annual improvements to the mcs 2020. annual financial... · the mcs amendments, are effective from...

1 Issued December 2019

Annual Improvements

to the MCS

2020

MCS Annual Improvements 2020


Objective

The objective of this document is to list improvements to the MCS after consideration of comments made by stakeholders during the comment period.

Improvements to the MCS: PART A: Amendments

The MCS amendments, are effective from 1 April 2019. These amendments are further illustrated in Annexure A.

MCS Chapter Summary of change

Chapter 1 on Preface to the Modified Cash Standard

Included a reference to Treasury Regulations 18.2.

[paragraph .01]

Added a paragraph to clarify that the reporting entity the MCS was designed for.

[paragraph .02A]

Clarified the nature and type of information that will form part of secondary information.

[paragraph .06]

Chapter 2 on Concepts and Principles

Editorial amendments.

[paragraph .12 to .14, .17, .45 and .50]

Chapter 3 on Financial Statement Presentation

Added further clarification to the definition on Impracticable, taken from GRAP and introduced in the FAQ’s for the 2018/2019 financial year.

[paragraph .02]


[paragraph .45]

Removed the disclosures for the transfer of functions. These have been added to the new chapter on Transfers of Functions (see below). The new paragraph .47 was previously paragraph .48 relating to PPPs.

[previously paragraph .47]

Chapter 4 on Accounting Policies, Estimates and Errors

Elaborated on how to effect a change in accounting estimate prospectively, taken from the equivalent Standard of GRAP.

[paragraph .19]


[paragraph .30]

Chapter 5 on Appropriation Statement


[paragraph .16]

Chapter 6 on Cash Flow Statements


[paragraph .04]

Removed cash receipts and payments from transfers of functions / discontinuance of functions based on relevance.

[paragraph .13]

Included clarification on the classification of payments made in terms of finance lease agreements.

[paragraph .15(a)]

Removed example of financing activities relating to finance leases as it is not relevant to departments (these liabilities are not recognised).




[paragraph .16(c)]


[paragraph .32]

Chapter 7 on Revenue Included reference to assets in the definition of departmental revenue.

[paragraph .04]

Included reference taxes in discussion on departmental revenue.

[paragraph .08]

Clarified the paragraph on type of transfers received by a department.

[paragraph .11]

Chapter 8 on Expenditure Editorial amendments.

[paragraph .04, .15(g) and .18]

Included transitional provisions paragraph for change in classification of housing-related expenditure.

[paragraph .20]

Chapter 9 on General Departmental Assets and Liabilities

Clarified that a department may recognise advances in the statement of financial position or as an expense in the year in which the advance was made. Previously this paragraph only referred to prepayments.

[paragraph .06]


[paragraph .13, .14, .20, 36, 37, 38 ,40]

Included practical expedient on the date of de-recognition of receivables, prepayments or advances recognised in the Statement of Financial Position.

[paragraph .26A]

Included requirement to disclose payables not recognised for employee benefits in line with the Specimen and Template.

[paragraph .47]

Amended the accounting for unauthorised, fruitless and wasteful and irregular expenditure to align to the updated guidelines issued by the OAG.

[paragraph .48, .51 and .53]

Amended disclosures on unauthorised, irregular and fruitless and wasteful expenditure to include only a general disclosure requirement.

[paragraph .55]

Chapter 11 on Capital Assets

Amended the definition of cost, to acknowledge that guidance on deemed cost may exist outside of the MCS.

[paragraph .09]

Clarified the reference to accounting concepts on immovable assets.

[paragraph .13]

Amended paragraph .21 to clarify that it provides the criteria when an asset should be recorded. Removed duplicate text from paragraph .22.

[paragraph .21 and .22]

Editorial amendments

[paragraph .24]




Clarification included on the assessment of projects with repairs and maintenance elements

[paragraph .92]

Clarified the immovable asset disclosures.

[paragraph .101]

Chapter 12 on Inventories Added clarification on the scope inclusions and exclusions.

