| Background to the proposed revisions |
|
|
In March 2023, the Board issued ED 204 on Proposed Revisions to the Standards of GRAP on Transfer of Functions Between Entities Under Common Control (GRAP 105), Transfer of Functions Between Entities Not Under Common Control (GRAP 106) and Mergers (GRAP 107). Comment on ED 204 is due by 15 July 2023.
The proposed revisions primarily align the guidance in GRAP 105, GRAP 106 and GRAP 107 (the local Standards) with IPSAS 40 on Public Sector Combinations. IPSAS 40 applies to public sector combinations and classifies them as either an amalgamation or an acquisition.
In revising the principles, GRAP 105 was compared to the amalgamation principles in IPSAS 40, as it was deemed closest in substance to a transfer of functions under common control. As the IFRS Accounting Standardon Business Combinations (IFRS 3) was used to develop parts of GRAP 105, the ED also proposes additional guidance from IFRS 3 that was issued after IPSAS 40 was approved. |
|
| What are the most significant changes proposed to GRAP 105? |
|
|
(a) Additional scope exclusions
The ED proposes additional scope exclusions for the formation of a joint arrangement in the financial statements of the joint arrangement itself, and the transfer of an investment entity as defined in GRAP 35 on Consolidated Financial Statements.
(b) Guidance on an optional test
The ED proposes guidance that allows an entity to choose whether or not it wants to apply an optional test (the concentration test). This test is a simplified assessment to decide if an acquired or received set of activities and assets and/or liabilities is not a function. An acquired or received set of activities and assets and/or liabilities is not a function if substantially all the carrying amounts of the gross assets acquired or received are concentrated in a single asset, or group of similar assets.
(c) Guidance to assess whether a transferred process is substantive
The ED proposes additional guidance to assist an entity to assess if an acquired or received process is substantive where the set of activities and assets and/or liabilities do not have outputs.
A function is an integrated set of activities and related assets and/or liabilities that are managed to achieve an entity’s objectives by providing goods and/or services, or generating revenue. Although a function usually has outputs, outputs are not required for the activities, assets and/or liabilities to be a function.
(d) Illustrative examples
The ED proposes illustrative examples on: the application of the optional test; determining if a particular set of activities, and assets and/or liabilities is not a function; the measurement period; assessing if a transaction or event is a transfer of functions; and the disclosure requirements. |
|
| What principles are retained in GRAP 105? |
|
|
In revising GRAP 105, the Board agreed to retain the following principles, thereby departing from the principles in IPSAS 40:
(a) Measurement period
The ED proposes to retain the two year measurement period that can be applied when the initial accounting for a transfer of functions is incomplete by the end of the reporting period in which the transfer occurs. IPSAS 40 allows a measurement period of one year.
The Board noted from practical experience that locally, entities need more time to obtain the necessary information to identify and measure the assets and/or liabilities in a transfer of functions.
(b) Measurement principle
For an amalgamation, IPSAS 40 requires that the acquirer measures the acquired or received assets and/or liabilities at their carrying amounts. Prior to the transfer of the assets and/or liabilities, the transferring entity (the transferor) should adjust the carrying amounts of the assets and/or liabilities to conform to the accounting policies of the acquirer. Adjustments also need to be made to eliminate transactions between the transferor and acquirer in calculating the excess.
To avoid additional costs to effect the transfer of functions, the ED proposes to retain the measurement principles in GRAP 105. This means that no adjustments need to be made to the carrying amounts prior to the transfer, unless the transferor did not apply Standards of GRAP. Furthermore, transactions between the transferor and acquirer need not be eliminated. |
|
| Do you agree with the proposed revisions to GRAP 105? |
|
|
| Share your thoughts by accessing the Exposure Draft on ED 204 – ASB. Contact amandab@asb.co.za for more information. |
|
|
|
