plant and equipment, intangible assets or heritage assets,
to change its accounting policy on a once-off basis to the cost model.
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In accordance with GRAP 3, an entity is required to apply the change in accounting policy
retrospectively.
If the entity, on the initial adoption of the Standards of GRAP, used deemed cost where the
acquisition cost of an asset was not available, the deemed cost will be the acquisition cost at that
date.
Therefore, when the entity applies the change in accounting policy retrospectively, it uses the
deemed cost at the date of adoption, as “cost” when changing its accounting policy from the
revaluation model or the fair value model to the cost model.
If an entity has cost records for its assets as at the date of initial adoption of the Standards of
GRAP, it would apply the change in accounting policy retrospectively using the cost of assets as
at that date.
Timeline for application of Directive 11
An entity can only take advantage of the provisions in Directive 11 within a period of three years
following the expiry of the transitional provisions applied on the initial adoption of the Standards
of GRAP, or the effective date of Directive 11, whichever is later. Directive 11 is effective for
periods commencing on or after 1 April 2015.
3.6 What are the implications of non-recognition of certain assets when permitted by
Standards of GRAP?
Background
Some preparers of financial statements have indicated that they are unsure if they can still assert
compliance with the Standards of GRAP if they do not recognise certain assets in their statement
of financial position because a reliable measure for certain assets does not exist.
This FAQ does not apply to first time adoption of the Standards of GRAP. The relevant Directive
should be referred to for any transitional provisions when an entity initially adopts the Standards
of GRAP.
Requirements
The Framework for the Preparation and Presentation of Financial Statements7 (the Framework)
requires an entity to recognise all items that meet the definition and recognition criteria of an
asset. An asset is recognised in the statement of financial position when it is probable that the
future economic benefits or service potential will flow to the entity and the asset has a cost or
value that can be measured reliably. This refers to the existence of a reliable measure for an
asset, rather than an entity’s ability to determine a reliable measure.
The Framework further discusses reliable measurement in paragraphs .116 to .118, as follows:
In many cases, cost or value must be estimated; the use of reasonable estimates is
an essential part of the preparation of financial statements and does not undermine
their reliability. When, however, a reasonable estimate cannot be made the item is
7
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not recognised in the statement of financial position or statement of financial

performance.
An item that, at a particular point in time, fails to meet the recognition criteria … may
qualify for recognition later, because of subsequent circumstances or events.
An item that possesses the essential characteristics of an element but fails to meet
the criteria for recognition may nonetheless warrant disclosure in the notes,
explanatory material or in supplementary schedules. This is appropriate when
knowledge of the item is considered relevant to the evaluation of the financial
position, financial performance and changes in net assets of an entity by the users
of financial statements.
Assessment of requirements
A Standard of GRAP might indicate that an entity should not recognise an asset if a reliable
measure for an asset does not exist. The relevant Standards of GRAP outline principles on when
a reliable measure for an asset does not exist. The principles may vary from Standard to
Standard. For example:
• GRAP 103 includes principles in paragraph .58 such as when market-determined prices or
values are not available and alternative estimates of fair value are determined to be clearly
unreliable.
• GRAP 110 also includes these principles in paragraph .31 and is described as an absence
of a market; the range of possible fair values is so wide that there is no reliable measure; as
well as where an acceptable valuation technique commonly used to price the asset is not
available. GRAP 110.45 does, however, state that the fair value of an asset for which
comparable market transactions do not exist is reliably measurable if:
(a) the variability in the range of reasonable fair value estimates is not significant for that
asset; or
(b) the probabilities of the various estimates within the range can be reasonably assessed
and used in estimating fair value.
The applicable Standard of GRAP should be considered to determine whether a reliable measure
exists for an asset in a particular circumstance.
These principles outlined above should be distinguished from an entity’s inability to reliably
measure an asset for other reasons, such as time or resource constraints. Such reasons do not
demonstrate the lack of a reliable measure.
Where a reliable estimate for an asset does not exist, the Standards often require information
about the asset to be disclosed in the notes to the financial statements, for example,
GRAP 103.17.
Where an entity does not recognise an asset, questions have been asked about how to account
for any initial and subsequent costs incurred in relation to such an item. The relevant Standard
of GRAP will describe how any initial and subsequent costs incurred relating to such an item
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should be treated, for example GRAP 103.20 states that any initial and subsequent costs should
be recognised in surplus or deficit as incurred.
Conclusion
If an entity does not recognise assets because a reliable measure for the assets does not exist,
there is no impact on an entity’s ability to assert compliance with the requirements of the
Standards of GRAP. Such an entity can still assert compliance with the Standards of GRAP.
If, however, an entity does not recognise assets because of its own inability to reliably measure
assets, e.g. due to time or resource constraints, it cannot assert compliance with the Standards
of GRAP.
3.7 Should an entity always use an external valuer or expert to determine the fair value of an
asset?
Where an entity has elected to apply the revaluation or fair value model as its accounting policy
to measure its assets subsequent to initial recognition, the Standards of GRAP allow an entity to
use a valuer or another expert, including an employee, to determine the fair value of an asset if
the:
(a) valuer is a member of a valuation profession and holds a recognised and relevant
qualification; or
(b) the other expert has the requisite competence to undertake such an appraisal in
accordance with the requirements of the Standards of GRAP.
3.8 Are changes to useful lives, residual values and depreciation methods changes in an
accounting policy or a change in accounting estimate?
In terms of GRAP 17, an entity is required to assess the useful lives, residual values and
depreciation methods of assets at every reporting date. Paragraph .56 states that where there is
an indication that the useful life and residual value of an asset has changed since the preceding
reporting date, such changes should be accounted for as a change in accounting estimate in
accordance with GRAP 3, unless an error has occurred as explained in FAQ 3.2.
Similarly, paragraph .72 requires that significant changes to the expected pattern of consumption
of the future economic benefits or service potential (i.e. depreciation method), should be
accounted for as a change in accounting estimate in accordance with GRAP 3.
Other asset-related Standards i.e. GRAP 16 (if the cost model is applied) and GRAP 31 have
similar requirements that should be considered.
3.9 Do land invasions affect whether an entity recognises land?
Questions have been raised about whether the land invasions or similar illegal occupations of
land means that an entity loses control of land when this occurs.
IGRAP 18
IGRAP 18 indicates that land is recognised based on control. Control of land is evidenced by the
following criteria:
(a) legal ownership; and/or
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(b) the right to direct access to land, and to restrict or deny the access of others to land.
IGRAP 18 outlines the following:
Legal ownership
.18 Legal ownership refers to the owner being the registered title deed holder of
the land. Legal ownership also arises where the land is transferred from the
legal owner to another entity or party, through legislation or similar means. For
example, when a change in ownership is recorded by way of an endorsement
on the existing title deed, rather than a formal transfer or change in ownership
reflected on the title deed. References to legal owner or legal ownership in
this Interpretation include both situations.
.19 In the absence of an entity demonstrating that it has granted the right to direct
access to and restrict or deny access of others to the land to another entity,
the legal owner controls the land as it retains the right to direct access to land,
and to restrict or deny the access of others to land. The legal owner is thus
able to demonstrate both criteria in paragraph .16.
The right to direct access to land, and to restrict or deny the access of others to
land
.20 In assessing whether the rights that have been granted to an entity in a binding
arrangement result in control of the land, it is important to distinguish between
substantive rights and protective rights. Only substantive rights are considered
in assessing whether an entity controls land.
.21 Substantive rights grant the entity the ability to make decisions about, and
benefit from, certain rights and assets, such as how to use the land to provide
services, and when to dispose of the land, to whom and at what price. For the
right to be substantive, the holder of the right must have the present ability to
exercise that right.
Analysis
The accounting for land is based on the rights that an entity is presently able to exercise in terms
of its ownership of the land or other rights granted in terms of a binding arrangement.
Legal ownership
The invasion of land may be an illegal act. Although the illegal occupants may have certain rights,
these rights do not supersede or eliminate the entity’s currently exercisable rights in terms of its
legal ownership of the land. Land ownership means that the entity has substantive rights to direct
or restrict access to the economic benefits or service associated with the land. The fact that the
entity may not execute these rights because of political, socio-economic or other factors, is
irrelevant in establishing whether control exists for accounting purposes.
An entity would need to assess if its ownership rights are subsequently changed through another
legal action, such as the outcome of a court process such as the outcome of court case, court
order, etc.
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The illegal occupation of land may indicate that an impairment loss should be recognised. An
entity should apply the principles in either GRAP 21 or GRAP 26 when these occupations occur
(and throughout their duration).
Rights to use land other than through legal ownership
When an entity controls land through other rights, it is likely that the entity would need legal advice
as to the rights of the various parties to understand which party has substantive rights to direct
or restrict access to the economic benefits or service potential of the land.
3.10 How should an entity account for servitudes?
Servitudes are rights granted by a property owner to another person or entity to use land for
certain purposes, e.g. to construct assets on or over a specific property or the right to access a
property.
Servitudes may be acquired in a number of ways including through expropriation, township
establishment conditions, agreement between parties, court order, statute or other means.
In the public sector, servitudes are usually acquired in connection with infrastructure such as
roads, water reticulation systems, power lines, substations etc.
As servitudes are rights attached to property, an entity should consider whether the definition and
recognition criteria in GRAP 31 are met.
In accordance with GRAP 31, an intangible asset is an identifiable non-monetary asset without
physical substance.
Per paragraph .14, an intangible asset is identifiable if it either:
(a) is separable, i.e. is capable of being separated or divided from the entity and sold,
transferred, licenced, rented or exchanged, either individually or together with a
related contract, identifiable asset or liability, regardless of whether the entity
intends to do so; or
(b) arises from binding arrangements (including rights from contracts), regardless of
whether those rights are transferable or separable from the entity or from other
rights and obligations.
Creation of servitudes through the exercise of legislation
Entities may be granted certain rights regarding the creation of servitudes in terms of legislation.
For example, servitudes may be registered over certain parts of land falling within the boundaries
of reserves to be used for the development of infrastructure.
A key feature of servitudes created using rights granted in legislation is that no compensation is
paid to the landowner for the acquisition of these rights. Costs may however be incurred to
register the servitude with the Deeds Office.
Servitudes granted under these conditions do not meet the “identifiability’ criteria above for the
following reasons:
• They cannot be sold, transferred, rented or exchanged freely and are not separable from the
entity.
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• They arise from rights granted to the entity in legislation and are specifically excluded from
GRAP 31 (see paragraph .03(e)).
Consequently, an entity would not treat these rights as intangible assets. Costs incurred to
register these servitudes (if any) are expensed.
Creation of servitudes through acquisition (including by way of expropriation or agreement)
An entity may need to acquire the rights associated with a specific piece of land, e.g. to span
power cables related to an electricity distribution network. When an entity acquires rights
associated with land and registers a servitude, the landowner is usually compensated.
Servitudes granted under these conditions are distinguished from those that are created through
the exercise of legislation. These servitudes meet the definition of an “identifiable” intangible
asset because they arise from contractual or other legal rights that are acquired through a specific
binding arrangement, rather than through rights conferred on an entity in legislation.
In these instances, an entity would recognise the servitude as an intangible asset initially at cost
if the recognition criteria are met.
The cost of these servitudes on initial recognition is usually the transaction price, i.e. the
compensation paid to the landowner and any other costs that can be capitalised to the cost of
the asset (see paragraphs .27 to .35 of GRAP 31).
Tangible or intangible
Servitudes, although intangible, are associated with an asset that has physical substance (land).
In accordance with GRAP 31.05, an entity uses judgement to assess which element is more
significant. Applying judgement, an entity may conclude that even though a servitude may meet
the definition of an intangible asset, it is essential to the operation of a tangible asset. For
example, an entity would not be able to construct or operate infrastructure on land that it does
not own without acquiring certain rights from the landowner. In these instances, it may be
appropriate to include the cost of the servitude in the cost of the tangible asset rather than
recognising a separate intangible asset.
3.11 How should an entity account for library books?
Entities may provide community libraries within their respective jurisdictions. Library books are
an integral part of these libraries.
Step 1: Who should account for the library books?
As a starting point, entities should assess whether the library books are their assets or whether
they are another party’s assets. An entity should only account for those assets they control.
Control means that an entity has the ability to exclude or regulate the access of others to the
benefits of an asset. In assessing control, an entity would consider, among others, legislation or
any other binding arrangement that may indicate:
• whether the entity controls the library books; and
• its role and responsibility in providing community libraries.
If an entity has determined that it controls library books, it should be accounted for using step 2.
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Step 2: How should library books be accounted for?

Library books may differ in nature and use both within and between entities. Each entity should
therefore carefully consider the nature of its books (e.g. fiction, non-fiction, periodicals, reference
books) and their use (e.g. certain books may have a finite life if they are revised regularly). Refer
to the asset classification decision tree on the ASB website.
For example, the following definitions may be relevant in formulating an appropriate accounting
policy8:
Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes, and
(b) are expected to be used during more than one reporting period.
Expenses are decreases in economic benefits or service potential during the
reporting period in the form of outflows or consumption of assets or incurrences of
liabilities that result in decreases in net assets, other than those relating to
distributions to owners9.
Heritage assets are assets that have a cultural, environmental, historical, natural,
scientific, technological or artistic significance and are held indefinitely for the benefit
of present and future generations.
Library books are held to provide a service to the community. Depending on the nature of an
entity’s library books and their use by an entity, they may meet part (a) of the definition of property,
plant and equipment, or meet the definition of a heritage asset (see FAQ 8.7).
Certain library books may be expected to be used over more than one reporting period. As
circumstances may differ both within and between entities, an assessment should be made of
which library books are expected to be used over more than one reporting period. Library books
that are expected to be used over more than one reporting period could be classified as property,
plant and equipment or heritage assets and accounted for using the principles in GRAP 17 or
GRAP 103 respectively.
Where an entity does not expect to use library books over more than one reporting period, they
are recognised as an expense in accordance with the Framework for the Preparation and
Presentation of Financial Statements10.
As library books differ in both nature and use, it may not be possible for an entity to apply a single
approach to all its books. It may need to capitalise certain books using GRAP 17 or GRAP 103,
8
Note: This list is not comprehensive. An entity should assess whether any other Standards of GRAP are relevant based on its
circumstances.
9
As defined in the Framework for the Preparation and Presentation of Financial Statements. In June 2017, the Board replaced
the Framework for the Preparation and Presentation of Financial Statements with the Conceptual Framework for General Purpose
Financial Reporting.
10
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and expense certain books.

Using the principles in GRAP 1 and GRAP 3, an entity should provide sufficient information in
the accounting policies and notes to the financial statements regarding the treatment of library
books.
3.12 When should an entity start depreciating major spare parts and stand-by equipment?
An entity starts depreciating major spare parts and stand-by equipment when the asset is
available for use, i.e. when it is in the location and condition necessary for it to be capable of
operation in the manner intended by management. This implies that depreciation may commence
while the item is held in storage. Under a usage-based depreciation, the depreciation of items
held in storage may be zero.
If major installation of the spare part is however required, it may be argued that the spare part is
not immediately available for use in the manner intended by management. In these instances,
depreciation may only commence once the installation is complete.
Management should exercise judgement in applying the requirements in GRAP 17 regarding the
depreciation of major spare parts and standby equipment.
3.13 How should information on the cumulative expenditure on assets in the process of being
constructed or developed be presented where an entity does not have this information for
prior years?
GRAP 16.92(a) and GRAP 17.87(a) require an entity to disclose the cumulative expenditure
recognised in the carrying value of investment property and property, plant and equipment in the
process of being constructed or developed, respectively. These expenditures should be
disclosed in aggregate, per class of asset.
Practice in the past was that entities disclosed this information as a separate class of asset,
referred to as “work-in-progress”. Users were not able to understand what the nature of the work-
in-progress was and therefore found it difficult to hold entities accountable and make decisions.
As part of the amendments to GRAP 16 and GRAP 17, the clarification was made that cumulative
expenditure on assets in the process of being constructed or developed should be disclosed in
aggregate, per class of asset.
3.14 What amount should be disclosed for projects that are taking significantly longer to
complete than expected and what does “significantly longer” mean?
GRAP 16.92 requires an entity to disclose the following, in the notes to the financial statements,
for investment property which is in the process of being constructed or developed:
…
(b) The carrying value of investment property that is taking a significantly longer
period of time to complete than expected, including reasons for any delays.
(c) The carrying value of investment property where construction or development
has been halted either during the current or previous reporting period(s). The
entity should also disclose reasons for halting the construction or development
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of the asset and indicate whether any impairment losses have been
recognised in relation to these assets.
The same is required in GRAP 17 paragraph .87(b) and (c) for property, plant and equipment
which is in the process of being constructed or developed.
Carrying amount
The carrying amount is defined in GRAP 16 as the amount at which an asset is recognised in the
statement of financial position. For work-in-progress, it would be the cumulative cost of the capital
work in-progress less any accumulated impairment losses at the reporting date when the cost
model is applied, or the fair value at the reporting date if the fair value model is applied.
The carrying amount is defined in GRAP 17 as the amount at which an asset is recognised after
deducting any accumulated depreciation and accumulated impairment losses. For work-in-
progress, it would be the cumulative cost of the capital work-in-progress less any accumulated
impairment losses at the reporting date.
An entity discloses the carrying amount recognised and not the total value of the contract or the
budget.
Significantly longer period of time
The requirement in GRAP 16 and GRAP 17 refers to the period of time that assets take to be
completed in relation to the expected project plans.
GRAP 16 and GRAP 17 are not specific in terms of the period of time that would constitute a
significantly longer period of time than expected. This would need to be assessed by
management on a project-by-project basis, with reference to the nature and circumstances of the
project and taking the information needs of users into account. This will apply when construction
takes a significantly longer period of time in relation to what was expected or planned for the
project.
For example, a five-year project that is meant to be completed in equal proportions over the five
years, but where only 20% of the work has been completed at the end of year four, would likely
meet the requirement of a significantly longer period of time than expected. It is also likely that
users would need this information to hold entities accountable and make decisions. This example
illustrates one method to determine what “significantly longer” means. An entity should determine
the method that is most appropriate with reference to the nature and circumstances of the project.
GRAP 16.92 and GRAP 17.87 do not require the disclosure of an ageing of capital work-in-
progress. The disclosure requirement only relates to those assets that are taking a significantly
longer period of time than expected to be completed.
Level of disclosure
Both GRAP 16 and GRAP 17 do not require information to be presented on an asset basis. The
Standards allow an entity to decide how to present the information required, i.e. individually or in
aggregate. An entity could, for example, decide to present the information per asset, per project,
or another relevant basis.
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3.15 How should municipalities classify electricity and water meters?

Questions have been asked about how a municipality should classify conventional or prepaid
electricity and water meters, since there are different arrangements and practices in place that
have led to divergent accounting. It may depend on, for example, whether service providers are
used to provide electricity and water and the type of residence or establishment (e.g. apartment
complexes and estates may have one bulk municipal meter with each unit or house having
privately owned meters).
Water and electricity meters that are assets of the municipality may meet the definition of
inventory or property, plant and equipment. A municipality considers the following in classifying
water and electricity meters:
• Inventories are assets that are held for sale, distribution or consumption in the provision of
services. For example, a municipality procures 2 000 electricity meters that will be sold to
the developer of a new residential development. These electricity meters will ultimately be
owned by the residential owners. The developer expects delivery of the meters in two
months, when the development will be at the stage where the meters can be installed. In
this instance the electricity meters meet the definition of inventory until control of the meters
is transferred to the developer.
• Property, plant and equipment are assets used in the production or supply of goods or
services or for administrative purpose and are expected to be used during more than one
reporting period. For example, a municipality procures 100 water meters that will be installed
in a business complex. The municipality controls the water meters after they have been
installed. Water meters have a useful life of five years. In this instance the water meters
meet the definition of property, plant and equipment.
Municipalities should refer to the asset classification decision tree to assist with classifying
assets. Refer to the ASB website.
Whether meters are recognised as inventory when they meet the definition of inventory, or as
property, plant and equipment when they meet the definition of property, plant and equipment,
may depend on an entity’s materiality.
The accounting may vary between municipalities.
3.16 Will the presentation of assets in the financial statements increase an asset’s risk profile?
Entities raised concerns with the presentation and separate classification of some assets in their
financial statements. As financial statements are publicly available, information about the type
and nature of assets controlled by an entity are known. This may increase the risk of theft or
misappropriation.
Financial statements result from processing large numbers of transactions or other events that
are aggregated according to the nature or function of the transaction or event. The final stage in
the process of aggregation and classification is the presentation of line items on the face of the
statement of financial position, statement of financial performance, statement of changes in net
assets and cash flow statement, or in the notes.
GRAP 1 requires that each material class of similar items shall be presented separately in the
financial statements. If a line item is not individually material, it is aggregated with other items
either on the face of those statements, or in the notes. An item that is aggregated with other items
on the face of those statements because it is not sufficiently material to warrant separate
presentation, may nevertheless be sufficiently material for it to be presented separately in the
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notes. For example, an entity may control a building that is held to earn rentals, rather than for
the production or supply of goods or services, or for administrative purposes. If the entity
concludes that, in presenting its statement of financial position, the investment property is
immaterial, the building may be aggregated with other buildings that is classified as property,
plant and equipment.
In deciding what, and how information needs to be presented in the financial statements, an
entity should consider materiality, the information needs of its users and apply judgement when
aggregating and classifying information in its financial statements. Presenting information in this
manner should not necessarily increase the entity’s risk profile.
Reference can be made to the Guideline on The Application of Materiality to Financial Statements
that will assist entities with applying the concept of materiality when preparing financial
statements in accordance with Standards of GRAP.
3.17 Should assets on land be accounted for separately from the land?
Some entities are uncertain if land, and assets on the land should be accounted for separately
from the land itself. Examples include fauna and flora, burial sites, and a landfill site asset.
GRAP 1 requires that each material class of similar items shall be presented separately in the
financial statements. In terms of GRAP 17, land and buildings are separable assets, and
therefore need to be accounted for separately, even when they are acquired together. This
principle applies equally to other assets on land, when material. If an item is not individually
material, it may be aggregated with other items either on the face of the statement of financial
position, statement of financial performance, statement of changes in net assets and cash flow
statement, or in the notes.
An asset needs to be accounted for in accordance with the applicable Standard of GRAP, based
on the purpose for which it is held, or intended to be used. Reference can be made to the asset
classification decision tree for guidance.
For example:
• when an asset meets the definition of a living resource, the entity will apply GRAP 110 to
recognise, measure, present and disclose the asset. The land on which the living resource
is found should be accounted for based on the purpose for which the land is held, or intended
to be used;
• when a burial site on land meets the definition of a heritage asset, the burial site may be
accounted for using GRAP 103, while the land should be accounted for as a separate asset;
and
• land that is used to operate a landfill site needs to be accounted for separately from the
landfill site asset.
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Section 4 – Presentation and disclosure

