| Awareness of GRAP 109 | Some entities are unaware that GRAP 109 became effective 1 April 2019, and have not applied it. | Financial statements refer to the effective date of GRAP 109 as “not yet determined by the Minister of Finance”, “1 April 2021”, or “not yet effective”. |
| Identification of principal-agent arrangements | Entities have difficulty distinguishing principal-agent arrangements from other arrangements, and are unsure of the Standards to apply when an arrangement is not a principal-agent arrangement. | Fulfilling an agency function is a type of service provided to another party (the principal), and may be difficult to distinguish from arrangements where the entity is simply providing a service to another party. |
| It can be difficult to identify the capacity in which an entity is engaged in an arrangement, particularly when it is unclear what functions have been assigned to the entity. | Uncertainty exists for: functions assigned by provincial government to municipalities and “unfunded mandates” such as library services and health clinics that municipalities perform for provincial governments; control relationships where the mandate and functions of the entities are linked; and legislation that indicates entities undertake transactions for the benefit of the National Revenue Fund or provincial Revenue Fund. |
| There is a misconception that the classification of expenditure drives the decision on whether an arrangement is a principal-agent arrangement. | When an entity classifies a transaction with another party as a transfer payment, it is not seen as a principal-agent arrangement. |
| Terminology used in arrangements is confused with the accounting principles and entities incorrectly base assessments on the legal form of the arrangement, instead of the economic substance. | The terms “implementing agent”, “agent”, “principal” and “principal-agent arrangement” are used in arrangements. These terms do not necessarily have the same meaning as the terms in GRAP 109. |
| The transaction that the agent undertakes with third parties on behalf of the principal has been misinterpreted to refer to financial transactions only. | An agent negotiating a contract on behalf of the principal, and municipalities representing the provincial housing department in relation to housing beneficiaries are examples of principal-agent arrangements where there are no financial transactions with third parties. |
| There are certain functions in the environment known to give rise to principal-agent arrangements. However, not all entities have identified these arrangements as principal-agent arrangements. | Municipalities manage the issuing of motor vehicle licences and administration of traffic fines on behalf of the relevant provincial department of transport. |
| Disclosure of principal-agent arrangements | Entities with principal-agent arrangements do not comply with the disclosure requirements of GRAP 109, or only provide boilerplate information. This means no information about the entity’s specific arrangement is provided.
| The following non-compliance was identified: no accounting policy or note disclosure; only boilerplate information in an accounting policy and no note disclosure; or an accounting policy and note disclosure, but no information on the significant terms and conditions of the arrangement, whether any changes occurred during the period, an explanation of the purpose of the relationship and any significant risks and benefits of the relationship, and for entities acting as a principal, information on the resource or cost implications if the arrangement is terminated. |
