| ED 205 on Social Benefits – what would the impact be on the local environment? |
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The Accounting Standards Board approved an Exposure Draft on Social Benefits (ED 205) at its July 2023 meeting. Although the Standard of GRAP on Provisions, Contingent Liabilities and Contingent Assets (GRAP 19) includes a description of social benefits, GRAP 19 excludes provisions and contingent liabilities for social benefits that are non-exchange transactions from its scope. There is no Standard of GRAP that provides guidance on accounting for social benefits. This proposed Standard will fill a gap in the existing literature.
In the absence of a Standard of GRAP prescribing requirements for social benefits, entities developed their own accounting policies.
Previous articles explained the proposed recognition and measurement requirements for social security insurance benefits and social assistance benefits. The Board considered the potential impact on preparers and users of the requirements in relation to the current policies applied to the benefits. Although the implementation of the ED will result in changes to the information provided, the proposals in the ED were considered necessary to meet users’ needs and are expected to result in improved information in financial statements. |
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| Social security insurance benefits |
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| Current accounting policies for social security insurance benefit liabilities are mostly developed with reference to IFRS 4 on Insurance Contracts. The policies result in liabilities recognised when the “incident” occurs, which is comparable to when the event related to the social risk occurs. The most significant impact is likely to be the presentation and disclosure of information on social benefits. The expected impact on the recognition and measurement of the liability will be limited. |
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| Social assistance benefits |
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Entities providing social assistance benefits mostly recognise liabilities for benefits that are verified to meet eligibility criteria and approved for payment. This recognition point results in limited information in the financial statements about the liability and depends on the effectiveness of the entity’s own internal processes to verify and approve applications received.
The proposal in the ED – to recognise liabilities for social assistance benefits when an entity receives an application for social benefits – means entities providing these benefits would recognise the liability at an earlier stage. It also means entities may need to use estimates. For example, an entity would need to estimate which applications for social benefits will meet the eligibility to qualify for social benefits. Initial research indicated that entities providing these benefits would have access to all the information necessary to estimate the liability.
Given the concern about the limited information presently available to users, the recognition point proposed in the ED is necessary to provide more comprehensive information to users. |
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| Provide your comment on the proposals |
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| Access ED 205 on Social Benefits on the ASB website. Comment is due by 17 November 2023. Contact elizna@asb.co.za for more information. |
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