4.1 In preparing the financial statements, should a municipality use the presentation
requirements and bases of preparation outlined in the Standards of GRAP or the budget
regulations?
The financial statements and the budget are two separate documents with separate objectives:
• The financial statements are external reports which are issued to a wide range of users such
as Parliament or the legislatures, the public, financiers and other creditors, other
governments, ratings agencies and analysts, to meet their specific information needs. The
financial statements are prepared using Standards of GRAP.
• Budgets, while they might be publicly available, are not designed to meet the information
needs of a wide range of external users. Budgets are primarily prepared as a management
and accountability tool for use by councillors, the relevant treasuries and officials of a
municipality. The preparation of the budget is regulated by the Municipal Budget and
Reporting Regulations (issued in Gazette 32141) and should be applied in preparing the
budget.
As the objectives of the two reports are different, there may be differences between the types of
information reported, as well as the bases used to prepare the information.
Consequently, when an entity presents and discloses information in its financial statements
(statements of financial performance, financial position, changes in net assets, cash flows and
notes), it should apply GRAP 1, along with the requirements in the individual Standards of GRAP.
Similarly, in determining the recognition and measurement requirements for transactions and
events, the Standards of GRAP must be applied. There is however one possible exception to this
principle, which is the preparation and presentation of information comparing actual and budget
information using GRAP 24. For purposes of applying GRAP 24, the Standard allows two ways
in which the information can be presented:
(a) Include additional columns in the financial statements, but only where the budget and
financial statements are prepared using the same basis (as described in GRAP 24).
(b) Present a separate statement in the financial statements called the “Comparison of Budget
and Actual Information”. This alternative must be used where the basis used to prepare the
budget and financial statements differs, and may be used where the basis is the same.
Where this presentation method is used an entity presents the actual and budget information
in a separate statement. Where the budget information is prepared on a different basis to
the financial statements, an entity adjusts the financial statement information to make it
comparable to the basis used to prepare and present the budget (referred to in the Standard
as “actual information on a comparable basis”).
4.2 How does an entity decide which accounting policies should be included in its financial
statements?
An entity includes accounting policies in its financial statements for those material transactions
or events included in the entity’s financial statements for the current or prior years (either
recognised or included in a specific component of the financial statements, e.g. the statement of
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financial position or the comparison of budget and actual information, or disclosed in the notes
to the financial statements).
An entity would not include accounting policies in its financial statements that are not relevant to
the transactions and events undertaken for the current or prior years. For example, an entity
would not include an accounting policy in its financial statements for internally generated
intangible assets if it has not undertaken such transactions in the current or prior years.
4.3 Should a municipality disclose the councillors’ remuneration on an individual basis or in
aggregate?
Note: This question arose in the context of municipalities with a large number of councillors, some
of whom are remunerated at standard amounts, and it was unclear whether or not the
remuneration for those councillors should be disclosed separately on an individual basis or in
aggregate.
GRAP 20 provides guidance on the identification of related parties and outlines the minimum
information that shall be disclosed for those transactions in the notes to the financial statements.
GRAP 20.28 specifies how related party transactions should be categorised and includes a
separate category for management. As the council of a municipality plays a prominent decision-
making role, councillors are considered part of management in a municipality. Thus, the
disclosure requirements prescribed for management are applicable to councillors of a
municipality.
GRAP 20.31 states that related party transactions may be disclosed in aggregate when they
relate to the same related party, and are of a similar nature, except when separate disclosure is
necessary to provide relevant and reliable information for decision-making and accountability
purposes.
GRAP 20.35 prescribes that an entity shall disclose the remuneration of management per person
and in aggregate, for each class of management. Therefore, where an entity has major classes
of management, it shall provide separate disclosures on remuneration for those classes of
management. The structure of a municipality and its council is known to vary but if there are
major classes of councillors then the remuneration of each class shall be disclosed per person
and in aggregate.
GRAP 1.36 requires that each material class of similar items shall be presented separately in the
financial statements; and items of a dissimilar nature or function shall be presented separately
unless they are immaterial. Therefore, if a line item is not individually material, it is aggregated
with other items either on the face of the financial statements or in the notes.
GRAP 1.38 prescribes that when an entity applies the concept of materiality, it means that the
specific disclosure requirements of a Standard of GRAP need not be satisfied if the information
is not material. Materiality as defined in GRAP 1 depends on the nature (quality) or size (quantity)
of the line item, or a combination of both.
Consequently, when a municipality presents and discloses the councillors’ remuneration in its
financial statements it shall apply the specific disclosure requirements of GRAP 20 (i.e. disclose
the remuneration of councillors, as a category of management, per person and in aggregate)
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after considering materiality (i.e. qualitative and quantitative factors), particularly at an individual
line-item level. In accordance with GRAP 1.36, if a line item is not individually material, then it is
aggregated with other similar items either on the face of the financial statements or in the notes.
Aggregation may be applied on the basis of GRAP 1.38 if it can be demonstrated that the
disclosure of the remuneration of management per person is considered not to be material. In
addition to the disclosures required by GRAP 20, an entity should also identify any disclosures
required by legislation in this regard.
4.4 What does it mean to analyse expenditure by either nature or function?
GRAP 1.104 requires an entity to present an analysis of expenses using a classification based
on either the nature of expenses or their function within the entity, whichever provides information
that is reliable and more relevant. Management applies its judgement to select the most relevant
and reliable presentation for the entity. Entities are encouraged to present this analysis on the
face of the statement of financial performance.
Analysing expenses by nature
Analysing expenses by 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. For example, the
entity will analyse expenses into categories such as depreciation, purchases of materials,
transport costs, employee costs, advertising costs, etc. Under this method, the expenses are not
allocated among various functions within the entity.
It has been observed that line items such as "repairs and maintenance", "grant expenditure",
“contracted services” and "project expenditure" are presented separately in the financial
statements where entities have chosen to present an analysis of expenses by nature. These line
items usually consist of a combination of different elements of expenditure by nature. This
presentation may not be in accordance with the requirements of GRAP 1 where the nature of
expense method is chosen.
For example, it may be inappropriate to present the following:
• A line item “repairs and maintenance” that consists of different elements of expenses by
nature, such as labour costs, consumable materials, other overhead costs, etc.
• A line item “grant expenditure” that consists of different elements of expenses by nature
related to a specific grant, such as labour costs, raw materials, transport costs,
administrative expenses, etc.
• A line item “contracted services” that consists of different services by nature, such as
cleaning services, professional services, security services, etc. It may be particularly
inappropriate where “contracted services” includes the procurement of goods, such as
cleaning materials, while a separate line item is presented for similar goods procured.
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• A line item “project expenditure” that consists of different elements of expenses by nature,
such as professional fees (engineers and valuers), labour costs, raw materials, electricity,
water, lease of equipment, etc.
This incorrect presentation should be distinguished from when an entity procures a complete
service from an outside party for e.g. maintenance services, project management services, etc.
This may qualify for separate presentation when expenses are analysed by their nature as the
entity has in this case procured a turn-key service. For example, if material, an entity could
conclude it is appropriate to present a line item “maintenance services” where the entity procures
a completed maintenance service from an outside party.
GRAP 1 does not require separate presentation of each material item in the statement of financial
performance. An entity would need to assess what information is appropriate for the face of the
statement compared to the notes. For example, an entity may determine it appropriate to present
services procured as one item in the statement of financial performance, with information on each
material service presented in the notes. Immaterial items should not be presented separately in
the financial statements.
An entity should always consider if the information presented to users provides information about
the nature of what the entity has procured, for material items separately.
Analysing expenses by function
The function of expense method analyses expenses according to the programme, activity from
which the item arises, or purpose for which they were incurred. For example, health expenses,
education expenses, administrative expenses, etc. GRAP 1.110 requires entities that analyse
expenses by function to also disclose additional information about the nature of those expenses.
Unlike the nature of expense method, an entity that presents its expenses based on the entity’s
functions will allocate the elements of expenses such as “labour costs”, “consumable material”
and “transport costs”, among the functions of the entity, for example, “water”, “electricity”, “roads”,
“housing” and “administration” functions are presented, with each function including its share of
total expenses.
It is unlikely that an entity has functions such as “repairs and maintenance”, “grant expenditure”,
“contracted services” and “project expenditure” that are presented separately in a statement of
financial performance presented by function; however, it would need to be assessed. An entity
that has, for example, a repairs and maintenance function for a large asset base that is
maintained in-house through an internal works department, which is significant, may conclude
that “repairs and maintenance” is a function that should be presented separately.
An entity that previously incorrectly presented line items that combine different elements of
expenditure by nature on the face of the statement of financial performance, e.g. “repairs and
maintenance”, “project expenditure”, “grant expenditure” and “contracted services”, should
reclassify these items by either the nature or function thereof, depending on the entity’s choice
of presentation. The comparative amounts should also be restated, and information about the
nature, amount, and reason of reclassification disclosed, as required by GRAP 1.33 and 1.49.
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Specific presentation requirements in the Standards of GRAP

Standards of GRAP may require specific items to be presented in the financial statements.
Questions have been asked about where and how this information should be presented, if
presenting certain items as a separate line item in the statement of financial performance is
inappropriate.
To determine how to appropriately present information where a Standard of GRAP requires
specific items to be presented separately, the requirements of the various Standards of GRAP
should be read together.
For example, GRAP 1 states the following regarding information to be presented either on the
face of the statement of financial performance or in the notes:
.101 When items of revenue and expense are material, their nature and amount shall
be disclosed separately.
.102 Circumstances that would give rise to the separate disclosure of items of
revenue and expense include:
…
(c) expenditure incurred on assets to repair and maintain them.
GRAP 17 states that the following presentation should be made in the notes:
.88 An entity shall separately disclose expenditure incurred to repair and maintain
property, plant and equipment in the notes to the financial statements.
.89 As entities may apply different bases for determining expenditure on repairs and
maintenance, an entity shall disclose information about the specific costs included
in the amount of repairs and maintenance disclosed in the notes. In determining the
amount disclosed in the notes to the financial statements on expenditure incurred to
repair and maintain property, plant and equipment, an entity may include amounts
paid to service providers, as well as amounts spent on materials and time spent by
employees in repairing and maintaining the asset(s).
When reading the requirements of GRAP 1.102(c) and GRAP 17.88 and .89 together, an entity
that incurs material expenditure to repair and maintain assets, and concludes it is inappropriate
to present a separate line item in the statement of financial performance, will disclose the
information in the notes.
An entity that concludes it is appropriate to include a “repairs and maintenance” line item in the
statement of financial performance, will present a “repairs and maintenance” line item according
to nature or function for all repairs and maintenance incurred. The entity will present the
information required by GRAP 17.88 and .89 in the notes, for property, plant and equipment only,
and including the specific costs the entity determines to be appropriate.
Other asset-related Standards have similar disclosure requirements that should be considered
with the requirements of GRAP 1.
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4.5 What items should be included in “cash and cash equivalents”?

Some preparers questioned the requirement in the Standards of GRAP that “cash and cash
equivalents” should only include those investments with a maturity of 3 months or less.
GRAP 2 includes the following definitions of cash and cash equivalents:
Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk
of changes in value.
GRAP 2 describes cash equivalents as those items that meet the definition and are held for the
purpose of meeting short-term cash commitments rather than for investment or other purposes.
Bank overdrafts that are repayable on demand usually form part of an entity’s cash management
activities and are part of cash and cash equivalents.
GRAP 2 also clarifies that the following items are not cash and cash equivalents:
• Equity investments unless they are cash equivalents in substance.
• Bank borrowings.
Neither GRAP 2 nor the National Treasury Accounting Guideline on GRAP 2 provides specific
guidance on which investments are considered to be cash equivalents. GRAP 2 (and IPSAS 2
on Cash Flow Statements) is based on the principles of IAS 7 on Cash Flow Statements.
Guidance provided in the private sector was therefore considered. The IFRS Interpretations
Committee (IFRIC) received questions in the past about which items could be included in cash
equivalents but has not issued any guidance as it believed the requirements in IFRS, which are
the same as GRAP 2, are clear.
Entities therefore need to assess their investments to determine if they should be classified as
cash and cash equivalents, by considering:
1. The definitions in GRAP 2, and
2. The purpose of holding the investments.
1. Definition
The definition of cash equivalents comprises three elements that entities should consider, as
follows:
(a) Short term, highly liquid
An investment requires a short maturity to meet the definition of a cash equivalent. GRAP 2
is not definitive, but it refers to an investment with a maturity date of three months or less
from the date of acquisition, as an example of this. This does not automatically mean an
investment with a maturity date of more than three months cannot be classified as a cash
equivalent. Note that the maturity period is measured from the date of acquisition, not the
reporting date.
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(b) Readily convertible to known amounts of cash

This implies that an investment must be convertible into cash without an undue period of
notice and without incurring a significant penalty on withdrawal. Known amounts of cash
means that the amount of cash that will be received must be known at the time of the initial
investment. The IFRIC concluded that investments in shares or units of money market funds
that are redeemable at any time are not considered cash equivalents, even though they can
be converted to cash at any time at the then market price in an active market. This is because
the share price or unit price fluctuates and the amount of cash for which the shares or units
of money market funds can be exchanged are not known at initial investment.
(c) Insignificant risk of change in value
This implies that an investment must be so similar to cash that any changes in value are
insignificant. For this reason, a short maturity period is necessary because a longer maturity
period exposes an investment to fluctuations in value. Entities should consider the effect on
the redemption amount of e.g. cancellation clauses, termination fees or usage restrictions
and whether they create a more than insignificant risk of change in value.
2. Purpose of holding an investment
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.
Accounting policy
GRAP 2 recognises that entities may have a variety of cash management practices and banking
arrangements that will influence which items are classified as cash and cash equivalents. For
this reason, GRAP 2.47 requires that, in order to comply with GRAP 1, an entity should disclose
the policy which it adopts in determining the composition of cash and cash equivalents.
4.6 What are the requirements for entities to classify revenue as exchange or non-exchange?
GRAP 1.103 requires that an entity presents a sub-classification of total revenue on the face of
the statement of financial performance or in the notes, classified in a manner appropriate for the
entity’s operations. GRAP 23 requires an entity to disclose either on the face of, or in the notes
to the financial statements, the amount of revenue from non-exchange transactions recognised
during the period by major classes. Similarly, GRAP 9 requires an entity to disclose the amount
of each significant category of (exchange) revenue recognised during the period.
GRAP 1, GRAP 9 and GRAP 23 also require an entity to disclose the accounting policies adopted
for the recognition of revenue from exchange and non-exchange transactions respectively in the
notes to the financial statements.
Entities should read the requirements of the Standards of GRAP together. This means entities
are required to classify revenue recognised in accordance with GRAP 9 or GRAP 23 as either
exchange or non-exchange respectively, on the face of the statement of financial performance
or in the notes, and to disclose accounting policies.
45
GRAP 23.10 explains if it is not immediately clear whether transactions are exchange or non-
exchange, an entity should examine the substance of the transaction by applying judgement.
The requirements of the Standards of GRAP apply to material transactions or events. Entities
should not present immaterial items separately in the financial statements. This means entities
should not unnecessarily disaggregate information in the statement of financial performance or
related notes in an attempt to present exchange and non-exchange revenue separately.
Entities should also apply materiality to determine which accounting policies are significant and
should be presented. Entities may make this information available on another platform, such as
the entity’s website.
4.7 What should be considered when presenting information in addition to what is required
by GRAP 24 on a comparison of actual and budget information?
GRAP 24 requires entities that are required to, or elect to, make publicly available their approved
budgets and for which they are held publicly accountable, to present a comparison of actual
information with the approved budget in the financial statements.
The objectives of financial statements are to provide information about the entity that is useful to
users for accountability and decision-making purposes. The attributes that make information
useful to users are relevance, faithful representation, understandability, timeliness, comparability,
and verifiability of the information reported, as discussed in the Board’s Conceptual Framework
for General Purpose Financial Reporting (Conceptual Framework).
Entities may be required or encouraged to present information in addition to what the Standards
of GRAP require. For example, the National Treasury requires entities to present more
information about the entity’s actual financial results compared to its budget than what the
Standards of GRAP require.
Presenting information in the financial statements in addition to what the Standards of GRAP
require is not prohibited. Entities may include additional information in the financial statements if
it is presented in a way that meets the objectives of financial statements and attributes of useful
information, as discussed in the Conceptual Framework.
For example, entities that present a statement of comparison of budget and actual information
and an appropriation statement (information used by the National Treasury), often present
information that is similar, but not the same, more than once in the financial statements. The
information is therefore largely repeated. It is likely that this repetition of information would be
more misleading to a user than provide useful information.
To comply with the Standards of GRAP, while providing additional information to specific users,
it may be appropriate for entities to present:
• information required by Standards of GRAP, together with the additional information entities
are required or encouraged to present, once in a single statement or note; or
• information required by Standards of GRAP in the financial statements, with additional
information provided as an annexure to the financial statements.
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4.8 How should entities determine the amount of repairs and maintenance expenditure
incurred?
GRAP 17 requires an entity to disclose expenditure incurred to repair and maintain property,
plant and equipment in the notes to the financial statements. The Standard does not prescribe
how the amount to be disclosed should be determined, it acknowledges that expenditure may be
incurred either internally or externally.
In particular, to determine the amount to be disclosed, an entity considers whether the
expenditure arose from (a) procuring the service to repair and maintain assets from service
providers, and/or (b) an internal function or department that is responsible to repair and maintain
assets, in which case the expenditure may comprise the amounts incurred on materials and time
spent by employees.
GRAP 17 requires that entities disclose how they have determined the disclosed amount so that
the users of the financial statements can make comparable assessments.
Other asset-related Standards have similar disclosure requirements that should be considered.
4.9 When should an entity present revenue and receivables from exchange and non-exchange
transactions on the face of the financial statements or in the notes?
The Standards of GRAP set out various requirements for the presentation of revenue and
receivables from exchange and non-exchange transactions, either on the face of the financial
statements or in the notes. The table below summarises these requirements:
Presentation requirements for Presentation requirements for

revenue receivables
GRAP 1 GRAP 1.96 GRAP 1.79
As a minimum, the face of the As a minimum the face of the statement
statement of financial performance of financial position shall include line
shall include line items that present items that present the following amounts:
the following amounts for the period:
…
(a) revenue …
(i) receivables from non-exchange
GRAP 1.98 transactions (taxes and transfers);
Additional line items, heading and (j) receivables from exchange
sub-totals shall be presented on the transactions; …
face of the statement of financial
GRAP 1.85
performance when such
presentation is relevant to an An entity shall disclose, either on the face
understanding of the entity’s of the statement of financial position or in
financial performance. the notes to the statement of financial
position, further sub-classifications of the
line items presented, classified in a
manner appropriate to the entity’s
operations.
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Presentation requirements for Presentation requirements for

revenue receivables
GRAP 9 GRAP 9.39
An entity shall disclose the amount
of each significant category of
revenue recognised during the
period including the revenue arising
from:
(i) the rendering of services
(ii) the sale of goods;
(iii) interest;
(iv) royalties; and
(v) dividends or similar
distributions.
GRAP 23 GRAP 23.115 GRAP 23.115
An entity shall disclose, either on the An entity shall disclose, either on the face
face of, or in the notes to, the of, or in the notes to, the financial
financial statements: statements:
(a) the amount of revenue from non- …..
exchange transactions
(b) the amount of receivables
recognised during the period by
recognised in respect of non-exchange
major classes showing
revenue;
separately:
…
(i) taxes, showing separately
major classes of taxes; and
(ii) transfers, showing
separately major classes of
transfer revenue.
GRAP 108 GRAP 108.35
The carrying amount of statutory
receivables shall be disclosed separately
in the notes to the financial statements,
clearly distinguishing statutory
receivables from receivables which are
financial assets and other receivables.
As the Standards of GRAP set out various requirements for the presentation of revenue and
receivables, an entity needs to consider materiality when preparing its financial statements. The
requirements in the Standards of GRAP should be read together when presenting revenue and
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receivables in the financial statements. Note: The discussions below assume that the items are
material to the financial statements and/or the disclosures in the notes.
Where one Standard of GRAP requires presentation on the face, while another Standard of
GRAP:
(a) allows presentation either on the face, or in the notes to the financial statements; or
(b) does not have specific requirements for presenting an item,
revenue and receivables should be presented on the face.
Revenue
As required by GRAP 1, revenue is presented on the face of the statement of financial
performance.
If revenue is presented on the face of the statement of financial performance, additional line
items, distinguishing between exchange and non-exchange revenue, may be included on the
face of the statement of financial performance, if:
(a) the exchange or non-exchange revenue is material; and
(b) relevant information is provided to the users in understanding the entity’s financial
performance.
If the distinction between exchange and non-exchange revenue is not included on the face of the
statement of financial performance, it is disclosed in the notes to the financial statements.
The notes to the financial statements may also separately present the major classes of non-
exchange revenue, and the significant categories of exchange revenue.
Receivables
As required by GRAP 1, receivables from exchange transactions and receivables from non-
exchange transactions are presented on the face of the statement of financial position.
The notes to the financial statements should separately present statutory receivables from
contractual and other receivables.
4.10 Should all errors be accounted for using GRAP 3?
Stakeholders indicated a trend of disclosing extensive information on the corrections of prior
period errors – both in the statement of changes in net assets as well as the notes. Stakeholders
indicated that the information provided detracted from the overall quality of the financial
statements as it was not relevant to users of the financial statements. The disclosures often
related to immaterial amounts, and the aggregation of information was not considered.
This practice means that the principles in GRAP 3 - particularly materiality - are not being
considered by entities when preparing their financial statements.
GRAP 3 explains that the Standards of GRAP are only applied to transactions and events that
are material. This should always be considered by entities in deciding what accounting treatment
should be applied, as well as what and how information should be presented in the financial
statements and disclosed in the notes.
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The Guideline on The Application of Materiality to Financial Statements provides guidance on

the treatment of immaterial errors. The guidance is outlined below.
What are errors?
GRAP 3 explains that prior period errors are omissions from, and/or misstatements in, an entity’s
financial statements arising from failure to use, or misuse of reliable information that is available,
or could reasonably be expected to be obtained.
Material errors
Material errors are errors that individually or collectively could reasonably be expected to
influence the users’ decisions taken on the basis of those financial statements. Errors could affect
both numbers and qualitative descriptions provided in the financial statements. An entity must
correct all material errors in accordance with GRAP 3, i.e. retrospective correction and
restatement of the error, with disclosure in the notes to the financial statements.
Immaterial errors
As the Standards of GRAP only apply to material items, and entity should consider the following
in deciding how to treat errors that are immaterial:
• Errors need to be assessed both quantitatively and qualitatively.
• Immaterial errors do not need to be corrected, unless the errors are made to achieve a
particular presentation of an entity’s financial position, financial performance or cash flows.
• When an entity assesses an error not to be material individually, it considers whether it
may be material in aggregate with other immaterial errors. The netting of errors is
inappropriate.
4.11 Are all adjustments related to the adoption of a new pronouncement a change in
accounting policy in accordance with GRAP 3?
When entities are required to apply a new pronouncement issued by the Board, the transitional
provisions of that pronouncement should be applied to account for any resulting adjustments. In
the absence of any transitional provisions, an entity applies the requirements of GRAP 3 to
account for the adjustments.
Even if a pronouncement has transitional provisions, if some of the requirements of the previous
pronouncement are the same as the requirements in the new pronouncement but were previously
incorrectly applied, any resulting adjustment should be treated as a prior period error in GRAP 3
rather than a change in accounting policy.
When a pronouncement does not have any transitional provisions, an entity applies GRAP 3.
The following paragraphs are relevant in considering whether the adoption of a new
pronouncement will give rise to a change in an accounting policy or a change in an accounting
estimate. An entity should also consider if any adjustments could be prior period errors.
Changes in accounting policy
GRAP 3.16 indicates the following:
A change in the accounting treatment, recognition or measurement of a transaction,
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event or condition within a basis of accounting is regarded as a change in accounting

policy.
This is typically when the new pronouncement outlines new or different requirements or criteria
for when a transaction is recognised, and how it is measured (e.g. cost, fair value or another
measurement bases).
Changes in accounting estimates
GRAP 3 indicates the following regarding changes in accounting estimates:
• Paragraph .35 – “The use of reasonable estimates is an essential part of the preparation
of financial statements and does not undermine their reliability”.
• Paragraph .36 – “An estimate may need revision if changes occur in the circumstances on
which the estimate was based or as a result of new information or more experience. By its
nature, the revision of an estimate does not relate to prior periods and is not the correction
of an error”.
• Paragraph .37 – “A change in the measurement basis applied is a change in an accounting
policy, and is not a change in an accounting estimate. When it is difficult to distinguish a
change in an accounting policy from a change in an accounting estimate, the change is
treated as a change in an accounting estimate”.
Errors
GRAP 3.04 indicates the following:
(a) was available when financial statements for those periods were authorised for
issue; and
(b) could reasonably be expected to have been obtained and taken into account
in the preparation and presentation of those financial statements.
Judgement should be applied to the relevant facts and circumstances when applying a new
pronouncement. Similar principles to those outlined in this FAQ should also be applied when
implementing the revisions to existing pronouncements.
4.12 When should GRAP 109 be applied?
It has been observed that entities incorrectly apply GRAP 109 to arrangements that are not
principal-agent arrangements.
This FAQ outlines the process that should be followed to determine if GRAP 109 should be
applied. Note: This FAQ does not deal with the first-time adoption of GRAP 109.
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Step 1: When should GRAP 109 be considered?