[paragraph .03, .04 and .05]


[paragraph .07]

Added clarification on the measurement of inventories held for distribution.

[paragraph .16]


[paragraph .25]

Clarified that comparative information will not be required in the first year of adoption of the Chapter.

[paragraph .30]

Chapter 14 on Provisions and Contingents

Included scope exclusion on the recording of separate obligations in relation to the dismantling, removal or restoration of assets and/or any sites related thereto.

[paragraph .02A]

Amended the definition for commitments.

[paragraph .04]

Amended the disclosure requirement on commitments, to require only commitments on capital expenditure. This also resulted in amendments to the definition in paragraph .04.

[paragraphs .62to .66]

Chapter 15 on Related Party Disclosures

Clarified that the nature of the related party relationship should be disclosed and that the scope included all departments reporting to the Minister/MEC.

[paragraph .20]

Chapter 17 on Events after reporting date

Included example, from the equivalent GRAP, on how to identify the date of authorisation for issue of the financial statements.

[paragraph .06]

General editorial throughout the MCS

Reference to “entity” has been replaced with “department” where relevant.

[Chapter 4, paragraph .22; Chapter 6, paragraphs .04 and .07; Chapter 7, paragraph .05; Chapter 9, paragraph .28; Chapter 11, paragraphs .15, .19, .28, .31, .76 and .85; Chapter 12, paragraphs .08, .16, .18, .27 and .28; Chapter 13, paragraph .10; Chapter 14, paragraphs .07, .13, .14, .45, .46, and .60]



Improvements to the MCS: PART B: Additions

These additions to the MCS are effective from 1 April 2020 and can be viewed in the actual MCS.

MCS Chapter Summary of change Effective date

Chapter 19 on Transfers of Functions

New Chapter included, which draws from the principles established in the GRAP 105 on Transfers of Functions Between Entities Under Common Control of issued by the Accounting Standards Board (ASB) and the existing guide on Transfers of Functions Accounting and Reporting issued by the National Treasury

The new Chapter is effective from 1 April 2020 but early adoption is allowed.

Chapter 20 on Mergers

New Chapter included, which draws from the principles established in the GRAP 107 on Mergers of issued by the Accounting Standards Board (ASB) and the existing guide on Transfers of Functions Accounting and Reporting issued by the National Treasury

The new Chapter is effective from 1 April 2020 but early adoption is allowed.

Improvements to the MCS: Annexure A


Amendments to Chapter 1 on Preface to the Modified Cash Standard

Paragraph .01

Included a reference to Treasury Regulations 18.2. New text is underlined.

.01 The Public Finance Management Act (PFMA), No 1 of 1999, requires departments to “prepare financial statements for each financial year in accordance with generally recognised accounting practice”. The Treasury Regulations require the accounting officer of a department to ensure that the annual financial statements are prepared on a modified cash basis in accordance with the formats prescribed by the National Treasury1.

1Treasury Regulation 18.2

Paragraph .02A

Paragraph .02A has been included to clarify that the MCS only applies to departments listed in specific schedules to the Public Service Act, 1994, with subsequent amendments to paragraph .03. New text is underlined and deleted text is struck through.

.02A The Standard has been developed for application by national departments listed in Schedule 1 to the Public Service Act, 1994; provincial departments listed in listed in Schedule 2 to the Public Service Act, 1994 and the Office of a Premier listed in Schedule 1 to the Public Service Act, 1994.

.03 Departments and any other entity that claims compliance with the modified cash basis of accounting must adhere fully with the principles, presentation and disclosure requirements contained in this Standard in order to achieve fair presentation, and compliance with the PFMA and its regulations.

Paragraph .06

Paragraph .06 has been amended as it is not only accrual information or all accrual information that is included in the secondary financial information. New text is underlined and deleted text is struck through.

.06 To ensure a complete view of the financial position and performance of a department for the purposes of fair presentation, and without changing the basis of accounting, this Standard also prescribes disclosure requirements for accrual-basis additional information despite these items relating to elements that do not qualifying for recognition. To aid preparers in understanding this requirement, the Standard distinguishes between primary (recognised, presented and disclosed) and secondary (recorded and disclosed) financial information, but does not place a greater degree of importance on either type of information.



