A previous article on Identifying principal-agent arrangements – the nature of transactions with third parties explained the nature of transactions with third parties in a principal-agent arrangement. Where the transactions with third parties are financial transactions, it is likely that cash needs to be transferred from the agent to the principal and vice versa. The disclosures required by GRAP 109 on Accounting by Principals and Agents on a principal’s resources that are in the custody of an agent at the reporting date may be particularly relevant in these instances.
GRAP 2 on Cash Flow Statements requires entities to present information on the gross cash inflows and gross cash outflows in the cash flow statement. There are limited circumstances when GRAP 2 permits an entity to present cash flows on a net basis. These circumstances include cash receipts collected and payments made on behalf of customers, taxpayers or beneficiaries when the cash flows reflect the activities of the other party rather than those of the entity. The allowance refers only to transactions where the resulting cash balances are controlled by the reporting entity. It is therefore likely that an agent may conclude that it is permitted by GRAP 2 to present cash flows from agency activities on the net basis in the cash flow statement.
The post-implementation review of GRAP 109 seeks to establish whether the information required by GRAP 2 and GRAP 109 on cash flows from a principal-agent arrangement is useful to hold both the principal and agent accountable, and for making decisions. |
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