Before accounting for an arrangement with another party, an entity should consider whether
GRAP 109 should be applied. As GRAP 109 provides guidance on assessing the nature of an
arrangement or relationship with another party, it is considered before applying other Standards
of GRAP.
Step 2: Is the arrangement a principal-agent arrangement?
To determine if GRAP 109 should be applied, an entity needs to determine if the arrangement it
has entered into is a “principal-agent arrangement”.
A “principal-agent arrangement” is defined as follows in GRAP 109.05:
A principal-agent arrangement results from a binding arrangement in which one
entity (an agent), undertakes transactions with third parties on behalf of, and for the
benefit of, another entity (principal).
There are two important aspects to consider in assessing whether a principal-agent arrangement
exists:
1. The existence of a binding arrangement between the principal and the agent.
2. The arrangement is such that one entity (the agent) represents the interests of another
party (the principal), in dealing with identified third parties.
The definition refers to undertaking transactions with third parties “on behalf of, and for the benefit
of, another entity (principal)”. By definition, the entity on whose behalf the activities are being
undertaken and who ultimately benefits (or bears losses), is the principal in the arrangement. The
assessment of whether an entity is a principal or an agent in an arrangement is not undertaken
as part of the initial assessment of whether a principal-agent arrangement exists. Only after it is
concluded that a principal-agent arrangement exists, is step 3 of this FAQ undertaken to
determine which entity is the principal and which entity is the agent in the arrangement.
The assessment of whether an arrangement is principal-agent arrangement is made at the
arrangement-level rather than for individual transactions.
A single binding arrangement could include multiple principal-agent arrangements. Where
arrangements include the fulfilment of multiple rights and obligations, the role of the parties
should be analysed for these different rights and obligations. For example, a single binding
arrangement may require an entity to represent another party in its interactions with suppliers, as
well as the recipients of the goods or services developed by the suppliers, i.e. the beneficiaries.
The role of either party should be analysed in the context of the supplier and beneficiary
relationships respectively.
Is there a binding arrangement?
A binding arrangement (for purposes of GRAP 109) is any arrangement that confers enforceable
rights and obligations on parties to the arrangement. These rights and obligations could arise
from:
• contracts;
• legislation or similar means; and/or
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• common law, i.e. legal precedent set through court rulings.

Principal-agent arrangements are most likely to arise from contracts and/or legislation or similar
means. Some arrangements may be governed by both legislation (which sets the overarching
framework within which certain transactions occur) and contracts (which set out the specific
details of an arrangement between a principal and an agent, e.g. the activities to be undertaken,
re-imbursement of costs, fees, service standards etc.). Both should be considered in deciding
the nature of the arrangement and what rights and obligations exist for either parties.
Who are the parties to the arrangement?
A common misconception is that any transaction with more than two parties is a principal-agent
arrangement. This is not the case. A principal-agent arrangement is where one entity (the agent)
represents the interests of another entity (the principal) when that entity (the principal) transacts
with third parties. The agent represents the principal and administers the transactions between
the principal and the third parties, and it does so according to the specific direction given by the
principal. The agent generally does not have discretion in terms of the type/types of goods or
services to be rendered or the price at which these goods or services are to be rendered and to
whom. The agent facilitates any transactions or interactions between the principal and the third
parties in respect of the binding rights and obligations that are established between the principal
and the third parties.
Representing the interests of another entity could include undertaking specific transactions, or it
could include having interactions with third parties on an entity’s behalf, e.g. negotiating a
contract. Where there are specific transactions that are undertaken between the principal and
the third parties, the agent would be involved in facilitating or executing the transaction but would
not be responsible for fulfilling the rights and obligations in the transaction. In analysing the rights
and obligations between the parties, the rights and obligations between the principal and the third
parties are likely to be substantive in nature, i.e. they relate to the direct fulfilment of the rights
and obligations of the arrangement. The agent’s rights and obligations in relation to the
transactions between the principal and the third parties are likely to be protective or administrative
in nature.
A key characteristic of these transactions is often that the principal and the third parties are the
counterparties to the transaction rather than the agent and the third parties (although there are
exceptions). The diagram below illustrates the relationships in a principal-agent arrangement:
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Principal Binding arrangement in terms of

GRAP 109 that indicate that agent
represents principal in transactions
with third party
Primary transaction between
principal and third party
Agent
3rd party
Transaction between principal and Assess whether GRAP 109

third party accounted for using applies to arrangement
relevant Standard of GRAP*
*Transaction between third party and principal will be governed by a separate binding arrangement.
The examples below illustrate when a principal-agent arrangement exists.
Examples where a principal-agent arrangement exists
Example #1: Issuing of motor vehicle licences
• Fact pattern:
The relevant Department of Transport issues motor vehicle licences to motorists in each
province in exchange for a prescribed fee. Given the geographical location of municipal
offices, it is convenient for motorists to be able to renew their licences at these locations.
The municipality facilitates the issuing of these licences and the collection of the prescribed
fees.
• Analysis:
The municipality acts on behalf of the Department to issue licences to, and collect money
from motorists, i.e. there are three parties to the arrangement. The transaction is however
between the Department of Transport – the entity responsible for issuing the licence, and
the motorist (i.e. third party) - the party responsible for the payment of the licence fee. The
municipality is not a party to the transaction with the third parties but rather facilitates the
transaction between the Department and the motorist.
Example #2: Project management services to an entity
• Fact pattern:
A Department is responsible for executing an infrastructure development project within a
municipal boundary. In executing the project, the Department asks the municipality to
provide it with spatial planning services, as well as project managing the contractor
appointed by the Department for the development of the infrastructure. As the municipality
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has the necessary technical expertise, they will also negotiate the contract between the
Department and contractor. The Department is liable to pay the contractor, and the
contractor is liable to deliver the completed infrastructure.
• Analysis:
The municipality fulfils two roles:
- The municipality acts on behalf of the Department in negotiating and managing the
contract between the Department and the contractor, i.e. there are three parties to the
arrangement. The transaction is however between the Department and the contractor
(i.e. third party). The municipality is not party to the transaction with the third parties.
Note: In some instances, agents may be asked to facilitate the supply chain
management process and may be a party to the contract (particularly construction
contracts). The agent will usually have no substantive rights or obligations in the
arrangement.
- The municipality provides spatial planning services to the Department and will receive
compensation for those services. As there are only two parties to the arrangement,
there is no principal-agent arrangement.
Examples where a principal-agent arrangement does not exist
Example #3: Delivery of services to a third party
• Fact pattern:
A municipality contracts with a service provider to deliver food parcels to a community
affected by a disaster. This relief is automatically provided by the municipality when
specific events occur.
• Analysis:
Although the food parcels are delivered to identified third parties, these parties are not
party to the arrangement – they are merely a beneficiary of the municipality’s activities.
Therefore, only the municipality and the service provider are parties to the arrangement.
In this instance, there is no agent, as there are no third parties in the arrangement.
Example #4: Legal services provided to an entity
• Fact pattern:
An entity contracts with senior counsel to provide it with legal representation for
environmental claims against the entity. Senior counsel advises the entity that it needs to
contract with environmental and other experts to assist with the case.
• Analysis:
Although the experts will effectively act on behalf of the client (the entity), there are
essentially two contracts:
- One between the entity and senior counsel for the provision of legal services.
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- One or more contracts between senior counsel and the expert(s). Contracts between
senior counsel and the experts are for the provision of services to senior counsel to
ensure relevant legal services are provided to the client (the entity).
In this instance, senior counsel is not representing the entity when contracting with the
experts and therefore it is not an agent. Senior counsel will act for him or herself when
dealing with the experts as the one primarily responsible for fulfilling the contract.
Principal-agent arrangements and control relationships
The structure and operation of the public sector means that entities frequently control other
entities. Although these control relationships mean that the controlling entity is able to direct the
activities of an entity so that it benefits from those activities, these relationships by themselves
do not indicate the existence of a principal-agent arrangement. Only where a controlling entity
specifically directs a controlled entity to undertake transactions with third parties for the controlling
entity’s benefit will a principal-agent arrangement exist. In control relationships, it is possible for
one or more principal-agent arrangements to exist within the context of a control relationship.
This is particularly relevant in assessing the nature of grant and transfer arrangements between
controlled and controlling entities.
Substance over form
The financial statements are prepared by applying “substance over form”. This means that
transactions or events are accounted for based on their economic substance and economic
characteristics rather than their legal form.
In assessing whether a principal-agent arrangement exists, an entity applies the principle of
substance over form. The terms “principal” and “agent” are described in law. As such,
arrangements might stipulate that “this arrangement is (or is not) a principal-agent arrangement”,
or “entity X is (or is not) the agent and entity Y is (or is not) the principal”, or that an entity “acts
on behalf of XXX or is the implementing agent”. An entity needs to assess if the definition of a
principal-agent arrangement in GRAP 109 is met when accounting for the arrangement,
irrespective of the terminology used in the binding arrangement or the legal interpretation of the
arrangement.
Step 3: Is an entity a principal or an agent in the arrangement?
Only if an entity concludes that an arrangement is a principal-agent arrangement, are the criteria
in GRAP 109.25 applied to assess if an entity is a principal or an agent. An entity assesses
whether it is an agent using the criteria in GRAP 109.25. If the criteria are not met, by default the
entity is the principal.
.25 An entity is an agent when, in relation to transactions with third parties, all three
of the following criteria are present, except as outlined in paragraph .26:
(a) It does not have the power to determine the significant terms and conditions
of the transaction.
(b) It does not have the ability to use all, or substantially all, of the resources that
result from the transaction for its own benefit.
(c) It is not exposed to variability in the results of the transaction.
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GRAP 109 provides detailed guidance on the application of each of these. Illustrative examples
are provided in the Appendix A of GRAP 109.
4.13 Is VAT receivable or payable an exchange or a non-exchange receivable or payable?
GRAP 1.79(i), (j), (l) and (m), requires an entity to separately disclose receivables and payables
from exchange and non-exchange transactions on the statement of financial position.
VAT is an indirect tax based on consumption of goods and services in the economy. Revenue is
raised for the government by requiring certain traders or vendors to register and to charge VAT
on taxable supplies of goods or services. The essential characteristics of VAT are:
• it is charged at each stage of the production and distribution process;
• the taxable person (vendor) may deduct the tax paid during the preceding stages; and
• the burden of the tax is on the final consumer.
The non-exchange transaction is the transaction concluded between the person or entity
imposing the tax (national government) and the consumer of goods and services in the South
African economy. Where an entity sells final goods and services to consumers, it is responsible
to collect taxes from its consumers for the goods and services provided. In collecting and
remitting VAT to the national government, an entity acts as an agent. Consequently, VAT
receivable or payable is deemed to be an exchange rather than a non-exchange transaction.
Similarly, other types of taxes which are collected by entities as agents, for example, employees’
tax and UIF contributions, can be seen as exchange rather than non-exchange transactions.
4.14 When should geographical information be provided as required by GRAP 18?
This FAQ provides guidance on the requirements of GRAP 18 to report geographical information
as part of entity wide disclosures. Entity wide disclosures should be distinguished from reportable
segment information. This FAQ does not deal with providing geographical information as part of
reportable segment information when geographical areas meet the definition of a segment(s).
Issues raised
Questions have been asked about the GRAP 18 requirement to disclose information based on
geographical locations as part of entity wide disclosures when relevant for decision making
purposes.
Entities noted the following difficulties in providing geographical information in their financial
statements:
• When to provide the information: Entities were unsure when the entity wide disclosure
requirements for geographical information apply, and how they relate to reportable
geographical segment information.
• Determining locations: Entities were unsure how to determine their geographical locations.
For example, most municipalities have different towns within their jurisdiction, but the
activities and services delivered are the same for all areas. The level of information of each
town within an entity’s jurisdiction may not be relevant for decision-making purposes.
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• Availability and reliability of information: Some entities noted that they are easily able to
obtain information for their reportable segments based on the types of services provided,
as the information is regularly reviewed by management and therefore readily available.
However, limited reliable geographical information may be available, if at all, and the
information is not reviewed by management. For example, an entity may capture
geographical information on its system, but the information is not reviewed and may not be
reliable.
What does the Standard require?
GRAP 18 requires the disclosure of geographical information as follows:
.30 Paragraphs .31 to .32 apply to all entities, including those that have a single
reportable segment. Some entities’ activities are not organised on the basis of
differences in geographical areas of operations. Information required by
paragraphs .31 to .32 shall be provided only if it is not provided as part of the
reportable segment information required by this Standard or if it is not reported
elsewhere in the financial report.
.31 An entity shall disclose the geographical areas in which it operates that are
relevant for decision-making purposes, including any foreign countries.
.32 An entity shall report the following geographical information, unless the
necessary information is not available and the cost to develop it would be
excessive:
(a) external revenues from non-exchange transactions and external revenues
from exchange transactions attributed to the geographical areas in which
it operates;
(b) total expenditure attributed to the geographical areas; and
(c) non-current assets other than financial instruments, deferred tax assets
(where applicable), post-employment benefit assets, and rights arising
under insurance contracts for the geographical areas.
The amounts reported shall be based on the financial information that is used
to produce the entity’s financial statements. If the necessary information is not
available and the cost to develop it would be excessive, that fact shall be
disclosed. An entity may provide subtotals of geographical information for
groups of geographical areas.
What do the requirements of GRAP 18 mean?
When deciding what information to disclose and how to disclose it to meet the requirements of
GRAP 18.30 to .32, an entity follows the following steps:
Step 1 – Assess what information is already provided (GRAP 18.30)
An entity may conclude that, based on meeting the definition of a segment, geographical
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information is reported as part of the reportable segment information11. If the information required
by GRAP 18.31 and .32 is already provided in the reportable segment information or elsewhere
in the financial report12, no additional information needs to be provided. If the information is not
already provided, an entity proceeds to steps 2 and 3.
Step 2 – Assess which geographical areas are relevant for decision-making purposes
(GRAP 18.31)
An entity identifies geographical areas that are relevant to users of the financial statements,
including management, for decision-making purposes and discloses those areas.
An entity may conclude that the geographical areas in which it operates are irrelevant for decision
making purposes, i.e. the entity’s geographical areas of operation can be seen as a single
geographical area for decision making purposes. To meet the requirement of .31 an entity would
disclose this fact. For example, although the entity operates in a number of geographical areas,
it is irrelevant for users of the financial statements to make decisions about the entity as the
goods or services provided are substantially the same.
Step 3 – Assess what financial information about geographical areas is available and whether
the cost to develop unavailable information is excessive (GRAP 18.32)
An entity provides the financial information, which is based on the information used to produce
the entity’s financial statements, as required by GRAP 18.32(a) to (c). Should all or parts of the
information be unavailable, an entity assesses whether the information can be generated without
incurring excessive costs. An entity is not required to generate geographical information at an
excessive cost if it is not already available. Should the costs to generate the information be
excessive, an entity discloses that fact.
Where an entity assessed in step 2 that it operates in a single geographical area, the information
required by GRAP 32(a) to (c) would already be provided in the financial statements. See step 1.
Management’s policy
Management should develop a policy to determine (a) when to report geographical information
based on GRAP 18, (b) how to group the entity’s jurisdiction into reportable areas, and (c) how it
would assess whether costs to develop unavailable information is excessive.
4.15 What is the interaction of legislated disclosure requirements and disclosure requirements
in Standards of GRAP?
Legislation may require entities to disclose specific information in their financial statements. For
example, information about investments and cash balances, management remuneration, tangible
assets, transfers of functions, etc. Standards of GRAP may require similar information to be
disclosed. Since entities are required to comply with the requirements of both legislation and the
Standards of GRAP when preparing financial statements, questions have been asked about how
11
Geographical information reported as part of the reportable segment information may be presented as one of multiple sets of
segments, or as primary or secondary segment information. See GRAP 18.13.
12
Financial report means the general purpose financial report which includes the financial statements, e.g. an entity’s annual
report.
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the information should be disclosed where the requirements are similar. For example, should the
information be repeated in the financial statements.
Entities need to ensure that they comply with the disclosure requirements of the Standards of
GRAP as well as legislation when preparing financial statements. Where legislation and the
Standards require similar information to be disclosed, the information need not be repeated, as
long as what is disclosed will meet all requirements.
Entities should apply materiality when considering what information required by the Standards of
GRAP needs to be disclosed in the financial statements. The Guideline on The Application of
Materiality to Financial Statements provides guidance in this regard. The Guideline also provides
guidance on the interaction of materiality with laws and regulations. It states that where legislation
requires certain information to be disclosed, an entity may not be in a position to apply materiality.
Entities will need to analyse the specific requirements of legislation to establish whether applying
materiality is appropriate.
4.16 What is the interaction of Standards of GRAP where two or more Standards have similar
requirements?
There may be instances where two or more Standards of GRAP require similar information to be
disclosed in the financial statements about the same transaction or event. For example, GRAP 20
requires information about related party relationships, transactions and balances to be disclosed.
Related parties include management. GRAP 25 requires information about employee benefits to
be disclosed, including remuneration of management. Questions have been asked about whether
it is necessary to repeat information in the financial statements where two or more Standards
have similar requirements.
Entities need to ensure that they comply with all the disclosure requirements in the Standards of
GRAP when preparing financial statements, if material. Information in the financial statements
should be presented and disclosed in a manner that is user friendly, easy to understand, clear
and concise. (See the qualitative characteristic of understandability in the Conceptual Framework
for General Purpose Financial Reporting).
It may be possible for an entity to provide information about a transaction or event without
repetition in a way that meets the disclosure requirements of two or more Standards of GRAP
simultaneously.
4.17 What are the disclosure requirements in the Standards of GRAP on commitments?
Questions are frequently asked about whether the Standards of GRAP include a universal
requirement to disclose commitments. The answer is no – there is no universal requirement.
GRAP 1 refers to the disclosure of unrecognised contractual commitments in
paragraph .124(d)(i) and deals with the order in which information is to be included in the financial
statements. The paragraph therefore needs to be read in the context of the requirements of the
other Standards to disclose commitments. As examples, the Standards of GRAP require the
disclosure of commitments related to:
• Operating leases (see GRAP 13).
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• The purchase, construction, development, or repair and maintenance of investment

property (see GRAP 16).
• The acquisition of property, plant and equipment and intangible assets (see GRAP 17 and
GRAP 31).
• The acquisition, maintenance and restoration of heritage assets (see GRAP 103).
4.18 How should the cash movement in consumer deposits be presented in the cash flow
statement?
Some holders of consumer deposits are uncertain if the cash movement in these deposits should
be classified as a financing activity, or as a movement in working capital as part of the entity’s
operating activities when preparing the cash flow statement.
Consumer deposits are amounts payable to a municipality when a consumer applies for
municipal services. These deposits either represent an advance receipt by a municipality for the
supply of goods or services (i.e. a prepayment received), or can be held by the municipality as
collateral for potential defaults on future debts. When a consumer deposit is paid, the municipality
has an obligation to provide the indicated goods or services, or to return the deposit to the
consumer.
Cash flow items that are classified as operating activities within the cash flow statement are those
that relate primarily to the entity’s revenue-producing activities that enter into the determination
of surplus or deficit. Investing activities are those that relate to investment-related activities, such
as the acquisition and disposal of long-term assets and other investments not included in cash
equivalents. Financing activities comprise activities that result in changes in the size and
composition of the contributed capital and borrowings of the entity.
Irrespective of how the consumer deposits will be used by a municipality, they do not:
• comprise borrowings from customers and are not attributable to the contributed capital of the
entity; and
• relate to the acquisition and disposal of long-term assets and other investments.
Instead, consumer deposits are associated with the provision of goods and services, and
therefore relate to an entity’s revenue-producing activities. As a result, cash movements in
consumer deposits should be reflected as a change in working capital, as part of operating
activities when preparing the cash flow statement.
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Section 5 – Accounting for Non-exchange Revenue