Amendments to Chapter 2 on Concepts and Principles

Paragraph .12 to .14, .17 .45 and 50

Editorial amendments. New text is underlined and deleted text is struck through.

.12 The users of the departmental financial statements include:

Parliament / Provincial Legislatures;

Elected officials;

National / Provincial Treasuries;

The public (including taxpayers and employees of the department);

Donors;

Statisticians & and economists;

Suppliers and creditors;

Present and potential institutional and individual lenders, including purchasers of government bonds;

Other Governments; and

The media.

.13 Financial statements in general are aimed at meeting the information requirements of a wide range of users. Accounting requirements are therefore set with this principle in mind. The financial statements of a department provide information for the above users as far as possible to facilitate oversight and decision making. For example information is provided on:

the utilisation spending of appropriated funds;

the collection of departmental (own) revenue;

the management of resources as well the resources available to deliver goods and services (such as the capital assets held by a department);

future commitments and or savings (incl. roll-overs);

how the funds have been used and to what extent funds have been made available to deliver goods and services;

the utilisation receipt and spending of donor funding.

.14 While financial statements cannot meet all the information needs of the users, there are needs that are common to all users. Since government, national and provincial treasuries, parliament Parliament and the legislatures have a direct interest; the provision of financial statements that meet their needs will also meet most of the needs of other users.

.17 As explained in the Preface to the Standard, supplementary accrual information is provided in the notes to the departmental financial statements to assist users in holding a department accountable for the management of its assets and liabilities. For the purposes of this Standard, the recognised assets, liabilities, revenue and expenditure are presented provided as primary financial information, whereas the supplementary information is presented provided as secondary information in the notes. Secondary information includes certain important information that provides additional information to the users of the financial statements on which other assets and liabilities would have been recognised had an accrual basis of accounting been applied, and is consequently deemed to be of equal importance and an integral part of the financial statements.

.45 A distinction needs to be drawn between a present obligation and a future commitment. A decision by the management of a department to acquire assets in the future does not of itself, give rise to a present obligation. An obligation normally arises only when the asset is delivered or the department enters into an irrevocable agreement to acquire the asset. In the latter case, the irrevocable nature of the agreement means that the economic consequences of failing to honour the obligation, for example, because of the existence of an order of court, leaves the department with no realistic alternative to avoid the outflow of resources to another party.



…..

.50 Sometimes a series of events will have to take place before the department will have an obligation to transfer economic benefits or service potential. In such circumstances, whether the obligation exists the existence of an obligation depends on whether any events that have still to take place are under the department’s control. If they are, the department has a realistic alternative to avoid the transfer, so no



Amendments to Chapter 3 on Financial Statement Presentation

Paragraph .02

Paragraph .02 has been amended to clarify Impracticability. New text is underlined.

Impracticable Applying a requirement is impracticable when the department 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 recognized, measured, or disclosed; and

(ii) would have been available when the financial statements for that prior period were authorized for issue from other information.

Paragraph .45


.45 The notes to the departmental financial statements:

a) …

b) may disclose, in the summary of significant accounting policies or other notes, the judgements management has made in the process of applying the entity’s department’s accounting policies that have the most significant effect on the amounts recognised in the financial statements.

Paragraph .47

Paragraph .47 has been removed due to the inclusion of Chapter 19 on Transfers of Functions and Chapter 20 on Mergers. New text is underlined and deleted text is struck through.

.47 To the extent that a department has entered into an arrangement for the transfer of functions, the departments shall disclose, as part of the secondary financial information, the following information to enable the users to determine the impact of the transfer of functions on the department:

a) a description of the changes as a result of the transfer or receipt of functions;

b) details of the assets and liabilities given up or assumed, as a result of the transfer or receipt of functions;

c) a description of the steps taken to ensure compliance with laws and regulations for the transfer of function;

d) a reference to the proclamation or declaration giving effect to the transfer or receipt of functions; and



e) an indication as to whether there was an agreement drawn up, and if so provide a description of roles, responsibilities and accountability arrangements.