5.1 How should entities account for non-exchange revenue, such as transfer payments
received?
Public entities that applied Statements of GAAP may as an outcome of making the assessment
in accordance with Directive 12 apply Standards of GRAP for the first time from 1 April 2018.
A few key differences between IAS 20 on Accounting for Government Grants and Disclosure of
Government Assistance and GRAP 23 regarding the recognition of government grants and
transfer payments are as follows:
• IAS 20 prescribes different accounting treatment for grants related to operational and
capital expenditure. GRAP 23 makes no such distinction.
• IAS 20 requires that revenue related to operational expenditure is recognised when
expenditure is incurred. This generally resulted in deferred revenue being recognised
initially as a liability until the expenditure is incurred. Subsequently, the liability is reduced,
and revenue recognised as operational expenditure is incurred. Under GRAP 23, revenue
is recognised unless an obligation exists to use the transferred resources (in this instance,
the grant or transfer payment) in a certain way or return the resources to the transferor (i.e.
the transfer of resources is subject to a “condition”). If an entity is only required to use the
resources received in a certain way with no corresponding requirement to return those
resources to the transferor, then no obligation exists, and revenue is recognised.
• IAS 20 requires that revenue related to the acquisition or construction of an asset is

recognised either as a reduction of the asset acquired/constructed (resulting in a reduced
depreciation charge) or deferred revenue being recognised as a liability on initial
recognition. Subsequently, the liability would be reduced, and revenue recognised based
on the depreciation of the asset. Under GRAP 23, revenue is recognised unless an
obligation exists to use transferred resources in a certain way or return the resources
received to the transferor (i.e. the transfer of resources is subject to a “condition”). If an
entity is only required to use the resources received in a certain way with no corresponding
requirement to return those resources to the transferor, then no obligation exists, and
revenue is recognised.
For example: Entity A receives an annual transfer payment from Department X. Part of the
transfer payment for the 20X9/20X0 reporting period is specifically allocated to the acquisition of
infrastructure. The stipulations of the transfer payment do not require repayment of the whole or
part thereof if it is not utilised to acquire the specified infrastructure. Based on the fact that no
condition exists, Entity A would recognise the transfer payment as revenue when it is probable
that the transfer payment will be received, and the amount can be estimated reliably (which may
be at the start of the financial year).
The recognition of an asset and the related liability and/or revenue should be based on the
specific stipulations of each grant, transfer payment, donated funds/assets and using the
recognition, measurement and presentation requirements of GRAP 23.
Entities should treat the change in accounting for non-exchange revenue using GRAP 3.
GRAP 3.21(b) requires that: “…when an entity changes an accounting policy upon initial
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application of a Standard that does not include specific transitional provisions applying to that
change, or changes an accounting policy voluntarily, it shall apply the change retrospectively.”
Therefore, where an entity changes its accounting policy from IAS 20 to one based on GRAP 23,
it should apply that change retrospectively using GRAP 3.24 to .29.
In applying a policy retrospectively, an entity would examine the terms of its non-exchange
revenue arrangements and assess whether conditions or restrictions exist. In particular, an entity
would assess whether:
• Any deferred revenue recognised as a liability using IAS 20 would qualify for recognition as
a liability using the principles in GRAP 23 (i.e. are there any conditions imposed on the use
of the transferred resources received that are yet to be fulfilled). If any deferred revenue
recognised using IAS 20 does not meet the requirements to be recognised as a liability
using GRAP 23, the deferred revenue (liability) should be derecognised and recognised as
revenue (by restating the prior year statement of financial performance and position or by
adjusting the opening balance of accumulated surplus or deficit for the earliest period
presented). [See GRAP 3.24]
• Any revenue recognised using IAS 20 would qualify for recognition as a liability using the
principles in GRAP 23 (i.e. where revenue was recognised in prior periods using IAS 20,
but unfulfilled conditions exist if the principles in GRAP 23 are applied). Where unfulfilled
conditions exist, a liability should be recognised and revenue/accumulated surplus or deficit
adjusted (by restating the prior year statement of financial performance and financial
position, or by adjusting the opening balance of accumulated surplus or deficit for the
earliest period presented). [See GRAP 3.24]
An entity would also assess whether any changes in presentation result in a change in accounting
policy. For example: An entity may have used IAS 20.27 and deducted grants from the carrying
amount of assets. This presentation is not allowed under GRAP 23 and would result in a change
in accounting policy, requiring the restatement of the statements of financial performance,
financial position, and net assets.
5.2 Should revenue received from licence fees and similar transactions13 be accounted for as
exchange or non-exchange revenue by the issuer?
Public sector entities frequently issue licences to undertake certain activities or operate certain
assets, e.g. motor vehicle, drivers’, fishing, gambling and similar licences.
For purposes of the discussion that follows, the entity issuing the licence is the issuer and the
entity receiving the licence is the licence holder.
For the issuer of licences, the consideration received can either be treated as exchange or non-
exchange revenue. Whether the revenue is exchange or non-exchange depends on the nature
and circumstances of the transaction.
In formulating an appropriate accounting treatment, the following steps should be considered:
13
This FAQ could be extended to other transactions that might not be called “licences” but have the same characteristics. As an
example, certain industries require the payment of “subscription fees” when in fact these fees are similar to “licences” (and vice
versa).
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• Whether the entity entered into a principal–agent arrangement, and acts as an agent or a
principal.
• The definitions of exchange and non-exchange transactions.
Step 1: Agent or principal
An entity should firstly assess whether it has entered into a principal–agent arrangement. In
making this assessment, it uses the principles in GRAP 109 (See FAQ 4.12).
If an entity has entered into a principal–agent arrangement, it considers whether it acts as an
agent or a principal in such arrangements. When an entity acts as the principal and is the issuer
of the licence, it considers step 2 below.
If a principal–agent arrangement does not exist, an entity considers step 2 below.
Step 2: Exchange or non-exchange revenue
An issuer considers the definitions of both exchange and non-exchange transactions in the
Standards of GRAP:
Exchange transactions are transactions in which one entity receives assets or
services, or has liabilities extinguished, and directly gives approximately equal value
(primarily in the form of cash, goods, services, or use of assets) to another entity in
exchange.
Non-exchange transactions are transactions that are not exchange transactions. In
a non-exchange transaction, an entity either receives value from another entity
without directly giving approximately equal value in exchange (i.e. non-exchange
revenue), or gives value to another entity without directly receiving approximately
equal value in exchange (i.e. non-exchange transactions such as social benefit
transactions).
In determining whether the revenue is exchange or non-exchange revenue, the following is
important:
• Whether the issuer provides goods and services directly (or through an agent) to the licence
holder in return for the consideration received.
• The value of the goods and services provided in relation to the consideration received.
Goods and services provided by the issuer
The goods and services provided in an arrangement may vary. Sometimes the goods and
services provided may be significant in relation to the arrangement as a whole, e.g. the issuer
performs regulatory services such as checking competence, compliance, the safe and effective
functioning of particular assets and other forms of control, and other times they are not, e.g. an
issuer merely registers a particular asset on a database or performs a similar administration
function.
Consideration received by the issuer
The extent of the consideration received by the issuer for the goods and services provided may
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also vary from arrangement to arrangement. The issuer should therefore consider the value of
the goods and services provided in relation to the consideration received in assessing whether
the transaction results in exchange or non-exchange revenue, using the following basic principle
(based on the definition of exchange and non-exchange transactions):
• Where the consideration received by the issuer is significantly greater than the fair value
of the goods and services provided, the revenue could be non-exchange revenue as it may
be tax or similar revenue (the issuer has received consideration and not provided
approximately equal value in return)14.
• Where the consideration received by the issuer is less than the goods and services
provided, the revenue could be exchange revenue. Any foregone revenue may be
indicative of the provisions of a social benefit (the issuer has provided goods and/or
services and has not received approximately equal value in return).
The following decision tree may be useful in classifying revenue received by issuers of licences,
particularly in relation to revenue from compulsory or legislated receipts:
14
An entity should apply judgement in these circumstances as it may be that an entity provides goods and services at a profit.
These arrangements would not necessarily result in non-exchange revenue.
65
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5.3 Do in-kind benefits only involve goods and services provided by individuals and how
should in-kind benefits be accounted for?
GRAP 23 states that gifts and donations are voluntary transfers of assets including cash and
other monetary assets, goods in-kind and services in-kind that one entity makes to another,
normally free from stipulations. The transferor may be an entity or an individual.
Goods in-kind are described as tangible assets transferred to an entity in a non-exchange
transaction, without charge. GRAP 23 requires that goods in-kind be recognised as assets when
the definition and recognition criteria are met. On initial recognition, goods in-kind are measured
at their fair value as at the date of acquisition.
GRAP 23.100 provides the following examples of services in-kind that can be received by entities
under voluntary or non-voluntary schemes:
(a) technical assistance from other governments or international organisations;
(b) persons convicted of offences may be required to perform community service for an entity;
(c) public hospitals may receive the services of volunteers;
(d) schools may receive voluntary services from parents as teachers’ aides or as board
members;
(e) local governments may receive the services of volunteer fire fighters;
(f) office rent may be paid on behalf of an entity by another entity; and
(g) an entity may make use of fully furnished accommodation paid on its behalf by another
entity.
GRAP 23 requires the recognition of services in-kind that 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.
GRAP 23.116(d) and I require disclosure of the nature and type of major classes of goods and
services received in-kind, including services in-kind that are not significant to the entity’s
operations and/or service delivery objectives and/or do not satisfy the criteria for recognition, i.e.
services in-kind not recognised.
For example, services in-kind that are significant to an entity’s operations could be an entity’s
employees being paid by another entity, or office rent being paid on an entity’s behalf. These
services in-kind should be recognised when they meet the definition of an asset and satisfy the
criteria for recognition, and the nature and type should be disclosed. Some entities in the public
sector share certain services, such as internal audit, audit committee and enterprise risk
management services, e.g. a department and its entities, a municipality and its municipal entities,
or a district municipality and its local municipalities. These services are often paid by the
department or municipality on behalf of all entities that make use of it. An entity that received
these services for free may determine that they are not significant to its operations and therefore
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not recognise those services. Information about the nature and type of these services received
in-kind should still be disclosed even though the services in-kind have not been recognised.
5.4 What is the effect of IGRAP 1 on traffic fines?
GRAP 23, requires that revenue is recognised when it is probable that future economic benefits
or service potential will flow to the entity and these benefits can be measured.
IGRAP 1 clarifies that an entity should recognise the full amount of revenue at the transaction
date when there is uncertainty about the entity’s ability to collect such revenue based on past
history, as the entity has an obligation to collect all revenue due to it. Entities should not consider
or assess the probability of collecting revenue at the transaction date because this is a
subsequent measurement event. Subsequent to initial recognition and measurement, an entity
should assess the collectability of the revenue and recognise an impairment loss where
appropriate.
Although IGRAP 1 requires an entity to recognise the full amount of revenue at the transaction
date, an entity may need to use estimates to determine the amount of revenue that it is entitled
to collect. For example, an entity may offer early settlement discounts, or may offer reductions in
the amount payable by the debtor in certain circumstances. Where these exist, an entity
considers past history in assessing the likelihood of these discounts or reductions being taken
up by debtors.
For example, motorists qualify for a discount of 50% on a fine imposed if payment is made within
a period of 32 days. Based on past history, 10% of motorists take advantage of this reduction.
The entity will therefore recognise 90% of the fines at their full value and 10% of the fines at half
their value.
5.5 What is the interaction between GRAP 20 and GRAP 23 for services in-kind?
GRAP 23 prescribes the requirements for recognising and measuring revenue from non-
exchange transactions.
Paragraph .99 deals with the accounting treatment of services in-kind:
Except for financial guarantee contracts as described in paragraphs .108 and .109,
an entity shall recognise services in-kind that are significant to its operations and/or
service delivery objectives as assets and recognise the related 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. If the services in-kind are
not significant to the entity’s operations and/or service delivery objectives and/or do
not satisfy the criteria for recognition, the entity shall disclose the nature and type of
services in-kind received during the reporting period.”
In accordance with GRAP 23.116I, entities are required to disclose the nature and type of
services received in-kind during the reporting period, including where an entity does not meet the
recognition and measurement requirements outlined in GRAP 23.99.
GRAP 20 is applied to ensure that an entity’s financial statements contain the disclosures
necessary to draw attention to the possibility that its financial position and surplus or deficit may
have been affected by the existence of related parties, and by transactions and outstanding
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balances with such parties. GRAP 20 requires the disclosure of related party relationships,
transactions and outstanding balances, including commitments.
The disclosure requirements for related party transactions are prescribed in GRAP 20.27 as
follows:
Subject to the exemptions in paragraph .32, if a reporting entity has had related party
transactions during the periods covered by the financial statements, it shall disclose
the nature of the related party relationship as well as information about those
transactions and outstanding balances, including commitments, necessary for users
to understand the potential effect of the relationship on the financial statements.
These disclosure requirements are in addition to those in paragraph .35 to disclose
remuneration of management. At a minimum, disclosures shall include:
(a) the amount of the transactions;
(b) the amount of outstanding balances, including commitments; and
(i) their terms and conditions, including whether they are secured, and the
nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received;
(c) provisions for doubtful debts related to the amount of outstanding balances; and
(d) the expense recognised during the period in respect of bad or doubtful debts due
from related parties.
Entities that receive services in-kind from related parties should first apply GRAP 23 when
recognising and measuring revenue from non-exchange transactions. It is possible that in
applying GRAP 23, an entity may conclude that it will not be able to recognise and measure
certain services received in-kind as it does not meet the requirements prescribed in GRAP 23.99.
In such cases, an entity should disclose the nature and type of services received in-kind in
accordance with GRAP 23.99 and GRAP 23.116I in its financial statements. When the services
in-kind are received from a related party, an entity should also consider the disclosure
requirements in GRAP 20.
The disclosures provided by the entity for purposes of GRAP 20 will be guided by information
that is available to the entity after applying GRAP 23. This is because GRAP 23 is applied to
determine how an entity recognises and measures the services received in-kind during the
reporting period. Therefore, an entity cannot satisfy the disclosure requirement in GRAP 20, to
disclose an amount of the transaction, if it could not provide a reliable measure of the services
in-kind under GRAP 23.
While this question was raised in the context of services in-kind in GRAP 23, it could apply equally
to GRAP 20 and other Standards of GRAP that outline the accounting treatment of transactions.
5.6 How should entities account for revenue related to donated assets, e.g. land and
buildings?
Where entities acquire assets through donation and pay no or nominal consideration, they are
acquired in a “non-exchange transaction”. Entities account for assets acquired in a non-exchange
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transaction by formulating an accounting policy using the recognition, measurement and

presentation requirements of GRAP 23.
An entity would recognise assets acquired in a non-exchange transaction when it can
demonstrate that it controls the asset, it is probable that economic benefits or service potential
will flow to the entity, and the asset can be measured reliably (see GRAP 23.29 to .35). Assets
acquired in non-exchange transactions are measured at fair value in accordance with GRAP 23
and other Standards of GRAP.
In recognising the “credit” side of the transaction, an entity would assess whether the receipt of
the asset is a result of a contribution from owners (see GRAP 23.36 to .37), or results in a liability
(see GRAP 23.50 to .59) or revenue (see GRAP 23.44 to .49).
Where no condition exists (i.e. there is no requirement to use the asset in a certain way or return
it to the transferor) on the assets acquired through the donation, revenue is recognised when the
asset is recognised. Where a condition(s) exists, a liability is recognised when the asset is
recognised. As and when the condition(s) is satisfied, the liability is reduced, and revenue
recognised.
If an entity receives an asset, e.g. investment property, that meets the definition of a “function” in
GRAP 105 or GRAP 106, an entity initially measures the asset in accordance with GRAP 105 or
GRAP 106, whichever is applicable, instead of GRAP 23.
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Section 6 – Accounting for Employee Benefits

6.1 How should vacation leave be accounted for?
Note: Examples have been used to illustrate the explanations below. They are illustrative only
and should not be applied to situations without careful consideration of the facts and
circumstances as they may differ.
A. Recognising and measuring liabilities
Vacation or annual leave is a short-term employee benefit. Vacation leave can either be vested
or non-vested15. “Vested” vacation leave means that the employee is entitled to a cash payment
for unused leave, e.g. after a certain period of time has elapsed or on resignation. “Non-vested”
leave means that if employees do not use their leave, it is forfeited. The effect of vested and non-
vested leave is illustrated below through the use of examples.
Example 1
Entity X grants its employees 20 days leave a year (assume that the leave cycle and the financial
year are the same). At the end of the leave cycle, employees can either elect to have any unused
leave paid out, or they can elect to carry the leave days forward to the next leave cycle. If
employees resign, they are entitled to a cash payment for any leave due. At the end of the year,
a total of 500 leave days have not been used.
In terms of the policy, the entity has an obligation to either pay out unused leave or allow
employees to carry over unused leave to future cycles. As a result it has a present obligation for
the full 500 unused days at year end.
Example 2
Entity A provides its employees 20 days leave a year (assume that the leave cycle and the
financial year are the same). Any unused leave at year end must be used within a 6-month period,
otherwise it is forfeited. Based on past history, employees forfeit 10% of their unused leave. At
year end, the entity has 300 unused leave days.
At year end, the entity has an obligation of 300 leave days. However, it knows that based on
history, 10% is forfeited. Therefore, in measuring the obligation, it considers the percentage leave
that is not utilised. A liability of 270 days is recognised [300 – (300X10%)].
B. Classification of leave as current or non-current
Consider the following example:
Entity X grants its employees 30 days leave a year (assume that the leave cycle and the financial
year are the same). Employees can elect to have leave paid out or carried over to future leave
cycles. There is no restriction on the number of leave days that can be accumulated.
Policies such as this may result in leave being utilised or paid out in the future, often more than
12 months after the reporting date.
15
For purposes of this discussion, it is assumed that vacation leave is vested.
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Short term benefits are those benefits that are due to be settled within 12 months after the end
of the period in which the employees render the related service.
Unless as entity has an enforceable right to defer the encashment or utilisation of leave, the
liability is treated as a current liability. E.g. An entity does not have an unconditional right to defer
settlement if employees can utilise their leave due at any time or demand that their unused leave
be paid.
If an entity has an unconditional right to defer the encashment or utilisation of leave, it may be
appropriate to treat the liability, or a portion thereof, as a non-current liability. It is important to
note that in these instances, entities should consider the guidance in GRAP 25 on “long term
benefits” in measuring such liabilities.
Example 3
An entity may have allowed employees historically to accumulate unused leave. At a point in time
it amends the conditions of service to state that:
• going forward, employees will forfeit leave not utilised within a specified time frame; and
• the balance of any unused leave at the date of changing the conditions of service can
either be (a) paid out or used immediately or (b) paid out on retirement. The choice made
by employees is irrevocable.
Where employees choose to use or have the leave paid out immediately, this portion of the leave
liability is treated as a current liability. Where employees elect to have the leave paid out on
retirement, this portion of the leave liability should be treated as a non-current liability (assuming
that retirement will not occur within 12 months after the reporting date).
C. Classification of leave as an accrual or a provision
Per GRAP 19, provisions are liabilities of uncertain timing or amount. Although there is no formal
definition of an accrual, GRAP 19 explains the following: “accruals are liabilities to pay for goods
or services that have been received or supplied but have not been paid, invoiced or formally
agreed with the supplier, including amounts due to employees (for example, amounts relating to
accrued vacation pay). Although it is sometimes necessary to estimate the amount or timing of
accruals, the uncertainty is generally much less than for provisions.”
The following two examples illustrate when classification of a leave liability as an accrual and/or
provision may be appropriate (a combination of both may also be appropriate):
• An entity does not have an unconditional right to defer settlement of its leave liabilities and
its policies allow leave to be carried forward or paid out without any restrictions. In this
case, the timing is certain (i.e. used or due on demand), and the amount is certain (i.e. the
value of all leave outstanding). In this instance, classification as an accrual may be
appropriate.
• An entity does not have an unconditional right to defer settlement of its leave liabilities and
its policies stipulate that leave is forfeited if not used within 6 months after the reporting
date. In this case, the timing is certain (i.e. used on demand) but the amount may be
uncertain (i.e. an estimate of the leave that will be forfeited should be made in measuring
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the liability). If uncertainty arises in the measurement, classification as a provision may be

appropriate. Note: Where leave is classified as a provision, the disclosure requirements in
GRAP 19.98 and .99 must be adhered to.
6.2 Must an entity appoint an actuary at every reporting date to measure its defined benefit
obligations?
GRAP 25.67 states the following:
This Standard encourages, but does not require, an entity to involve a qualified
actuary in the measurement of all material post-employment benefit obligations. For
practical reasons, an entity may request a qualified actuary to carry out a detailed
valuation of the obligation before the reporting date. Nevertheless, the results of that
valuation are updated for any material transactions and other material changes in
circumstances (including changes in market prices and interest rates) up to the
reporting date.
GRAP 25 does not require the use of an actuary; it is merely encouraged. Given the complexity
of these calculations, management needs to ensure the person who performs the valuation of
the defined benefit obligations has the necessary skills and expertise.
Entities frequently implement internal policies that involve the use of external actuaries and
internal staff. As an example, an entity may appoint an actuary to carry out valuations periodically,
e.g. every five years, and then use internal staff to “roll forward” the valuations in the years that
an external valuation is not performed.
These types of techniques are acceptable if they comply with the requirements of GRAP 25.67
(above) and .66 which states that:
An entity shall determine the present value of defined benefit obligations and the fair
value of any plan assets with sufficient regularity such that the amounts recognised
in the financial statements do not differ materially from the amounts that would be
determined at the reporting date.
Plan amendments, curtailments and settlements
Entities do not always calculate the effect of plan amendments, curtailments and settlements that
occur during a reporting period, nor do they involve actuaries to perform such a calculation.
Actuaries are often informed of these events at a subsequent reporting date when they are
involved. Based on observed practice this may be years after the plan amendment, curtailment
or settlement occurred. This has led to retrospective adjustments to financial statements in the
reporting period in which the actuaries are involved.
The requirements of paragraphs .66 and .67 apply to plan amendments, curtailments and
settlements as these events impact the present value of defined benefit obligations. Entities
would therefore need to make sure that where plan amendments, curtailments and settlements
occur, the defined benefit obligations, plan assets, etc. are measured in accordance with the
requirements of GRAP 25, irrespective of whether an actuary or internal staff is used to calculate
the effect of these events.
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Entities need to ensure the following when internal staff is used to calculate the effect of these
events on the obligation:
1. Plan amendments, curtailments and settlements are identified in a timely manner and the
impact thereof is understood by staff.
2. Calculations are performed to determine the effect of plan amendments, curtailments and
settlements on the present value of defined benefit obligations when these events occur.
3. Where material, adjustments are made to reflect the effect calculated in 2. in the financial
statements, together with any applicable disclosure.
Ideally the entity develops an internal policy that enables staff to carry out these actions and
ensures that its staff has the necessary skills and expertise to do so. The entity’s ability to
implement these actions may impact on its decision to appoint an actuary and when to involve
the actuary.
Change in accounting estimate or error?
Where external actuarial valuations in the current reporting period reflect adjustments are needed
to previously recognised amounts in the financial statements, entities have asked whether these
adjustments are changes in accounting estimates (adjusted prospectively) or errors (adjusted
retrospectively).
GRAP 3 defines changes in estimates and errors as follows:
A change in accounting estimate is an adjustment of the carrying amount of an asset
or a liability, or the amount of the periodic consumption of an asset, that results from
the assessment of the present status of, and expected future benefits and obligations
associated with, assets and liabilities. Changes in accounting estimates result from
new information or new developments and, accordingly, are not corrections of errors.
a) was available when financial statements for those periods were authorised for
issue; and
b) could reasonably be expected to have been obtained and taken into account in
the preparation and presentation of those financial statements.
Entities assess whether the adjustments are a change in accounting estimate or an error based
on their facts and circumstances. Entities would consider whether they have used all reliable
information available when the financial statements for those previous periods were authorised
for issue that the entity could reasonably have been expected to obtain and use, and whether the
information was used correctly.
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6.3 Are informal arrangements to provide post-employment benefits within the scope of
GRAP 25?
Entities have asked whether the requirements of GRAP 25 on post-employment benefits only
apply to formal arrangements. They noted that, in practice, there are informal arrangements that
may give effect to employer obligations to provide post-employment benefits similar to formal
arrangements.
GRAP 25 defines post-employment benefit plans as “formal or informal arrangements under
which an entity provides post-employment benefits for one or more employees”.
The scope of the Standard further explains in paragraph .04 that the employee benefits to which
the Standard applies include those provided:
(a) under formal plans or other formal agreements between an entity and individual
employees, groups of employees or their representatives;
(b) under legislative requirements, or through industry arrangements, whereby
entities are required to contribute to national, provincial, local, or other multi-
employer plans or where entities are required to contribute to the composite
social security programmes; or
(c) by those informal practices that give rise to a constructive obligation. Informal
practices give rise to a constructive obligation where the entity has no realistic
alternative but to pay employee benefits. An example of a constructive
obligation is where a change in the entity’s informal practices would cause
unacceptable damage to its relationship with employees.
Therefore, GRAP 25 applies to formal and informal arrangements or practices that give rise to
legal or constructive obligations to provide employee benefits.
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Section 7 – Sundry Accounting Issues

7.1 How should a municipality account for free or subsidised goods and services, as well as
rebates provided to its consumers and other foregone revenue?
Note: This question arose in the context of free basic services provided to consumers by
municipalities. It may however be appropriate for other entities that undertake similar transactions
to consider this FAQ.
In the public sector, entities frequently provide goods and services to consumers for free or at
subsidised amounts, while rebates or similar reductions may be granted on taxes or other fees
due.
Municipalities often provide free or subsidised goods and services to consumers and households
in terms of a specified policy. While each municipality develops and implements its own policy
regarding consumers and households, there are commonalities between the types of assistance
provided by the various municipalities. Most often, policies provide for the following assistance:
• Free or subsidised basic services such as water and electricity (the amounts vary from
municipality to municipality).
• Metered water and electricity in excess of the free or subsidised basic amounts (these are
often limited to a specific amount so as to ensure that the consumer can afford the services
provided).
• An additional rebate for property rates (the rebate may amount to 100% of the property
rates in certain municipalities).
Questions have been raised about whether these subsidies, rebates or similar reductions should
be recognised as revenue. IGRAP 1 states the following:
.06 This Interpretation of the Standards of GRAP does not deal with:
…
(c) exchange or non-exchange transactions where there is no intention to charge for
all or some services. Examples include goods and services provided to indigent
consumers or households or rebates deducted on the provision or acquisition of
certain goods or services.
IGRAP 1 clearly only applies to those amounts that the entity intends to charge and/or collect.
As entities do not intend to collect the revenue related to the free or subsidised goods and
services or other rebates, these amounts should not be recognised as revenue. This principle is
illustrated below:
A. Free or subsidised basic services
Municipalities could provide free or subsidised basic services by either not billing those
consumers for those services or where consumers have been billed, providing for an immediate
subsidy during the billing cycle. However, since there is no intention to charge or collect any
revenue, GRAP 9 should not be applied.
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Municipalities should therefore:

• not recognise the revenue in the statement of financial performance as there is no intention
to collect the revenue related to the free or subsidised goods and services (i.e. foregone
revenue);
• still recognise an expense for the services provided (i.e. the cost of providing the free or
subsidised goods and services) in the statement of financial performance. For example
the cost of bulk purchases of water and electricity. These expenses should not be
reclassified to expense line items such as “revenue forgone” or “free basic services” and
should continue to be presented by their nature, or function, depending on an entity’s
choice of presentation; and
• consider the requirements of GRAP 1 and the Framework for the Preparation and
Presentation of Financial Statements16 in determining whether any disclosures about such
transactions are necessary in the notes to the financial statements.
B. Metered water and electricity in excess of free basic services
Where municipalities provide water and electricity in excess of the free basic services provided,
the intention is (usually) to collect such amounts from the consumer. As the intention is to collect
revenue from such transactions, GRAP 9, IGRAP 1 and GRAP 104 should be applied in
accounting for such transactions.
C. Rebates for property rates
GRAP 23 defines taxes as “economic benefits or service potential compulsorily paid or payable
to entities, in accordance with laws and or regulations, established to provide revenue to
government. Taxes do not include fines or other penalties imposed for breaches of the law”.
As property rates are paid in terms of legislation on the value of property owned within a specific
municipality and, the payment of such taxes does not result in any direct benefits in return for the
owners of such property, they are considered to be taxes.
Rebates or reductions in the amount of taxes payable are classified as “tax expenditures” in
GRAP 23. Tax expenditures are defined in GRAP 23 as “preferential provisions of the tax law
that provide certain taxpayers with concessions that are not available to others”.
In the case of rebates for property rates, they are reductions in the amounts of property rates
payable by property owners within a specific jurisdiction. The rebates provided by municipalities
therefore meet the definition of tax expenditures per GRAP 23. GRAP 23.74 and .75 provide the
following guidance for tax expenditures:
.74 Taxation revenue shall not be grossed up for the amount of tax expenditures.
.75 Tax expenditures are foregone revenue, not expenses, and do not give rise to
inflows or outflows of resources – that is, they do not give rise to assets,
liabilities, revenue or expenses of the taxing government.
16
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The effect is that no revenue is recognised in the statement of financial performance for any
rebates or reductions granted.
D. Transfers from other levels of government to fund activities
Any transfers received from another level of government to fund the activities of the municipality
are accounted for using the principles in GRAP 23.
7.2 Are there any accounting considerations relating to World Cup Stadiums after the World
Cup?
Classification and re-classification of World Cup Stadiums (Stadiums) subsequent to the World
Cup
During the construction of new Stadiums, and/or the upgrading of existing Stadiums to host the
World Cup, entities would have recognised the Stadiums under their control in accordance with
the applicable Standards of GRAP, either as property, plant and equipment, or investment
property. Entities also may have applied the principles in the Guideline on Accounting for Public-
private Partnership Agreements (PPP Guideline)17 to the initial accounting of the Stadiums as
either property, plant and equipment or investment property. Subsequent to the World Cup
entities need to consider whether this classification is still appropriate. Examples of factors that
an entity may need to consider in classifying these Stadiums after the World Cup include,
amongst others:
• The FIFA requirements in hosting the World Cup.
• Agreements that may have been concluded with other parties after the World Cup which
change the classification as these Stadiums may now also have a service potential.
• Whether the Stadium should continue to be classified as an asset.
Stadiums should be classified as investment property when they meet the criteria in GRAP 16.
This means they are used by entities to earn rentals, for capital appreciation, or both, and not
held to provide services. If neither of these criteria is met, or if the Stadium is held for service
delivery, the Stadium is likely to be classified as property, plant and equipment. GRAP 17 defines
property, plant and equipment as tangible items that are held for use in the production or supply
of goods or services, for rental to others, or for administrative purposes; and are expected to be
used during more than one reporting period. If the Stadium is partly used as investment property,
and is partly owner-occupied property, the entity needs to account separately for these portions
if a portion of the Stadium could be sold separately (or leased out separately under a finance
lease). If the portions could not be sold or leased separately, the Stadium should be accounted
for as investment property only if an insignificant portion is held for use as owner-occupied
property. Entities need to consider any agreements entered into with other parties that may have
an impact on the classification of the Stadium. The principles in GRAP 103 may also need to be
considered in reconsidering the classification of the Stadium subsequent to the World Cup.
If the entity is of the view that the Stadium should be reclassified from property, plant and
17
The PPP Guideline is replaced by GRAP 32, which became effective for reporting periods commencing on or after 1 April 2019.
The replacement of the PPP Guideline has no impact on the initial accounting of World Cup Stadiums before 1 April 2019.
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equipment to investment property, the principles in GRAP 16 should be applied. GRAP 16

requires that transfers to or from investment property shall be made when there is a change in
use. This may be evidenced, for example, by:
• Commencement of owner-occupation, in which case there will be a transfer from investment
property to property, plant and equipment.
• There is evidence of the termination of owner-occupation when a municipality enters into a

lease agreement with another party (lessee) that allows the lessee to use the Stadium for
its own commercial purposes, in which case the Stadium is transferred from property, plant
and equipment to investment property.
When the entity applies the cost model, the carrying amount of the Stadium transferred between
property, plant and equipment and investment property, or vice versa, will remain unchanged for
measurement and disclosure purposes. If the Stadium is reclassified from property, plant and
equipment to investment property carried at fair value, the entity should apply the principles in
GRAP 17 up to the date of change in use. Thus, an entity should depreciate the Stadium and
recognise any impairment losses occurred up to the date of change in use. Any difference
between the carrying amount of the Stadium accounted for in accordance with GRAP 17 and its
fair value on the date of change in use, should be accounted for in the same way as a revaluation
under GRAP 17.
For a transfer from investment property carried at fair value to property, plant and equipment, the
Stadium’s deemed cost for subsequent accounting in accordance with GRAP 17 is its fair value
at the date of change in use.
Impairment of World Cup Stadiums
At each reporting date, entities are required in terms of GRAP 21 or GRAP 26 to assess whether
there is any indication that the Stadium may be impaired. The classification of the Stadium at the
reporting date as either a cash-generating or a non-cash-generating asset will determine whether
GRAP 21 or GRAP 26 should be applied. If the Stadium is primarily held for a commercial return
in a manner consistent with a profit-orientated entity, the principles in GRAP 26 should be applied.
If, however the Stadium is operated with the objective of not generating a commercial return, the
principles in GRAP 21 should be applied in assessing whether an impairment indicator has been
triggered.
Indications that the Stadium may be impaired include, amongst others:
• Cessation of the demand or need for the Stadium.
• A significant decline in the Stadium’s market value because of the passage of time or normal
use (only if the Stadium is classified as a cash-generating asset).
• Significant change with an adverse effect on the entity is expected to take place in the near
future, such as the Stadium becoming idle.
• Cash flows needed to operate or maintain the Stadium is significantly higher than originally
budgeted.
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• Actual net cash flows or the net surplus or deficit flowing from the Stadium is worse than
those budgeted.
• A significant decline in budgeted net cash flows flowing from the Stadium.
After an impairment loss has been recognised, the entity may need to review and adjust the
Stadium’s remaining useful life, depreciation method and residual value in accordance with the
applicable Standard of GRAP, i.e. GRAP 16 or GRAP 17.
Recognition and measurement of other movable and immovable assets
For guidance on the recognition and measurement of other movable and immovable assets,
reference should be made to the applicable Standards of GRAP, for example GRAP 17 and
GRAP 31. For example, liquor licences acquired should be accounted for in terms of the
GRAP 31 to the extent that the entity has met the recognition criteria in the Standard.
Agreements with other parties
During the construction of new Stadiums, or the upgrading of existing Stadiums to host the World
Cup, some entities may have entered into agreements with other parties concerning the
construction or upgrade of the Stadium, and/or the maintenance and the operation of the Stadium
during and/or after the World Cup. These agreements should be analysed to determine their
nature and identify the different components, if any, in order to account for them in accordance
with their substance.
Service concession arrangements
Prior to the World cup, entities may have entered into arrangements with other parties to upgrade
existing Stadiums or to construct new Stadiums. Where the arrangement was a public-private
partnership (PPP) arrangement and the control approach criteria in the PPP Guideline were met,
the Stadium would have been accounted for in terms of the PPP Guideline.
GRAP 32 is applicable for reporting periods commencing on or after 1 April 2019 and replaces
the PPP Guideline. The definition of a service concession arrangement in GRAP 32 includes, but
is not limited to, arrangements regulated in legislation. The definition is:
A contractual arrangement between a grantor and an operator in which:
(a) the operator uses the service concession asset to provide a mandated function
on behalf of the grantor for a specified period of time; and
(b) the operator is compensated for its services over the period of the service
concession arrangement.
Entities should assess amendments to existing arrangements and new arrangements
subsequent to the World Cup. Where the above definition, and the recognition criteria of a service
concession asset are met, an entity accounts for the arrangement as a service concession
arrangement in GRAP 32.
The asset recognition criteria are:
• The entity controls or regulates what services the operator must provide with the associated
asset (the Stadium), to whom it must provide them and at what price.
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• The entity controls - through ownership, beneficial entitlement or otherwise - any significant
residual interest in the asset (the Stadium) at the end of the term of the arrangement.
If the recognition criteria are met, any payments to the operator should be distinguished between
the portion that relates to the asset element, i.e. where the operator was required to construct
and/or upgrade the Stadium, and the portion that relates to the service element, i.e. where the
operator performs operational and/or maintenance functions on behalf of the entity.
If payments to the operator involve an asset element, the entity would have recognised a financial
liability for its future obligation to compensate the operator for the construction or upgrading done
to the Stadium on its behalf (i.e. financial liability model). The scheduled payments to the operator
relating to the construction or upgrade of the Stadium (the asset element) should be allocated
between the amount that reduces the financial liability, and the associated finance charges. Any
payments relating to the operational and/or maintenance function (service element) should be
recognised when the service is rendered by the operator based on the provisions of the
arrangement.
Where the entity grants the operator the right to receive compensation from users, rather than
from the entity, for any construction or upgrade activities undertaken, the entity would have
recognised an unearned portion of revenue arising from exchange of assets between grantor and
operator (grant of right to operator model). As the entity is granting the operator access to the
Stadium over an agreed term, the unearned portion of revenue should be reduced and revenue
should be recognised in the statement of financial performance in accordance with GRAP 9.
If the operator was not involved in any construction or upgrade activities for the Stadium (e.g. an
existing asset of the entity is used as the service concession asset in an arrangement), it is likely
that any payments to the operator relate to the service element of the agreement involving
operational and/or maintenance services. The entity should recognise payments that relate to
these services when the service is rendered by the operator based on the provisions of the
arrangement, irrespective of when payment is made.
An arrangement may require the entity to transfer its right to use the Stadium to another party for
an agreed period of time. During the term of the agreement, the other party may then use the
Stadium for its own commercial purpose. Under these types of agreements, the entity will usually
share a percentage of the revenue generated by the other party under the agreement, for
example where the entity shares in a percentage of ticket sales. To determine the appropriate
method of recognising the revenue received by the entity under revenue sharing provisions,
reference should be made to the principles in GRAP 9 and IGRAP 1. GRAP 9 requires that
revenue received should be measured at the fair value of the consideration received or
receivable. Revenue is recognised when the amount of revenue can be measured reliably and
when it is probable that the economic benefits or service potential associated with the transaction
will flow to the entity. IGRAP 1 states that in assessing the amount of revenue to recognise, an
entity considers the revenue it is entitled to, following its obligation to collect all revenue due to it
in terms of legislation or similar means. In addition, an entity considers other factors that will
impact the probable inflow of future economic benefits or service potential based on past
experience and current facts and circumstances that exist on initial recognition.
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For more guidance on the accounting of service concession arrangements, reference should be
made to GRAP 32.
Lease agreements
If the entity concludes that the arrangement does not meet the requirements for recognition as a
service concession arrangement because the definition or one, or both, of the asset recognition
criteria are not met, the entity needs to consider whether the arrangement involves a lease
arrangement. A lease is an agreement whereby the lessor (the entity) conveys to the lessee (the
party that leases the asset), in return for a payment or series of payments, the right to use an
asset (the Stadium) for an agreed period of time.
If the entity concludes that the agreement meets the criteria for recognition as a lease, the entity
should then determine whether the lease should be classified as a finance or operating lease. If
the agreement will substantially transfer all the risks and rewards incidental to ownership of the
Stadium to the lessee, the agreement constitutes a finance lease. If the risks and rewards
incidental to ownership remain with the entity, the lease constitutes an operating lease.
If the agreement is classified as a finance lease, the entity should recognise the lease payments
as a receivable in the statement of financial position, at an amount equal to the net investment in
the lease. The recognition of finance revenue should then be based on a pattern reflecting a
constant periodic rate of return on the entity’s net investment in the finance lease.
If the agreement is classified as an operating lease, the entity should recognise the lease revenue
on a straight-line basis over the lease term, unless another systematic basis is more
representative of the time pattern in which benefit derived from the leased asset, is diminished.
Other agreements
If the entity concludes that the agreement does not meet the requirements for recognition as a
lease, the entity should then consider whether the other party in the arrangement acts in another
capacity, e.g. as a service provider or as an agent.
The entity assesses whether the arrangement is a principal-agent arrangement with reference to
GRAP 109. See FAQ 4.12 for the considerations relating to principal-agent arrangements.
If the entity has ceded its rights of the ticket sales to another party, the entity will not recognise
any revenue from ticket sales, unless it has entered into a profit-sharing arrangement, in which
case revenue will be recognised as and when it becomes due in terms of the agreement.
The principles in this question could, by analogy, also be applied to other assets.
7.3 How should an entity account for expenses it incurs, but which are settled by another
entity?
In the public sector, entities frequently incur expenses as part of their operations, but which will
be settled either in full or in part by a third party. In these types of arrangements, the entity
typically engages with the service provider or supplier and receives the goods or services. A
secondary transaction occurs where the entity engages the relevant third party to settle its
outstanding debts, usually directly with the service provider or supplier. A typical example is
where the National Treasury pays some or all of the audit fees incurred by qualifying entities for
the statutory audits undertaken.
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These arrangements give rise to two accounting issues that require consideration in the entity’s
financial statements:
• Should the expense be recognised in the statement of financial performance, and if yes, at
what amount?
• How should the payment by the third party be accounted for in the financial statements?
Should the expense be recognised in the statement of financial performance by the entity?
The Framework for the Preparation and Presentation of Financial Statements18 describes
expenses as follows:
Expenses are decreases in economic benefits or service potential during the
reporting period in the form of outflows or consumption of assets or incurrences of
liabilities that result in decreases in net assets, other than those relating to
distributions to owners.
When the entity receives the goods or services from the relevant service provider or supplier, it
has an obligation to the service provider or supplier to pay for the goods or services received.
The fact that the entity has received the goods or services means that the definition of an expense
has been met.
As a result, the entity receiving the goods or services should recognise the full cost in its
statement of financial performance, along with a corresponding liability.
How should the payment by the third party be recognised in the statement of financial
performance by the entity?
Non-exchange transactions are defined in Standards of GRAP as follows:
In a non-exchange transaction, an entity either receives value from another entity
without directly giving approximately equal value in exchange, or gives value to
another entity without directly receiving approximately equal value in exchange.
When a third party settles the debts of the entity, this meets the definition of a non-exchange
transaction because the entity does not directly give any value to the third party settling the
transaction on its behalf. The settlement of the entity’s debts by the third party results in non-
exchange revenue for the entity and should be accounted for in the same way as “Debt
forgiveness and assumption of liabilities” in GRAP 23.
When the third party settles the entity’s debts with the service provider or supplier, it should
reduce the amount of the liability recognised by the amount paid by the third party and recognise
non-exchange revenue.
7.4 What is the interaction between GRAP 32, GRAP 36 and GRAP 37, and GRAP 109?
Guidance was requested on the interaction between different Standards of GRAP in considering
whether an arrangement is a:
18
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• Service concession arrangement in GRAP 32,

• Joint Arrangement in GRAP 36 and GRAP 37, or
• Principal-agent arrangement in GRAP 109.
Refer to table 1 for the requirements of each of the three Standards.
Each of the Standards applies 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 36 and GRAP 37 apply to joint arrangements, which are binding arrangements where two
or more parties have joint control. An entity that is party to a joint arrangement determines how
to account for its share in the joint arrangement based on the type of joint arrangement and the
entity’s role in terms of the binding arrangement.
Type of joint arrangement
Joint arrangements could be:
(a) joint operations - whereby the parties that have joint control of the arrangement have rights
to the assets, and obligations for the liabilities in the arrangement; or
(b) joint ventures - whereby the parties that have joint control of the arrangement have rights to
the net assets of the arrangement.
Entity’s role in joint arrangements
An entity that has joint control in a joint operation is a joint operator and applies GRAP 37. An
entity that participates in a joint operation but has no rights to the assets or obligations for the
liabilities, accounts for its interest in accordance with the Standards of GRAP applicable to the
particular assets, liabilities, revenue and expenses.
An entity that has joint control or significant influence in a joint venture applies GRAP 36. An
entity that participates in but does not have joint control or significant influence of a joint venture
accounts for its interest in the joint venture by applying GRAP 104.
Joint arrangements 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.
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 recognise assets and
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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.
GRAP 109.08 states that service concession arrangements may be an example of a principal-
agent arrangement as one party (the operator, which is usually a private sector entity) carries out
certain activities on behalf of the other entity (the grantor, which is usually a public sector entity)
in relation to third parties (the public). This is assessed on an arrangement basis, based on the
roles and responsibilities in the 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.
Principal-agent arrangements are, however, distinctly different from joint arrangements where
joint control exists.
Conclusion
Service concession arrangements may also be principal-agent arrangements, in which case
GRAP 109 is applied to determine the accounting treatment for the arrangement. If a service
concession arrangement is not a principal-agent arrangement, it is accounted for in terms of
GRAP 32. Joint arrangements are distinctly different from both service concession arrangements
and principal-agent arrangements and are accounted for in terms of GRAP 36 and GRAP 37.
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Table 1: Requirements of GRAP 32, GRAP 36 and GRAP 37, and GRAP 109
GRAP 32 GRAP 36 and GRAP 37 GRAP 109
Objective Prescribes accounting for service concession Establishes principles for financial reporting by entities Outlines principles to be used by an entity to assess
arrangements by the grantor, a public sector entity. that have an interest in binding arrangements that whether it is party to a principal-agent arrangement,
establish joint control (i.e. joint arrangements). and whether it is a principal or an agent in
undertaking transactions in terms of such an
arrangement.
Definition Service concession arrangement Joint arrangement Principal-agent arrangement