Amendments to Chapter 4 on Accounting Policies, Estimates and Errors

Paragraph .19

Elaborated on how to effect a change in accounting estimate prospectively, taken from the equivalent Standard of GRAP. New text is underlined.

.19 The effect of a change in an accounting estimate shall be recognised prospectively by:

a) including it in surplus or deficit in (i) the period of the change, if the change affects that period only or (ii) the period of the change and future periods, if the change affects both;

b) adjusting the carrying amount of any asset, liability or item of net assets in the period of the change.

.20 Prospective recognition of the effect of a change in an accounting estimate means that the change is applied to transactions, other events and conditions from the date of the change in estimate.

Paragraph .30

Editorial amendments. Deleted text is struck through.

.30 A department shall disclose the following, distinguishing clearly between primary and secondary financial information:



Amendments to Chapter 5 on Appropriation Statement

Paragraph .16

Editorial amendments. New text is underlined.

.16 Budget documents may provide great detail about particular activities or programmes. These details are often aggregated in broad classes under common “budget classifications”, or “budget headings” for presentation to, and approval by Parliament or the provincial legislatures. For departments, the budgets are prepared and submitted per programme and economic classification. As such, when presenting the appropriation statement it is pertinent to ensure that the budget presented within the appropriation statement is also presented per programme, sub-programme as well as per economic classification. This will ensure that comparisons are made at the relevant level of oversight set by Parliament or the provincial legislatures and as identified in the department’s budget documents.



Amendments to Chapter 6 on Cash Flow Statements

Paragraph .04


04. The cash flow statement identifies the sources of cash inflows, the items on which cash was expended during the reporting period, and the cash balances as at the reporting date, classified into operating, investing and financing activities. Information about the cash flows of an entity is useful in providing users of financial statements with information for both accountability and decision making decision-making purposes.

Paragraph .13

Removed the reference to cash receipts or payments from transfers / discontinuance of functions as it may not be relevant to departments. New text is underlined and deleted text is struck through.

.13 Cash flows from operating activities are primarily derived from the appropriations received. Other examples of cash flows from operating activities are include:

…

(i) cash receipts or payments from transfers of functions / discontinuance of functions; and

Paragraph .15(a)

Included clarification on the classification of payments made in terms of finance lease agreements. New text is underlined and deleted text is struck through.

.15 The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which cash outflows have been made for resources which are intended to contribute to the department’s future service delivery. Only payments made, or proceeds received in respect of capital assets or investments are eligible for classification as investing activities. Examples of cash flows arising from investing activities are:

(a) cash payments to acquire tangible and / or intangible assets. The payments include This includes payments made to acquire assets by way of a finance lease and those relating to capitalised development costs and self-constructed tangible and / or intangible assets;

Paragraph .16(c)

Removed the example relating to finance leases as they are not recognised by departments. Deleted text is struck through.

.16 The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the department. Examples of cash flows arising from financing activities are:

…..

(c) cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.



Paragraph .32

Editorial amendments. New text is underlined.

.32 Many investing and financing activities do not have a direct impact on current cash flows although they do affect the asset structure of a department. The exclusion of non-cash transactions from the cash flow statement is consistent with the objective of a cash flow statement, as these items do not involve cash flows in the current period. Examples of non-cash transactions are:

(a) the acquisition of assets through the exchange of assets or a donation; and

(b) …...



Amendments to Chapter 7 on Revenue

Paragraph .04

Included reference to assets in the definition of departmental revenue in paragraph .04. New text is underlined.

Departmental revenue (for the purpose of this Chapter) is the inflow of cash arising in the course of the ordinary activities of the department, normally from the sale of goods and/or assets, the rendering of services, and the earning of interest, taxes and dividends. It includes transactions in financial assets and liabilities and also transfers received. Departmental revenue is collected by national/provincial departments, and is subsequently paid over to the National/Provincial Revenue Fund. However, departmental revenue excludes appropriated funds.