Contractual arrangement between a grantor and an An arrangement of which two or more parties have joint Results from a binding arrangement in which one
operator in which: control. entity (an agent), undertakes transactions with third
parties on behalf, and for the benefit of, another
a. the operator uses the service concession Broadly two types:
entity (the principal).
asset to provide a mandated function on behalf
- Joint operations
of the grantor for a specified period of time; and
- Joint ventures
b. the operator is compensated for its services
over the period of the service concession
arrangement.
Further A grantor is defined as the entity that grants the Joint control is the agreed sharing of control by way of An agent is an entity that has been directed by
definitions right to use the service concession asset to the a binding arrangement, which exists only when another entity (a principal), through a binding
operator. decisions about the relevant activities require the arrangement, to undertake transactions with third
unanimous consent of the parties sharing control. parties on behalf of the principal and for the benefit
An operator is the entity that uses the service
of the principal.
concession asset to provide a mandated function A joint operation is a joint arrangement whereby the
subject to the grantor’s control of the asset. parties that have joint control of the arrangement have A principal is an entity that directs another entity (an
agent), through a binding arrangement, to
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rights to the assets, and obligations for the liabilities, undertake transactions with third parties on its
relating to the arrangement. behalf and for its own benefit.
A joint venture is a joint arrangement whereby the
parties that have joint control of the arrangement have
rights to the net assets of the arrangement.
Characteristics a. The operator is responsible for at least some of a. The parties are bound by a binding arrangement. An entity directs another entity to undertake an
the management of the service concession activity on its behalf, in relation to transactions with
b. The binding arrangement gives two or more of
asset and related services and does not merely third parties.
those parties joint control of the arrangement.
act as an agent on behalf of the grantor;
The following must be present:
b. The arrangement sets the initial prices to be
- Binding arrangement between principal and
levied by the operator and regulates price
agent.
revisions over the period of the service
concession arrangement; - Three parties: agent, principal, third parties
c. The operator is obliged to hand over the service - Agent acts on behalf of, and for benefit of,
concession asset to the grantor in a specified principal with third parties
condition at the end of the period of the
- Agent does not usually undertake activity with
arrangement, for little or no incremental
third parties in its own name
consideration, irrespective of which party
initially financed it; and “Transactions with third parties” includes the
execution of a specific transaction with a third party,
d. The arrangement is governed by a contractual
e.g. a sale or purchase transaction, but it also
arrangement entered into, that sets out
includes interactions with third parties, e.g. when an
performance standards, mechanisms for
agent is able to negotiate with third parties on the
adjusting prices, and arrangements for
principal’s behalf. The nature of the transactions
arbitrating disputes.
with third parties is linked to the type of activities
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carried out by the agent in accordance with the
binding arrangement. These activities could include
the agent transacting with third parties for the
procurement or disposal of resources, or the receipt
of resources from a third party on behalf of the
principal.
Examples Examples of service concession assets are: Joint operation: • The collection of revenue, including taxes, fees
and other charges from specific parties, e.g.
Roads, bridges, tunnels, prisons, hospitals, • Two or more venturers combine their operations,
motor vehicle licence fees collected by
airports, water distribution facilities, energy supply resources and expertise to manufacture, market
municipalities for the provincial government,
and telecommunication networks, permanent and distribute jointly a particular product, such as
and taxes collected by the Revenue Authority
installations for military and other operations, and an aircraft. Different parts of the manufacturing
for the national government.
other non-current tangible or intangible assets used process are carried out by each of the parties.
for administrative purposes in delivering a Each party bears its own costs and takes a share • The construction of assets, e.g. houses built for
mandated function. of the revenue from the sale of the aircraft, such beneficiaries of the reconstruction and
share being determined in accordance with the development programme, for national and/or
arrangement. provincial housing departments and
• Two entities jointly control an asset, for example a organisations.
property, each taking a share of the rents received
• The provision of goods and services to
and bearing a share of the expenses.
recipients, e.g. the provision of water to specific
Joint venture: communities by municipalities on behalf of
water service authorities.
Two entities combine their activities in a particular line
of service delivery by transferring the relevant assets • Property management services, which may
and liabilities into a jointly controlled entity. include the maintenance of properties and
collection of revenue, for the Department of
Public Works and/or municipalities.
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7.5 What should be considered when determining the discount rate for calculating provisions
in accordance with GRAP 19?
Note: This question arose in the context of provisions for rehabilitation of landfill sites, but it has
been developed to apply to all provisions in general.
GRAP 19 requires that a provision be measured at the best estimate of the expenditure required
to settle the present obligation at the reporting date. In reaching the best estimate of the provision,
any risks and uncertainties specific to the provision should be taken into account.
Where the effect of time value of money is material, this best estimate should reflect the present
value of the expenditure required to settle that obligation. The discount rate applied to determine
the present value is a pre-tax rate that should reflect the a) current market assessment of the
time value of money; and b) risks specific to the provision. The discount rate is the rate associated
with a liability of a similar risk and maturity as the provision. Therefore, the Standards cannot
prescribe a uniform or standardised discount rate that can be applied by entities when calculating
provisions. The discount rate should not reflect risks for which future cash flow estimates have
been adjusted, i.e. the discount rate and future cash flows should not be adjusted for the same
risks.
In determining the best estimate of the expenditure required to settle the obligation, the
expenditure can be expressed in either current prices (excluding inflation) or expected future
prices (including inflation). When the expenditure is expressed as a future price, it is discounted
at a discount rate that includes inflation. When the expenditure is expressed as a current price,
the discount rate applied will not include the effects of inflation.
Therefore, the principle in GRAP 19 is that if the expenditure is based on a current price then the
discount rate is not adjusted for inflation; but if the future price is used then the discount rate is
adjusted for inflation. If this principle is correctly applied, the results of a calculation based on
current prices and future prices will yield the same results (i.e. net present value) if the correct
discount rate is applied.
7.6 How should an entity account for renegotiated payment arrangements?
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.
Some preparers asked how they should account for a renegotiated payment arrangement when
they are the holder of a loan. They specifically asked the following:
(a) Does a renegotiated payment arrangement represent a new financial liability, or an
amendment of the original financial liability?
(b) How should an entity measure a renegotiated payment arrangement initially when it is a new
financial liability?
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(a) Does a renegotiated payment arrangement represent a new financial liability, or an amendment
of the original financial liability?
GRAP 104 states in paragraph .81:
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 an entity considers in terms of GRAP 104.81 whether a substantial modification was made
to the terms of the original financial liability, an entity considers 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?
In accordance with GRAP 104.36, an entity initially measures financial liabilities at fair value.
GRAP 104.AG 81 provides the following 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...
GRAP 104.AG103 provides valuation techniques that an entity can use to determine fair value
where the market for a financial instrument is not active. GRAP 104.AG104 and AG105 states
that the objective of using a valuation technique is to establish what the transaction price would
have been on the measurement date in an arm’s length exchange motivated by normal operating
considerations. A valuation technique (a) incorporates all factors that market participants would
consider in setting a price, and (b) is consistent with accepted economic methodologies for pricing
financial instruments.
Therefore, 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
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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 104.37 requires an entity to initially analyse a concessionary loan
into its component parts and account for each component separately.
7.7 When should revenue be recognised for the sale of pre-paid electricity?
The sale of electricity constitutes a sale of goods. GRAP 9.29 states that revenue from the sale
of goods should be recognised when:
(a) the entity has transferred to the purchaser the significant risks and rewards of
ownership of the goods;
(b) the entity retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;
(c) the amount of revenue can be measured reliably;
(d) it is probable that the economic benefits or service potential associated with the
transaction will flow to the entity; and
(e) the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
In the case of prepaid electricity, the significant risks and rewards of ownership only transfer to
the consumer at the time of consumption of the electricity. Consequently, the revenue received
from prepaid electricity sales should be deferred and recognised as revenue on the consumption
basis, commencing on the date of purchase. The consumption of pre-paid electricity is
determined by using actual consumption information (if available), or consumption is measured
using a trend analysis and other historical data about electricity usage, including how often an
electricity card is purchased or additional units of electricity loaded onto a pre-paid card.
Revenue from pre-paid electricity can only be recognised on a cash basis if a municipality can
demonstrate that it is unable to make a reliable estimate of revenue using the methods described
in the preceding paragraph or using other accrual-based measures. Municipalities should
however be able to demonstrate that they have made every reasonable effort to gather
appropriate information to enable the recognition of revenue from pre-paid electricity based on
consumption by users.
7.8 How should conditional grants be accounted for by the transferor when conditions have
not yet been fulfilled, or have been partially fulfilled by the recipient?
No Standard of GRAP is available that deals specifically with transferors in considering how to
account for conditional grants paid.
GRAP 3 states that when formulating an accounting policy, management should consider the
applicability of the requirements in existing Standards of GRAP or Interpretations of the
Standards of GRAP dealing with similar and related issues.
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For instance, GRAP 23 is applied by the recipient of a grant. GRAP 23 outlines, among other
things, specific accounting requirements for conditional grants where all the conditions have not
yet been fulfilled, or partially fulfilled by the recipient.
Management may consider the principles in GRAP 23 to formulate an accounting policy for the
transferor’s perspective of the transaction.
The transferor should also consider whether other Standards of GRAP would be applicable, such
as GRAP 19.
Where no existing Standards of GRAP or Interpretations deal with similar and related issues, the
principles in the Conceptual Framework for General Purpose Financial Reporting19 should be
used to formulate an appropriate accounting policy.
7.9 What accounting should a transferor apply in a transfer of functions between entities not
under common control?
GRAP 106 does not prescribe the accounting treatment for the transferor in the arrangement. As
a result, the transferor should apply the existing Standards of GRAP.
Where the transferor disposes of assets, or groups of assets and liabilities, it assesses whether
the disposal meets the requirements of a discontinued operation in GRAP 100.
• The disposal meets the requirements of a discontinued operation: the transferor applies the
requirements in GRAP 100 to account for the assets or disposal groups and provides the
disclosures required by GRAP 1.91.
• The disposal does not meet the requirements of a discontinued operation: the transferor
formulates an appropriate accounting policy and appropriate disclosures using other
Standards of GRAP. For example, an entity would apply the requirements of GRAP 17 and
the impairment requirements of GRAP 21 and/or GRAP 26 in accounting for the assets until
they are transferred. If a disposal does not meet the requirements of a discontinued
operation because it has not yet occurred although management has made the decision to
dispose of the operation, an entity shall disclose the information required by GRAP 1.91.
7.10 When should a transfer of functions be accounted for in accordance with GRAP 105 and
when should GRAP 106 be applied?
GRAP 105 establishes accounting principles for an acquirer and transferor in a transfer of
functions between entities under common control whereas GRAP 106 provides guidance to an
acquirer where a transfer of functions is undertaken between entities not under common control.
In determining whether GRAP 105 or GRAP 106 should be applied in accounting for the
transaction or event, entities should consider whether the transaction or event was undertaken
between entities in the same sphere of government; and/or between entities that are part of the
same economic entity.
The government of the Republic of South Africa is divided into three distinct spheres, i.e. national,
19
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provincial (with each province being separate) and local (with each local government being
separate), and each is independent from the decision-making of another sphere. Even if the
transaction or event occurred between entities within the same sphere of government, entities
should ultimately be controlled by the same party (economic entity) before and after the transfer
of functions for it to be within the same economic entity (i.e. a group of entities as described in
GRAP 35). Where transactions or events occurred between entities within different spheres of
government, the relationship between the entities need to be assessed to determine whether the
entities are ultimately controlled by the same economic entity before and after the transfer of
functions for it to be under common control.
If two departments within the same province enters into a transaction or event where it is
concluded that such a transaction or event is a transfer of functions, the entity should consider
applying the principles in GRAP 105, because (a) the transaction or event occurred between two
departments that are within the same sphere of government (i.e. the same province), and (b) the
departments are ultimately controlled by the same economic entity before and after the transfer
of functions.
Even though all municipalities are within the same sphere of government, each municipality is
independent from every other municipality and each municipality is responsible for the
establishment and election of its own municipal council. If a transaction or event occurs between
two municipalities, the transaction or event will not be a transfer of functions between entities
under common control because the transaction or event did not occur between entities that are
ultimately controlled by the same party before and after the transaction or event. Thus, even
though the municipalities are within the same sphere of government, the entities are not part of
the same economic entity (i.e. the same municipal council) before and after the transaction or
event. Municipalities should also consider whether GRAP 106 or GRAP 107 is more applicable
in accounting for the transaction or event, depending on whether one municipality gained control
over another municipality.
7.11 What should be considered in deciding whether a transaction of event should be
accounted for as a merger?
In a merger, two or more entities are combined into a new reporting entity, whereas a transfer of
functions involves the reorganisation and re-allocation of an integrated set of activities.
GRAP 107 lists criteria that should be considered in deciding whether a transaction or event that
involves the reorganisation or re-allocation of functions between entities should be accounted for
as a merger. These criteria are merely examples of situations which could indicate that the
transaction or event is a merger – not all the criteria need to be met for the transaction or event
to be accounted for as a merger.
(a) Identify whether there is an acquirer – in a merger, no acquirer can be identified as a new
combined entity is established from former entities.
(b) Identify whether one party obtains control – in a merger, no entity is seen to be dominant. All
parties to the transaction or event combine their relative risks and benefits and have equal
decision-making powers in the new combined entity.
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(c) Management representation in the new combined entity – in a merger, all the parties to the
transaction or event, as represented by management, participate in establishing the
management structure of the combined entity, and in selecting the management personnel.
Thus, if the management structure in the new combined entity is represented by a majority
of members from one combining entity, the transaction is most likely not a merger, but rather
a transfer of functions.
(d) Consider the size of entities involved – in a merger, the relative sizes of the combining entities
should be alike, prior to the transaction or event. If the size of one of the entities involved in
the transaction or event are relatively bigger compared to that of the other entities, the
transaction is most likely not a merger.
7.12 What is the interaction between GRAP 11 and the Housing Guideline?
Municipalities raised uncertainties regarding the classification and presentation of conditional
grants received for housing development in terms of the National Housing Programme.
The Guideline on Accounting for Arrangements Undertaken in terms of the National Housing
Programme (Housing Guideline)20 explains the different roles and responsibilities of
municipalities for housing development. The assigned roles and responsibilities depend on the
municipality’s level of accreditation, and the specific agreements with the relevant provincial
department of human settlements.
This FAQ deals with municipalities that have a level 2 accreditation and have the role of a “project
developer” in the construction of houses.
A project developer’s role includes being responsible for constructing houses, either themselves
or using a subcontractor. These municipalities receive funding from the relevant provincial
department of human settlements to construct the houses. As explained in the Housing
Guideline, a municipality that is a project developer accounts for the construction of houses as a
contractor in accordance with GRAP 11. This means the following:
• Funding received to construct houses, which may be called a “conditional grant”, is
accounted for as contract revenue. Contract revenue is recognised with reference to the
stage of completion at reporting date.
• Expenditure incurred to construct houses is accounted for as contract expenses.
• The houses are constructed for the provincial department of human settlements and are not
accounted for by the municipality. Work-in-progress and completed houses are accounted
for by the provincial department of human settlements21.
Municipalities may have previously applied GRAP 23 to account for conditional grants received
for housing development. In accordance with GRAP 23, revenue is recognised when the
municipality controls the resources, with any unspent funds recognised as a liability where
conditions have not yet been met. In accordance with the Housing Guideline, municipalities that
have not accounted for their housing arrangements as outlined in the Guideline should apply the
20
The Housing Guideline has been included in the reporting framework from 1 April 2019.
21
In accordance with the Modified Cash Standard.
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principles in GRAP 3 to align their accounting policies with those as explained in the Guideline.
Entities may have also presented and disclosed information in accordance with GRAP 23 as a
“conditional grant”, instead of as contract revenue per GRAP 11.
Note: Municipalities should consider any legislative disclosure requirements for conditional grants
in addition to the requirements of Standards of GRAP, e.g. the relevant Division of Revenue Act
or the Municipal Finance Management Act.
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Section 8 – Heritage Assets

8.1 Should all assets that are designated as a heritage asset by legislation or similar means
be classified as a heritage asset in the entity’s financial statements?
In terms of Section 39 of the National Heritage Resources Act, 1999 (Act No. 25 of 1999) (NHRA),
the South African Heritage Resource Agency (SAHRA) is required to compile and maintain an
inventory of the national estate, defined as heritage resources of cultural and other significance.
This information is contained in the South African Heritage Resources Information System
(SAHRIS) and is available on SAHRA’s website.
Not all assets that are designated as a heritage asset in terms of the NHRA are classified as a
heritage asset in terms of GRAP 103. An entity should assess the items included in the SAHRIS
using the criteria below before classifying the asset as a heritage asset in terms of GRAP 103:
(a) The item meets the definition of a heritage asset in GRAP 103.
GRAP 103 defines heritage assets as those assets “…that have a cultural, environmental,
historical, natural, scientific, technological or artistic significance and are held indefinitely for the
benefit of present and future generations.”
(b) The item is not excluded from the scope of GRAP 103.02, and if it has more than one
purpose, is not recognised in terms of another Standard of GRAP.
GRAP 103.02 indicates the following regarding the scope of the Standard:
An entity that prepares and presents financial statements under the accrual basis of
accounting shall apply this Standard in the recognition, measurement and disclosure
of all assets that meet the definition of a heritage asset, except:
(a) the initial recognition and initial measurement of heritage assets acquired in a
transfer of functions between entities under common control (see GRAP 105)
or merger (see GRAP 107);
(b) bearer plants and biological assets related to agricultural activity (see
GRAP 17 and GRAP 27); and
...
For example, the SAHRIS includes a number of heritage items that are designated as natural
heritage and consists of items such as trees, botanical gardens, rock formations, waterfalls, etc.
Rock formations and waterfalls may already be part of an entity’s existing immovable assets (i.e.
part of the land). As these assets may not be separately managed and preserved by the entity
for future generations, they may not meet the definition of heritage assets, and are therefore not
separately recognised as heritage assets. Furthermore, biological assets such as trees and
plants are excluded from the scope of GRAP 103 and are recognised in terms of GRAP 17,
GRAP 27, GRAP 110, or another applicable Standard of GRAP.
GRAP 103.09 further excludes certain heritage assets when they have more than one purpose:
Some heritage assets have more than one purpose, e.g. an historic building which,
in addition to meeting the definition of a heritage asset, is also used as office
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accommodation. The entity needs to determine whether the significant portion of the
asset meets the definition of a heritage asset. The entity must use its judgement to
make such an assessment. The asset should be accounted for as a heritage asset
if, and only if, the definition of a heritage asset is met, and only if an insignificant
portion is held for use in the production or supply of goods or services or for
administrative purposes. If, however, the definition of a heritage asset is not met, or
a significant portion is held for use in the production or supply of goods or services
or for administrative purposes, the asset should not be accounted for as a heritage
asset. Instead, the entity should account for the asset in accordance with the
applicable Standard of GRAP.
For example, at year-end 50% of the building is used for administrative purposes, 20% is rented
out and the remaining 30% is open to public visitors. As management determines that a
significant portion of the building is used for administrative purposes, the building is classified as
property, plant and equipment and not as a heritage asset or an investment property.
Similarly, a bridge that is designated as heritage on SAHRIS that is used as part of the road
network should be classified as an infrastructure asset in terms of GRAP 17 and not as a heritage
asset.
8.2 Should an entity only classify an asset as a heritage asset if it is designated as such in
terms of legislation or similar means?
An entity may have assets that meet the definition and recognition provisions of a heritage asset
in GRAP 103, without them being designated as such by legislation or similar means. These
assets are therefore not included in the South African Heritage Resources Information System
(SAHRIS). This can be due to reasons such as:
- An entity has not yet lodged an application with the South African Heritage Resource Agency
(SAHRA) for the item to be included in SAHRIS.
- SAHRA has not yet finalised the process of including the item in SAHRIS.
- The item does not meet the criteria in the National Heritage Resources Act, 1999 (Act No. 25
of 1999) to be classified as heritage.
GRAP 103 requires that, once an asset meets the definition of a heritage asset as defined in the
Standard, the recognition, measurement and disclosure requirements of GRAP 103 should be
applied to that asset, irrespective of whether that asset has been designated as a heritage asset
through legislation or similar means.
8.3 How should an asset be classified if it does not meet the definition of a heritage asset?
If an asset does not meet the definition of a heritage asset in GRAP 103, the entity needs to
classify the asset based on its intended use of that asset by applying the principles in the
Standards of GRAP, if the item meets the definition of an asset. The asset decision tree can be
used as a reference to decide on the classification of an asset, which can be accessed on the
ASB website.
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Account for an asset that does not meet the definition of a heritage asset as either:
An item of property, An investment Inventory when An intangible asset A living
plant and equipment property when the the entity intends when the asset is: resource when
when the entity intends entity intends to: to: the resource
• capable of
to: undergoes
• earn rentals from • hold the being
biological
• use the asset over the asset; asset for sale separated or
transformation,
more than one or divided from
• hold the asset, or a or a non-living
reporting period; distribution in the entity and
significant portion resource when
and the ordinary sold,
thereof, for capital the resource
course of transferred,
• the asset, or a appreciation; or occurs
operations, licenced,
significant portion naturally and
• both or rented or
thereof, is used: have not been
exchanged; or
rather than to use • use or extracted.
(a) in the
the asset in consume the • arises from a
production or Refer to
asset in the binding
supply of goods (a) the production GRAP 110.
production arrangement
or services; or supply of
process or in regardless of When living
goods or
(b) for rental to the rendering whether rights resources
services, or
others; or of services. are relate to
(b) for transferable or agricultural
(c) for Refer to
administrative separable from activity, refer to
administrative GRAP 12.
purposes. the entity. GRAP 27.
purposes.
Refer to GRAP 16. Refer to GRAP 31.
Refer to GRAP 17.
FAQ 8.5 provides guidance on when the heritage asset comprises a biological asset related to
agricultural activity and the accounting for living animals and plants.
8.4 How should specimens held for research be classified in an entity’s financial statements?
Some entities collect specimens in order to undertake research to determine whether the
specimens are heritage assets. The definition of a heritage asset in GRAP 103 refers to assets
being held indefinitely for the benefit of present and future generations.
Collected specimens can only be recognised as an asset in the financial statements if:
a) the definition of an asset is met, i.e. a resource controlled by the entity as a result of past
events and from which future economic benefits or service potential is expected to flow to
the entity; and
b) its cost or fair value can be measured reliably.
The asset decision tree can be used as a reference to decide on the classification of an asset.
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While evaluating these specimens, and prior to completing the research, the entity cannot
conclude that these specimens meet the definition of a heritage asset, i.e. that the specimen (a)
has a cultural, environmental, historical, natural, scientific, technological or artistic significance;
and (b) is to be held indefinitely for the benefit of present and future generations.
As a result, the specimens are not within the scope of GRAP 103 as the definition of a heritage
asset is not met. The entity should account for these specimens using the applicable Standard
of GRAP.
8.5 Can a living animal or plant be classified as a heritage asset?
Entities in the public sector may control living animals and plants as part of their mandate, for
example, living animals and plants held in national parks and botanical gardens managed by
entities.
The definition of heritage assets in GRAP 103 refers to assets that have a cultural, environmental,
historical, natural, scientific, technological or artistic significance. It could be argued that living
animals and plants are held for their environmental or natural significance and therefore meet the
definition of heritage assets.
The definition, however, also refers to these assets being held indefinitely for the benefit of
present and future generations. As living animals and plants have distinct lifecycles, they cannot
be held indefinitely by an entity. As a result, living animals and plants are not within the scope of
GRAP 103.
An entity should apply the principles in other Standards of GRAP if it controls living animals or
plants, for example GRAP 110. GRAP 103 also requires an entity to consider the principles in
GRAP 17 and GRAP 27 when it manages bearer plants and biological assets related to
agricultural activity respectively.
8.6 Are statues, sculptures, monuments, similar structures and replicas classified as heritage
assets?
GRAP 103 defines heritage assets as follows:
…assets that have a cultural, environmental, historical, natural, scientific,
technological or artistic significance and are held indefinitely for the benefit of present
and future generations.
An entity would need to assess each asset within its control to determine whether it meets the
definition of a heritage asset. Statues, sculptures, monuments or similar structures are often
erected to commemorate particular people or events. Similarly, replicas are created as a
duplicate of the original statue, sculpture, monument or similar structure. While the person, or
event being commemorated, or the object that is duplicated, may have significance, the statue,
sculpture, monument, similar structure or replica may not. An entity would need to assess
whether a statue, sculpture, monument, similar structure or replica is itself being held for its
significance and for the benefit of present and future generations. If the statue, sculpture,
monument, similar structure or replica does not qualify as a heritage asset, the entity should
assess whether it qualifies for recognition under another Standard of GRAP.
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Similar considerations should be made to determine whether graves, cemeteries or burial

grounds meet the definition of a heritage asset in GRAP 103.
8.7 How does an entity distinguish heritage assets from “old assets”?
Entities frequently own items of property, plant and equipment, intangible assets, inventories and
other types of assets that are old but are still being used functionally. For example, an entity may
own old furniture such as desks and chairs that are being used for administrative purposes and
meet the definition of property, plant and equipment. An entity may also hold e.g. posters, maps
or flags which are accounted for as inventory.
“Old assets” are not the same as “heritage assets”. “Heritage assets”, as defined in GRAP 103
are assets that have cultural, historical, environmental, natural, scientific or technological
significance that are held indefinitely for the benefit of present and future generations.
One of the key features of heritage assets is that they are held indefinitely for the purpose of
preserving such assets for the benefit of present and future generations. This means that entities
often incur expenditure to preserve and extend the life of an asset so that it can be enjoyed by
future generations. As a result of the preservation of heritage assets, their value often increases
over time, making the effect of depreciation negligible.
The purpose of holding items of property, plant and equipment and other assets is for them to be
used in executing an entity’s activities. As a result, these assets are “consumed” over time or as
they are used.
Entities should therefore ascertain what the purpose is of holding various assets in determining
whether they should be treated as “heritage assets” or as other assets in accordance with the
relevant Standards of GRAP.
8.8 What should be considered when determining a reliable value for a heritage asset?
GRAP 103.46 explains that a fair value may be ascertained by reference to quoted prices in an
active and liquid market, such as quoted prices from recent auctions. Entities questioned what
they need to consider to determine a reliable value for a heritage asset with reference to
observable prices in an active market, or recent market transactions on arm’s length terms.
GRAP 103 explains that the fair value of a heritage asset is the price at which the heritage asset
could be exchanged between knowledgeable, willing parties in an arm’s length transaction. The
concepts in the fair value definition are:
Concept Meaning of the concept

willing buyer A buyer that is motivated, but not compelled to buy, and is neither over-
eager nor determined to buy at any price. The buyer will not pay a
higher price than a market comprising knowledgeable, willing buyers
and sellers.
willing seller A seller that is neither an over-eager nor a forced seller, and is not
prepared to sell at any price, nor prepared to hold out for a price not
considered reasonable in current market conditions.
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A seller is motivated to sell the heritage asset at market terms for the
best price obtainable.
knowledgeable Both the willing buyer and the willing seller are reasonably informed
about the nature and characteristics of the heritage asset, its uses, and
market conditions at the date at which a value is determined.
arm’s length A transaction between parties that do not have a particular or special
transaction relationship that will make the price of the transaction uncharacteristic
of market conditions.
The transaction is presumed to be between unrelated parties, each
acting independently.
For a value to represent an observable price in an active market, the entity may be required to
adjust the value of a comparable heritage asset based on the nature and characteristics of the
heritage asset being valued. When adjusting the value of a comparable heritage asset, the entity
should also review the methodology and assumptions used in determining the value for the
comparable heritage asset.
When a published quoted price is used as the fair value of a heritage asset, the price needs to
be reasonable based on current market conditions. If the variability in the range of reasonable
prices is significant, and the probabilities of the various estimates cannot be reasonably
assessed, the quoted price will not be the best evidence of the heritage asset’s fair value and
another valuation technique may need be used to determine its fair value.
This FAQ may be applied to other types of assets if the principles in the Standards are the same.
8.9 How should items collected by an entity be classified in its financial statements?
Some entities collect objects, items or specimens (hereafter referred to as “items”) through
acquisitions, donations, transfers or other means. These items need to be evaluated to conclude
if they should be classified as a heritage asset. For example, an entity receives a box of objects
that the donor claims dates from the second World War. As the evaluation of these items may
take some time, entities are uncertain if, and how these items should be classified in their financial
statements, and how they should be measured prior to the evaluation being completed.
When an item is received, the entity should commence with the evaluation and recognise the
item as an asset in its financial statements if:
a) the definition of an asset is met, i.e. a resource controlled by the entity as a result of past
events and from which future economic benefits or service potential is expected to flow to
the entity; and
b) its cost or fair value can be measured reliably.
If these criteria are met, the item should be recognised as an asset in the financial statements
and classified based on the reason for holding the asset. Reference can be made to the asset
classification decision tree for guidance on the classification of assets.
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An item should only be classified as a heritage asset using GRAP 103 if the entity concludes that
it:
a) has cultural, environmental, historical, natural, scientific, technological, or artistic
significance; and
b) is to be held indefinitely for the benefit of present and future generations.
If further research needs to be undertaken to determine if the asset meets the definition of a
heritage asset, GRAP 103 explains that a transfer should be made to heritage assets when, and
only when the asset meets the definition of a heritage asset.
Prior to completing the evaluation of an asset, some entities recognise these items at R1 values
in their financial statements. Recognising assets at R1 does not provide useful information to
users to inform accountability and decision-making. If a reliable value cannot be determined for
the item, it should not be recognised and/or measured in the financial statements as the
recognition criteria are not met.
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Section 9 - Financial Instruments

This section deals with questions asked about GRAP 104 issued in 2009.
9.1 When (and/or how) should receivables and payables be discounted in accordance with
GRAP 104?
Part A
How should entities determine when an initial credit period granted or received is
consistent with terms used in the public sector, either through established practices or
legislation for purposes of applying the discounting exemption in GRAP 104?
A number of queries have been raised regarding the application of GRAP 104 paragraph AG87,
which states the following:
Short-term receivables and payables are not discounted where the initial credit
period granted or received is consistent with terms used in the public sector, either
through established practices or legislation. For example, it is common practice for
municipalities to allow consumers a period of time, after issuing an invoice, to settle
their water and electricity accounts. Specific legislation may also prescribe credit
terms for specific types of transactions or entities, which provide an indication of what
appropriate credit terms are for certain transactions and events. Where the initial
credit period granted is not in line with practices or legislation in the public sector,
the effect of discounting is considered if it is material.
In determining whether an entity can apply the exemption granted in GRAP 104, it would
determine whether the credit received or granted is consistent with terms used in the public sector
by assessing the following:
For credit granted (debtors)
1. An entity would assess firstly whether any legislation exists prescribing a credit period for
debts owing to the entity. “Legislation” may comprise an Act, or it may comprise secondary
legislation such as practice notes, regulations, or by-laws issued by municipal councils.
Legislation prescribes credit period – Entity has no discretion over the period
2. Where legislation prescribes a credit period, the credit period prescribed in legislation
should be used to determine whether the credit granted by an entity is consistent with
terms used in the public sector.
Secondary legislation prescribes credit period – Entity has discretion over the period
3. Where credit periods are established in secondary legislation such as a by-law, the entity
has discretion over the period within which debtors are required to settle their accounts.
As a result, in order to determine whether its policy is consistent with terms used in the
public sector, an entity should compare its policy with the by-laws of similar entities to
establish a norm.
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Conclusion
4. In all instances, an entity should use the shortest period, either prescribed in legislation or
determined through practice, as the period that is “consistent with terms used in the public
sector” as this is most likely to result in the effect of discounting being immaterial.
Illustration
A brief illustration of the process outlined above is included below. NB: This is merely an
illustrative example and is in no way authoritative. The facts and circumstances of each scenario
require careful consideration in formulating a judgement on the most appropriate accounting
treatment.
Assessing the principle
Municipality A’s by-laws prescribes a credit period of 60 days. A number of similar
municipalities prescribe a 30-day credit period. As the established practice amongst
municipalities is 30 days, then this period is deemed to be the “term that is consistent with
those used in the public sector”. Thus, in this instance, the municipality would not be able
to take advantage of the discounting exemption in GRAP 104 because its credit period is
not consistent with the terms used in the public sector.
[Note: In determining whether a municipality is “similar”, an entity may consider whether
the other entities are district or local municipalities, perform similar functions, have similar
customer bases (e.g. consumer, industrial, corporate, rural etc.)].
Illustrating the entries
Assume the value of the transaction is R100. Calculating the effect of discounting using a
market related rate of interest, the effect of the 60-days interest free credit is R10. The
entries are as follows on initial recognition:
Day 1
Dr Receivable R90
Cr Revenue from sales… R90
After initial recognition
Dr Receivable R10
Cr Interest revenue R10
For credit received (creditors)
Specific legislation governs the period within which certain entities are required to pay creditors.
Entities do however often settle their accounts after the prescribed period for a variety of reasons.
In assessing whether the discounting exemption can be applied in GRAP 104, an entity
compares:
• the period outlined in legislation; and
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• the period determined using its practice or, the practices of similar entities in settling
creditors, and
uses the shortest of those two periods to determine whether the period is “consistent with terms
used in the public sector”. This period should be used as it is most likely to result in the effect of
discounting being immaterial.
Where no legislation exists, an entity assesses its practices to those of similar entities to establish
a norm. This norm will be used to determine whether the period is “consistent with terms used in
the public sector”.
Part B
Can the exemption in GRAP 104.AG87 be applied to receivables if the interest rate is not
market-related?
GRAP 104.36 requires a financial asset to be recognised initially at fair value. GRAP 104.AG81
provides further guidance on the determination of fair value as follows “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”.
GRAP 104.AG87 however provides that “short-term receivables and payables are not discounted
where the initial credit period granted or received is consistent with terms used in the public
sector, either through established practices or legislation” (own emphasis added).
GRAP 104.AG88 goes on to state that: “Once the due date for short-term receivables has
elapsed and payment is not received, an entity shall consider whether there is any indication that
the receivable may be impaired, either because interest is not levied on outstanding amounts
(using a market related rate of interest), or because the principal amount may not be collected
(see paragraphs .57 to .64 and AG120. to AG129.).”
The effect of these two paragraphs is as follows:
(a) If the initial credit period granted by an entity is consistent with “terms used in the public
sector” (see FAQ 9.1 Part A) for further guidance on this issue), then an entity will not apply
discounting on initial recognition, even if the interest rate charged is not market related.
(b) If the entity does not charge a market related rate of interest, there are two possible
scenarios:
(i) The entity receives payment on the due date for payment, which means that the effect
of the financing transaction is immaterial.
(ii) The entity does not receive payment on the due date for payment, which means that
the effect of providing below market-interest may be material. Consequently, this will
be considered in determining whether the receivable is impaired. In determining the
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present value of the cash flows, the entity uses the period from the date the transaction
was entered into.
As an illustration: a municipality grants 30 days interest free credit to all consumers of water and
electricity. If payment is not received within 30 days, then interest is levied at 8%. A market related
rate of interest is 10%.
Time
Day 1: Day 30: Day 30+:

Recognise undiscounted Payment received and
accounted for accordingly. No payment received.
value of receivable
No additional accounting Consider whether receivable
treatment necessary. impaired. In determining the
present value of the cash flows,
use the market related rate of 10%
that existed on day 1, using the
time period elapsed from day 1.
Part C
What are some common misconceptions about the discounting requirements?
Discounting versus impairment
Entities often confuse discounting and impairment.
The purpose of discounting debtors is to determine if the presentation of revenue in the statement
of financial performance is correct, i.e. should the transaction be separated between the revenue
for the value of the goods or services provided, and interest.
The purpose of impairment is to present a loss in the value of the financial asset as a result of
credit losses and/or delayed receipt of the contractually agreed cash flows.
Entities often (erroneously) calculate interest revenue by taking the outstanding debtors’ balance
at year end and multiplying it by the (effective) interest rate, and apportioning revenue between
sales and interest.
The discounting of debtors is done at initial recognition based on the contractually agreed credit
terms. The fact that payments may be subsequently delayed is an issue that affects impairment
and not the recognition of interest (see GRAP 104.AG88).
Discounting and IGRAP 1
Questions have been raised about whether the separate recognition of revenue from the
sale/provision of goods or services and interest revenue is consistent with the principles in
IGRAP 1.
IGRAP 1 indicates the following:
Paragraph .09: “At the time of initial recognition of exchange and non-exchange revenue it is not
appropriate to assume that revenue will not be collected as the entity has an obligation to collect
all revenue and this would be contrary to normal business principles. Accordingly, the Board
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concluded that the full amount of exchange and non-exchange revenue should be recognised at
the initial transaction date.”
Paragraph .10: “Assessing and recognising impairment is an event that takes place subsequent
to the initial recognition of revenue charged. An entity assesses the probability of collecting
revenue when accounts fall into arrears. Such an assessment should not be made at the time of
initial recognition.”
IGRAP 1 deals with the potential non-recognition of revenue as a result of an entity’s past history
of not collecting or receiving amounts due to the entity as a result of exposure to credit risk (i.e.
impairment).
When discounting applies, the transaction is still recognised in full and reflected as revenue – it
is merely reflected in different line items in the statement of financial performance. There may
also be a delay between the initial recognition of the revenue from the sales or goods or services
and interest revenue as interest would only accrue subsequently.
9.2 What is the effective interest rate and how do you calculate it?
Questions have been raised about the use of effective interest rates and how they should be
determined in applying GRAP 104 issued in 2009. This FAQ explains the following:
• What is the effective interest rate?
• What is the effective interest rate used for?
• How is the effective interest rate determined?
What is the effective interest rate?
The effective interest rate is used in determining the amortised cost of a financial asset or a
financial liability.
The effective interest rate is discussed in the definition of the “effective interest method” in
GRAP 104 (2009). The effective interest rate is described as the rate that exactly discounts the
estimated future cash payments or receipts through the expected life of the financial instrument
or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial
liability.
When calculating the effective interest rate, an entity estimates the expected cash flows
considering all contractual terms of the financial instrument (for example, prepayment, call and
similar options). This includes all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs, and all other premiums or
discounts (hereafter referred to as “transaction costs”).
The calculation of the effective interest rate does not include future credit losses (i.e. impairment
losses).
What is the effective interest rate used for?
The effective interest rate is used:
1. To determine interest revenue or interest expense recognised on the balance of financial
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instruments measured at amortised cost. The contractual interest rate is still used to
determine the interest either received or paid in cash.
2. To calculate gains or losses when the contractual terms and conditions of instruments are
changed (called modifications), and/or to determine whether the change results in a
modification of an existing instrument or the derecognition of an existing instrument and
recognition of a new instrument.
3. To determine impairment losses, by discounting the cash flows that the entity expects to
receive using the original effective interest rate.
How is the effective interest rate determined?
There are a number of aspects to consider in determining the effective interest rate.
Initial measurement
The purpose of the effective interest rate is to allocate the transaction costs over the life of the
instrument. Because of the effect of the allocation of the transaction costs over the life of the
instrument, there will be a difference between the effective interest rate and the interest rate
received or paid in cash in terms of the contract (hereafter referred to as the “contractual rate”).
Where transaction costs are immaterial, there is no expected difference between the effective
interest rate and the contractual rate. This may however not be the case if the transaction price
of the instrument is not market related on initial recognition.
All financial instruments are initially measured at fair value, including those that will subsequently
be measured subsequently at amortised cost. The transaction price is usually the fair value,
however there may be exceptions. For example, loans granted or received where the interest
received or paid is not market related.
Where the transaction price does not equal fair value, fair value can be determined by observing
prices for instruments in the market, or alternatively by applying a valuation technique that uses
market inputs. Typically, this means using market related interest rates for a similar instrument,
with the same term, in the same market, and with the same credit risk profile.
If the contractual rate is not market related, an entity will need to determine what a market related
rate of interest would be for a similar instrument.
The effective interest rate is then calculated using the market related rate of interest.
The difference between the cash flows discounted using the (non-market) contractual rate and
the (market) effective interest rate is then recognised in surplus or deficit as a gain or loss.
However, for concessionary loans, the difference is recognised as non-exchange revenue or a
social benefit.
Subsequent measurement
For instruments with a fixed contractual rate, i.e. the interest rate does not change over the period
of the instrument. For example, interest is charged at X% over the life of the instrument.
The effective interest rate, i.e. the rate determined on initial recognition, will remain unchanged
over the life of the instrument.
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When calculating interest, assessing modifications, or discounting the cash flows in determining
impairment losses, the original effective interest rate is used.
If an entity changes the effective interest rate at each reporting date, it would be measuring the
instrument at fair value and not at amortised cost.
For instruments with a variable (floating) contractual rate, i.e. the interest rate changes over the
life of the instrument based on an underlying rate at specific intervals. As an example, the interest
rate is based on the prime lending rate + X% and is changed on a monthly basis.
For variable rate instruments, the effective interest rate will need to be amended when the
contractual rate changes. A new effective interest rate will need to be calculated based on the
revised cash flows of the financial instrument. The effective interest rate is determined by
applying the definition of the effective interest method as described above. The following
paragraphs from GRAP 104 (2009) are also relevant to the calculation of the revised effective
interest rate:
• For calculating interest, GRAP 104.AG44 states the following:
For floating rate financial assets and floating rate financial liabilities, periodic re-
estimation of cash flows to reflect movements in market rates of interest alters the
effective interest rate. If a floating rate financial asset or floating rate financial liability
is recognised initially at an amount equal to the principal receivable or payable on
maturity, re-estimating the future interest payments normally has no significant effect
on the carrying amount of the asset or liability.
• For calculating modifications (of financial liabilities) GRAP 104.AG149 states the following:
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. If an exchange of debt instruments or modification of terms is
accounted for as an extinguishment, any costs or fees incurred are recognised as part
of the gain or loss on the extinguishment. If the exchange or modification is not
accounted for as an extinguishment, any costs or fees incurred adjust the carrying
amount of the liability and are amortised over the remaining term of the modified
liability.
[Note: there is no equivalent discussion for financial assets, but the same principles
would be applied for modifications to financial assets, except the 10% threshold does
not apply].
• For calculating impairment losses, GRAP 104.AG120 states the following:
Impairment of a financial asset carried at amortised cost is measured using the
financial instrument’s original effective interest rate because discounting at the current
market rate of interest would, in effect, impose fair value measurement on financial
assets that are otherwise measured at amortised cost…. If a loan or receivable has a
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variable interest rate, the discount rate for measuring any impairment loss under
paragraph .61 is the current effective interest rate(s) determined under the contract….
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Section 10 – Interests in Other Entities

10.1 How should the definition of investment entities be applied?
Questions have been raised about the application of the definition of an investment entity,
particularly by entities that have large portfolios of investments and are in the business of
providing social benefits. While the question was raised in relation to these types of entities, the
same considerations outlined in this FAQ could be applied by other entities. Social benefits for
purposes of this FAQ are cash payments made to beneficiaries.
Background
The entities in question typically receive contributions and invest these contributions to sustain
or maximise the benefits required to be paid in terms of legislation. Some of the investments
made include acquiring controlling interests in other entities. To understand whether these
investments should be consolidated or measured at fair value, questions have been raised as to
whether the entity is in fact an investment entity.
GRAP 35 indicates that investments held by an investment entity need not be consolidated and
are instead measured at fair value.
Investment entities are defined in GRAP 35 as follows:
An investment entity is an entity that:
(a) obtains funds from one or more investors for the purpose of providing those
investor(s) with investment management services;
(b) has the purpose of investing funds solely for returns from capital appreciation,
investment revenue, or both; and
(c) measures and evaluates the performance of substantially all of its investments
on a fair value basis.
It is important to note that an entity is required to meet all 3 the criteria listed above.
Criterion (a)
To meet criterion (a), the entity must be able to demonstrate that it has more than one investor.
It is possible that there is a single investor, but where this is the case, the entity supports the
interests of a wider group of investors, e.g. a pension fund.
In making the assessment in (a), an entity would need to consider whether the contributions it
receives are direct contributions from a participant to the scheme, or whether the contributions
received are taxes on individuals, other fees, or transfers received from the Revenue Fund.
Where this is the case, it is unlikely that the entity will be able to demonstrate that it has
“investors”.
Criterion (b)
To meet criterion (b), the entity exists to invest solely for returns from capital appreciation,
investment revenue, or both. There are a number of factors to consider:
• An entity’s purpose should be evaluated based on its objectives outlined in its legislative
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mandate, founding documents, etc. An entity that has additional objectives that are
inconsistent with the purpose of an investment entity would not meet the definition of an
investment entity. This includes an investor whose objectives require it to be aligned with the
economic, social or environmental policies of another entity, e.g. owning certain operations or
improving employment outcomes. For entities that are established to provide social benefits,
their core mandate is the provision of benefits in accordance with the scheme (the rules of
which are usually outlined in legislation). The investment of contributions or other revenue
received is merely to sustain this core mandate. The purpose of these entities is not to exist
solely to invest to maximise returns.
• An entity should also consider its investment plans and how these plans evidence its purpose.
One such feature that evidences that an entity is an investment entity is that it does not plan
to hold the investments indefinitely. An investment entity has an exit strategy documenting
how the entity plans to realise capital appreciation from substantially all its equity and non-
financial asset investments. There should be an exit strategy for debt instruments that could
be held indefinitely (e.g. perpetual debt instruments).
Criterion (c)
An entity would need to provide investors with fair value information that substantially all its
investments are measured at fair value in its financial statements whenever fair value is required
or permitted. It would also need to report fair value internally to an entity’s management.
In assessing this criterion, it would need to be established whether there are indeed investors (as
discussed in the analysis of criterion (a), and that the management receives information about
the fair value of the investments on an ongoing basis so as to make investment decisions.
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Section 11 – Statutory receivables

11.1 How do statutory receivables arise?
GRAP 108 deals with statutory receivables. It indicates that statutory receivables are receivables
that: (a) arise from legislation, supporting regulations, or similar means; and (b) require settlement
by another entity in cash or another financial asset. Entities in the public sector operate within a
highly regulated environment. This means that there is legislation governing almost all aspects
of some entities’ activities. As a result of the regulated environment within which entities operate,
questions have been raised about when a receivable is considered statutory and in the scope of
GRAP 108, or contractual and in the scope of GRAP 104.
Background
The definition of a statutory receivable indicates that it is a receivable that arises from legislation,
supporting regulations or similar means. [own emphasis added] “Supporting regulations or similar
means” includes regulations supporting legislation, by-laws or other documents issued in terms
of legislation, such as ministerial orders and cabinet or municipal council decisions. Apart from
requiring settlement in cash or another financial asset, receivables that are in the scope of
GRAP 104 arise from contracts.
A contract is described in GRAP 104 as those arrangements that:
• involve willing parties entering into an arrangement; [own emphasis added]
• the terms of the contract create rights and obligations for the parties to the contract, and
those rights and obligations need not result in equal performance by each party; and
• performance and remedy for non-performance are enforceable by law.
Analysis
In analysing whether a receivable is statutory or not, it is important to:
(a) Understand whether the individual transaction between the entity and the counterparty is
initiated as a result of legislation, supporting regulations or similar means, OR whether it is
governed by legislation or similar means but initiated by a contract.
(b) Consider whether the transactions are compulsory or not22. The transaction itself, rather
than some other action or surrounding circumstances, is assessed to determine whether it
is compulsory or not.
The following examples illustrate these points:
• The distribution of electricity is governed by a regulator. The regulator will determine the
tariff that can be charged by municipalities for electricity. Each municipal council needs to
adopt this tariff by way of a council decision. Consumers who wish to be connected to the
electricity grid and/or receive a supply of electricity, will apply to the municipality in their area
22
Statutory receivables can arise from both exchange and non-exchange transactions. The assessment of whether they are
exchange or non-exchange depends on whether there is a direct exchange of approximately equal value between the parties.
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for the provision of these services. The terms and conditions of the transaction will either be
explicitly or implicitly agreed between the parties, e.g. what tariffs will be charged, whether
a deposit is needed, penalties for late payment etc. The action of applying to receive the
service and agreeing to the terms and conditions is seen as a “voluntary” action on the part
of the consumer and hence meets the definition of a contract. In this instance, the activity is
regulated by a council decision, but the transaction that gives rise to the receivable, i.e. the
transaction with the consumer for the supply of electricity is governed by a contractual
arrangement.
• Certain professionals are regulated by specific legislative requirements, which include that
they are registered with the relevant industry oversight body (which is a public entity). The
fees payable to the industry body are published each year in a Government Gazette. In this
instance, the transaction is both regulated by, and arises from, legislation or similar means
and hence is a statutory arrangement. It is also important to note that although the
professionals may be seen as willingly entering into the arrangement because they would
be aware of the regulatory requirements when deciding to undertake their profession, the
fees paid (i.e. the transaction) result from compulsory transaction initiated as a result of
legislation or similar.
Entities will need to analyse the terms and conditions of the transactions that give rise to their
receivables to understand whether they arise directly from legislation or similar means, or from a
separate contract concluded with the party. Judgement may need to be applied in applying the
principles of GRAP 104 and GRAP 108.
114
APPENDIX A – TRACKING TABLE

Issued 15 February 2011 Publication of combined FAQs for all entities.
Updated 15 February 2011 The following amendments were made:
• Section 1 updated to reflect the 2010/11 reporting
framework.
• Amendment to question 1.7.
• Added question 1.13 on the disclosure of information
when changing from an IPSAS or IFRS to an
accounting policy formulated using Standards of GRAP
that are not yet effective.
• Amendments to question 1.12.
Updated 16 May 2011 The following amendments were made:
• A footnote reference to the Supplement to Directive 5

has been added to question 1.1.
• Delete requirement in question 1.2 to submit an
application to the National Treasury for early adoption
of Standards of GRAP where the Minister of Finance
has determined an effective date.
• Editorial amendments to questions 3.1 and 4.1.
Updated 12 July 2011 Add a question in section 6 on accounting considerations
relating to World Cup Stadiums.
Updated 4 October 2011 Delete questions 2.4, 2.6, 2.7, 2.10, 2.11, 6.3 and 6.4 that
are included in the GRAP Manuals issued by the Office of
the Accountant-General. Renumber remaining questions
where appropriate.
Updated 9 February 2012 Section 1 updated to reflect the reporting framework for
2011/2012.
Add Question 1.11 to reflect the application of GRAP 105,
106 and 107 in the 2011/12 reporting framework.
Updated 11 June 2012 Add questions in section 1 on disclosures to be made by
trading entities and in section 7 on applying the exemption
in GRAP 104 when considering the credit period granted or
received.
115

Updated 25 July 2012 Add questions in section 4 on the accounting and disclosure
relating to services in-kind and in section 7 on whether the
exemption in GRAP 104.AG87 can be applied to receivables
if the interest rate is not market-related.
Updated 27 August 2012 Add a question in section 3 on the presentation
requirements and bases of preparation to follow in preparing
financial statements and budget information and add
section 8 dealing with questions on transfer of functions and
mergers.
Updated 19 September 2012 Add two questions in section 8 dealing with:
• Distinguishing a transfer of functions under and not

under common control; and
• Deciding whether a transaction or event is a merger.
Updated 26 September 2012 Amend the wording in question 2.3 as follows:
• The example was deleted;
• Clarify that if the entity did not appropriately apply
GRAP 17 then this results an error in accordance with
GRAP 3 and vice versa;
• To discuss rare instances, where an entity may hold
fully depreciated assets which it still uses; and
• Add reference to disclosure requirements in GRAP 3
which should be applied whether it is a change in
estimate or a prior period error.
Updated 7 February 2013 Sections 1, 3, 4 and 6 have been updated to reflect the
reporting framework for 2012/13.
Updated 11 February 2013 Add a question in section 3 on the disclosure relating to
councillor’s remuneration for purposes of GRAP 20.
Updated 25 June 2013 Add a question in section 1 on the basis of preparation for
Government Business Enterprises (GBEs) when they apply
Statements of GAAP.
Updated 03 July 2013 Add a question in section 2 on accounting for heritage
assets that were previously accounted for in terms of
GRAP 17 and where the deemed cost was determined in
terms of Directive 7.
Updated 13 January 2014 Sections 1, 3, 4 and 6 have been updated to reflect the
116

Updated 28 February 2014 Delete questions 2.1, 2.4, 2.5, 2.6, 2.8, 3.1, 3.4, 4.2, 4.4, 4.6,
5.2, 6.1, 6.2, 7.1, 7.2, 8.1, 8.2 and 8.3 that are included in
the GRAP Manuals issued by the Office of the Accountant-
General. Renumber remaining questions where
appropriate; and delete sections 7 and 8.
Updated 22 May 2014 The following amendments were made:
• Add a question in section 4 dealing with the effect of
IGRAP 1 on traffic fines.
• Add a new section 7 on provisions and a question
dealing with determining the discount rate for
calculating provisions in accordance with GRAP 19.
Updated 27 June 2014 Add a question in section 6 on accounting for expenses
incurred by an entity but which are settled by another entity.
Updated 15 July 2014 The following amendments were made:
• Amend question 2.2 to clarify when an adjustment is
required, what information should be used to assess
the useful lives of assets and when the adjustment is a
change in accounting estimate or error.
• Add three questions to section 2 on whether:
- the valuation roll can be used to measure assets at
fair value;
- statues, sculptures, monuments and similar
structures are always classified as heritage assets;
and
- living animals or plants can be classified as heritage
assets.
• Add a question to section 4 on whether revenue
foregone is recognised in the statement of financial
performance.
Updated 03 November 2014 Add a question in section 1 on what date should deemed
cost be determined using Directive 7 if an entity did not
complete its adoption of Standards of GRAP within the
specified time frame.
Updated 16 April 2015 Sections 1 and 4 have been updated to reflect the reporting
framework for 2014/15.
117

Updated 18 May 2015 Add a question to section 2 on how an entity should apply
the requirements in Directive 11 retrospectively in the
absence of cost records for assets on the date of adoption
of the Standards of GRAP.
Updated 28 July 2015 Add a question to section 1 on what is meant by “effective
for financial periods commencing on or after 1 April 201X”,
when referring to the applicability of the GRAP Reporting
Framework to different entities.
Updated 8 September 2015 The following amendments were made:
• Combine old question 4.5 with question 6.1, and
amend question 6.1 for consistency.
• Delete the old question 4.5 on whether revenue
foregone is recognised in the statement of financial
performance.
• Add a question to section 4 on the interaction between

GRAP 20 and GRAP 23 for services in-kind.
Updated 29 February 2016 The following amendments were made:
• Sections 1 and 4 have been updated to reflect the
• Amend question 4.2 to reflect that principal-agent
arrangements are assessed in accordance with GRAP
109.
Updated 21 April 2016 Question 2.2 was replaced with an updated version on how
to account for fully depreciated assets that are still in use.
The new version provides:
• A decision tree in assessing whether adjustments are
required to fully depreciated assets still in use.
• Clarification on how to make prospective adjustments
for a change in accounting estimate.
Updated 13 September 2016 Add a question to section 1 on when does the three year
transitional period relating to the initial adoption of
Standards of GRAP expire.
Updated 30 March 2017 Amend section 1 as follows:
118
• Add a question on the implications on compliance with

the Standards of GRAP when an exemption is granted
by the Minister of Finance.
• Add a question on the versions of the Standards of
GRAP to be applied on first time adoption.
• Update section 1 to reflect the reporting framework for
2016/17.
Add three questions to sections 2 and 3 on asset related
matters:
• The implications of non-recognition of certain assets
when permitted by Standards of GRAP.
• Whether all items that are listed by SAHRA as heritage
items meet the definition of heritage assets in terms of
GRAP 103, and vice versa.
• Add a question to section 3 on where in the financial
statements expenditure on repairs and maintenance
should be presented.
Updated 19 December 2017 Update section 1 for the 2017/18 reporting framework.
Delete question 1.7 on GRAP 105, 106 and 107. Relevant
information is included in question 1.3.
Amend question 3.4 to address with the analysis of
expenses by nature or function more broadly and better
explain what each analysis means, with examples.
Add question 3.5 on the items to be included in cash and
cash equivalents.
Align question 4.3 to the current requirements of GRAP 23,
include examples of in-kind benefits that may be significant
to an entity and include the disclosure requirements of
services in-kind not recognised.
Clarify in question 6.1 that the expenses related to providing
free basic services should not be reclassified from its nature
or function to items such as “free basic services”.
Add question 6.4 on the interaction between GRAP 32,
GRAP 8 and GRAP 109.
119

Add a footnote reference throughout the document to the
new Conceptual Framework approved by the Board in June
2017, which replaces the previous framework.
Updated 28 May 2018 Add question 2.7 on use of a valuer to determine fair value.
Move question 7.1 on determining the discount rate for
calculating provisions to section 6 as question 6.5.
Remove the reference to GRAP 103 from the name of
section 2.
Rename section 7 to “Heritage Assets”, and amend the
section as follows:
• Move question 2.9 to section 7 as questions 7.1 and
7.2 on classification of assets as a heritage asset in the
entity’s financial statements.
• Add question 7.3 on how an asset that does not meet
the definition of a heritage asset should be classified.
• Add question 7.4 on how specimens held for research
should be classified.
• Move question 2.6 to section 7 as question 7.5 and
explain when a living animal or plant can be classified
as a heritage asset.
• Move question 2.5 to section 7 as question 7.6 and
explain when statues, sculptures, monuments, similar
structures and replicas are classified as heritage
assets.
Updated 1 June 2018 Amend question 1.3 to clarify status of a Standard issued
but not listed in the reporting framework.
Amend question 1.7 to clarify disclosure requirements.
Amend question 3.4 to add examples, and clarify the
reasons the examples are inappropriate.
Amend question 3.5 to clarify the purpose of holding an
instrument.
Add question 6.6 on accounting for renegotiated payment
arrangements.
Updated 13 July 2018 Add question 3.6 on the requirements for entities to classify
revenue as exchange or non-exchange.
120

Add question 3.7 on the considerations when presenting
information in addition to what is required by the Standards
of GRAP.
Updated 19 November 2018 Add question 1.15 on the role of the Conceptual Framework
and when it is applied.
Add question 1.16 on the effective date of the Conceptual
Framework.
Updated 28 March 2019 Update section 1 for the 2018/19 reporting framework.
Remove FAQ 1.8 on What should Government Business
Enterprises (GBEs) describe as their basis for preparation
when they apply Statements of GAAP? as it is no longer
relevant from 1 April 2018.
Updated 10 September 2019 Added the following FAQs:
• 1.16 on the role of materiality in reporting information in
the financial statements.
• 2.8 on whether changes to useful lives, residual values
and deprecation methods are changes in estimates or
errors.
• 3.8 on how entities should determine the value of repairs
and maintenance.
• 8.1 (Parts A to C) on the discounting of receivables and
payables.
Amended the following FAQs:
• 2.2 on fully depreciated assets still in use.
• 7.6 on whether graves and cemeteries are heritage
assets.
Updated 4 October 2019 Added the following FAQs:
• 3.9 on the presentation of revenue and receivables from
exchange and non-exchange transactions.
• 9.1 on the definition of an investment entity.
Updated 7 November 2019 Added the following FAQs:
• 1.17 on the disclosures entities should provide on newly
effective Standards of GRAP.
121
• 3.10 on whether all errors should be accounted for using

GRAP 3.
• 3.11 on adjustments related to the adoption of a new
pronouncement.
• 3.12 on the application of GRAP 109.
Updated 26 November 2019 Added FAQ 2.9 on the impact of land invasions on land
recognition.
Updated 9 March 2020 Updated section 1 and FAQ 4.2, 6.2 and 6.4 for the 2019/20
reporting framework.
Section 1 was further updated as follows:
• Combined FAQ 1.8 with FAQ 1.17 regarding disclosures
on not yet effective Standards of GRAP.
• Refreshing FAQ (now) 1.8 on the date to determine
deemed cost per Directive 7.
Updated FAQ 4.1 for public entities applying Standards of
GRAP from 1 April 2018.
Reinstated the following FAQs:
• 2.10 on accounting for servitudes.
• 2.11 on accounting for library books.
• 2.12 on when to start depreciating major spare parts and
stand-by equipment.
• 3.13 on whether VAT receivable and payable are
exchange or non-exchange transactions.
• 4.6 on accounting for revenue from donated assets.
• 5.2 on the appointment of actuaries to measure defined
benefit obligations.
• 6.7 on when revenue from the sale of pre-paid electricity
should be recognised.
• 6.8 on accounting for conditional grants where not all
conditions have been met by the transferor.
• 6.9 on accounting for a transfer of functions between
entities not under common control by a transferor.
• 6.10 on the distinction between functions under common
control and not under common control.
122

• 6.11 on accounting for a transaction or event as a
merger.
• 7.7 on distinguishing heritage assets from “old assets”.
Added the following FAQs from FAQs on amendments to
GRAP 16 and GRAP 17:
• 2.13 on presenting prior year information on cumulative
work in progress where the information is unavailable.
• 2.14 on disclosure related to projects that are taking
significantly longer to complete than expected.
Updated 11 May 2020 Added FAQ 10.1 on statutory receivables.
Updated 8 June 2020 Added the following FAQs:
• 2.15 on accounting for water and electricity meters

• 6.12 on the interaction between GRAP 11 and the
Housing Guideline.
Updated 8 July 2020 Added FAQ 8.2 on what is the effective interest rate and how
do you calculate it.
Updated 3 February 2021 Updated section 1 and FAQs 6.2, 6.4 and 6.10 for the
2020/2021 reporting framework.
Deleted FAQs 1.4 and 1.6 that were no longer relevant.
Guidance in FAQ 1.6 for trading entities has been included
in FAQ 1.3.
Updated FAQ 2.5 on how an entity applies the requirements
in Directive 11 to include a timeline.
Updated FAQs 2.13 and 4.1 to remove content that is no
longer relevant.
Updated 15 March 2021 Amended FAQ 3.12 on the application of GRAP 109 to add
guidance.
Added FAQ 3.14 on when geographical information, as
required by GRAP 18, should be provided.
Updated 17 June 2021 Added FAQ 1.15 on what should be disclosed about
Standards of GRAP where no effective date has been
approved by the Minister of Finance.
Updated 7 July 2021 Added FAQ 3.15 on the interaction of legislated disclosure
requirements and disclosure requirements in Standards of
123

GRAP, and FAQ 3.16 on the interaction of Standards of
GRAP where two or more Standards have similar
requirements.
Added FAQ 3.17 on the disclosure requirements in the
Standards of GRAP on commitments.
Updated FAQ 5.2 on whether an entity must appoint an
actuary at every reporting date to measure its defined
benefit obligations.
Added FAQ 5.3 on whether informal arrangements to
provide post-employment benefits are within the scope of
GRAP 25.
Updated 3 November 2021 Updated FAQ 7.4 on how specimens held for research
should be classified in an entity’s financial statements.
• 2.16 on whether the presentation of assets in financial
statements will increase an asset’s risk profile.
• 2.17 on whether assets on land should be accounted for
separately from the land.
• 3.18 on how the cash movement in consumer deposits
should be presented in the cash flow statement.
• 7.8 on what should be considered when determining a
reliable value for a heritage asset.
• 7.9 on how items collected by an entity should be
classified in its financial statements.
Updated 9 February 2022 Updated FAQ 7.8 on what to consider when determining a
reliable value for a heritage asset.
Updated X March 2022 Added Section 1 on the Conceptual Framework, and
relocated FAQs 1.11, 1.12 and 1.13 (renumbered as 1.1, 1.2
and 1.3) to this new section. This resulted in the
renumbering of all other sections and FAQs.
Updated (now) section 2 for the 2021/2022 reporting
framework.
• FAQ 2.1 on the purpose and status of Directive 5.
• FAQ 2.5 on the impact of recently issued IPSAS and
IFRS Standards on the 2021/22 GRAP reporting
framework
124

Updated references in (now) FAQs 3.14, 4.11, 5.1, 7.1 and
8.1.
Amended (now) FAQ 8.4 to include living and non-living
resources.
125
APPENDIX B – ABBREVIATIONS FOR STANDARDS OF GRAP
Pronouncement no. Pronouncement name

GRAP 1 Presentation of Financial Statements
GRAP 2 Cash Flow Statements
GRAP 3 Accounting Policies, Changes in Accounting Estimates and Errors
GRAP 4 The Effects of Changes in Foreign Exchange Rates
GRAP 5 Borrowing Costs
GRAP 9 Revenue from Exchange Transactions
GRAP 10 Financial Reporting in Hyperinflationary Economies
GRAP 11 Construction Contracts
GRAP 12 Inventories
GRAP 13 Leases
GRAP 14 Events After the Reporting Date
GRAP 16 Investment Property
GRAP 17 Property, Plant and Equipment
GRAP 18 Segment Reporting
GRAP 19 Provisions, Contingent Liabilities and Contingent Assets
GRAP 20 Related Party Disclosures
GRAP 21 Impairment of Non-cash-generating Assets
GRAP 23 Revenue from Non-exchange Transactions (Taxes and Transfers)
GRAP 24 Presentation of Budget Information in Financial Statements
GRAP 25 Employee Benefits
GRAP 26 Impairment of Cash-generating Assets
GRAP 27 Agriculture
GRAP 31 Intangible Assets
GRAP 32 Service Concession Arrangements: Grantor
GRAP 34 Separate Financial Statements
GRAP 35 Consolidated Financial Statements
GRAP 36 Investments in Associates and Joint Ventures
GRAP 37 Joint Arrangements
126

GRAP 38 Disclosure of Interests in Other Entities
GRAP 100 Discontinued Operations
GRAP 103 Heritage Assets
GRAP 104 Financial Instruments
GRAP 105 Transfer of Functions Between Entities Under Common Control
GRAP 106 Transfer of Functions Between Entities Not Under Common Control
GRAP 107 Mergers
GRAP 108 Statutory Receivables
GRAP 109 Accounting by Principals and Agents
GRAP 110 Living and Non-living Resources
Directive 1 Repeal of Existing Transitional Provisions in, and Consequential
Amendments to, Standards of GRAP
Directive 2 Transitional Provisions for Public Entities, Trading Entities, Municipal
Entities, Public Technical and Vocational Education and Training Colleges
and Constitutional Institutions
Directive 3 Transitional Provisions for High Capacity Municipalities
Directive 4 Transitional Provisions for Medium and Low Capacity Municipalities and
Trading Entities
Directive 5 Determining the GRAP Reporting Framework
Directive 6 Transitional Provisions for Revenue Collected by the South African
Revenue Service (SARS)
Directive 7 The Application of Deemed Cost
Directive 8 Transitional Provisions for Parliament and the Provincial Legislatures
Directive 9 The Application of the Standards of GRAP by Trading Entities
Directive 10 Application of the Standards of GRAP by Public Technical and Vocational
Education and Training Colleges
Directive 11 Changes in the Measurement Bases Following the Initial Adoption of the
Standards of GRAP
Directive 12 The Selection of an Appropriate Reporting Framework by Public Entities
Directive 13 Transitional Provisions for the Adoption of Standards of GRAP by
Community Education and Training Colleges
127

Directive 14 The Application of Standards of GRAP by Public Entities that Apply IFRS®
Standards
IGRAP 1 Applying the Probability Test on Initial Recognition of Revenue
IGRAP 2 Changes in Existing Decommissioning, Restoration and Similar Liabilities
IGRAP 3 Determining whether an Arrangement Contains a Lease
IGRAP 4 Rights to Interests Arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds
IGRAP 5 Applying the Restatement Approach under the Standard of GRAP on
Financial Reporting in Hyperinflationary Economies
IGRAP 6 Loyalty Programmes
IGRAP 7 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction
IGRAP 8 Agreements for the Construction of Assets from Exchange Transactions
IGRAP 9 Distributions of Non-cash Assets to Owners
IGRAP 10 Assets Received from Customers
IGRAP 11 Consolidations – Special Purpose Entities
IGRAP 12 Jointly Controlled Entities – Non-monetary Contributions by Venturers
IGRAP 13 Operating Leases – Incentives
IGRAP 14 Evaluating the Substance of Transactions Involving the Legal Form of a
Lease
IGRAP 15 Revenue – Barter Transactions Involving Advertising Services
IGRAP 16 Intangible Assets – Website Costs
IGRAP 17 Service Concession Arrangements Where a Grantor Controls a Significant
Residual Interest in an Asset
IGRAP 18 Recognition and Derecognition of Land
IGRAP 19 Liabilities to Pay Levies
IGRAP 20 Accounting for Adjustments to Revenue
128

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Frequently Asked Questions on the Standards of

Action Date Description of change

4.10 Should all errors be accounted for using GRAP 3?

Section 1 – Conceptual Framework

Document Title of pronouncement Impact on GRAP Reporting Framework

Title of Standard Status and rationale

applied retrospectively from the measurement date, or whether it is impracticable to do so.

The following example illustrates the principle.

Fully depreciated assets still being

Were the principles in GRAP 17 appropriately

Apply estimate Apply adjustment

not recognised in the statement of financial position or statement of financial

Step 2: How should library books be accounted for?

and expense certain books.

3.15 How should municipalities classify electricity and water meters?

Section 4 – Presentation and disclosure

Specific presentation requirements in the Standards of GRAP

4.5 What items should be included in “cash and cash equivalents”?

(b) Readily convertible to known amounts of cash

Presentation requirements for Presentation requirements for

Presentation requirements for Presentation requirements for

The Guideline on The Application of Materiality to Financial Statements provides guidance on

event or condition within a basis of accounting is regarded as a change in accounting

Step 1: When should GRAP 109 be considered?

• common law, i.e. legal precedent set through court rulings.

Principal Binding arrangement in terms of

Transaction between principal and Assess whether GRAP 109

• The purchase, construction, development, or repair and maintenance of investment

Section 5 – Accounting for Non-exchange Revenue

• IAS 20 requires that revenue related to the acquisition or construction of an asset is

transaction by formulating an accounting policy using the recognition, measurement and

Section 6 – Accounting for Employee Benefits

the liability). If uncertainty arises in the measurement, classification as a provision may be

Section 7 – Sundry Accounting Issues

Municipalities should therefore:

equipment to investment property, the principles in GRAP 16 should be applied. GRAP 16

• There is evidence of the termination of owner-occupation when a municipality enters into a

• Service concession arrangement in GRAP 32,

GRAP 32 GRAP 36 and GRAP 37 GRAP 109

Definition Service concession arrangement Joint arrangement Principal-agent arrangement

GRAP 32 GRAP 36 and GRAP 37 GRAP 109

GRAP 32 GRAP 36 and GRAP 37 GRAP 109

Section 8 – Heritage Assets

Similar considerations should be made to determine whether graves, cemeteries or burial

Concept Meaning of the concept

Section 9 - Financial Instruments

• the period outlined in legislation; and

Day 1: Day 30: Day 30+:

Section 10 – Interests in Other Entities

Section 11 – Statutory receivables

APPENDIX A – TRACKING TABLE

Action Date Description of change

• A footnote reference to the Supplement to Directive 5

Action Date Description of change

• Distinguishing a transfer of functions under and not

Action Date Description of change

Action Date Description of change

• Add a question to section 4 on the interaction between

Action Date Description of change