Paragraph .08

Included reference taxes in discussion on departmental revenue. New text is underlined.

.08 A department generates revenue through taxes, the sale of goods, the rendering of services or the earning of interest and dividends. The recording of the revenue coincides with the receipt of the funds from the recipient of the good and or services.

Paragraph .11

Clarified the paragraph on type of transfers received by a department. Deleted text is struck through.

.11 Transfers received can be in the form of appropriations and or donations (also referred to as donor funding or aid assistance). Appropriations (and to some extent donor funding) comprise of grants to acquire or construct capital assets, funds for the furtherance of national and provincial government policy objectives and general allocations to fund the costs incurred by departments in supplying / rendering goods and or services. Transfers (other than appropriations) are usually from local or international donors and are received under terms and conditions as agreed between the department and the donor.



Amendments to Chapter 8 on Expenditure

Paragraph .04, .15(g) and .18


.04 Chapter 9 on General Departmental Assets and Liabilities prescribes the accounting for any payables recognised, derecognised and / or disclosed for the purposes of the primary financial information.

…..

.15 A department shall disclose the following with regards to payments for goods and services:

…….

g) a high level high-level analysis of all property payments made during the year;

…..

.18 A department shall disclose separately, per major category, the transfers and subsidies paid to various entities.

Paragraph .20

Editorial amendments to wording of transitional provisions and the effective date. New text is underlined and deleted text is struck through.

.20 The provincial Human Settlements Departments shall continue to classify all payments on social housing as transfers to households as set out in the Departmental Guide titled Sector Specific Guide: Human Settlements Departments issued in March 2012. A change in the classification of expenditure on social housing of housing-related expenditure aligned to the categories in paragraph .08 of the Chapter is required for the financial year commencing on 1 April 2022 2020.



Amendments to Chapter 9 on General Departmental Assets and Liabilities

Paragraph .06

Clarified that a department may recognise advances in the statement of financial position or as an expense in the year in which the advance was made. Previously this paragraph only referred to prepayments. New text is underlined.

.06 A department may recognise a prepayment or an advance in the statement of financial performance in accordance with Chapter 8 on Expenditure if the prepayment or the advance is material and was budgeted for as an expense in the year in which the actual prepayment or advance was made.

Paragraph .13, .14, .20, .36, .37, .38 and .40


.13 A financial asset or financial liability not recognised in accordance with paragraph .05 shall be recorded as a financial asset or financial liability for disclosure purposes when, and only when, the department becomes a party to the contractual provisions of the arrangement and when the criteria in paragraphs .15 .14 and .21 .20 are met.

…..

.14 …..

Furthermore, to the extent that revenue is related to the sale of goods and/or assets or the rendering of services the following additional criteria must be satisfied:

…..

.20 Accruals and payables not recognised are recorded when goods are received or, in the case of services, when they are delivered to the department or, in the case of transfers and subsidies, when they are due and payable. For accruals, an invoice is has not been received whereas for payables not recognised, the invoice has been received.

…..

.36 A department shall disclose the following in its notes to the financial statements, with regard to investments:

…..

.37 A department shall disclose the following in its notes to the financial statements, with regard to loans:

…..

.38 A department shall disclose the following in its notes to the financial statements, with regard to bank overdrafts:

…..

.40 A department shall disclose the following in its notes to the financial statements, with regard to non-current payables:



Paragraph .26A

Included practical expedient on the date of de-recognition of receivables, prepayments or advances recognised in the Statement of Financial Position. New text is underlined.

.26A As a practical expedient, the date of derecognition is when it is authorised on the department’s financial system.

Paragraph .47

Included requirement to disclose payables not recognised for employee benefits in line with the Specimen and Template. New text is underlined.

.47 A department shall disclose the value of each major class of accruals and/or payables not recognised for employee benefits as at the reporting date.

Paragraph .48, .51 and .53

Amended accounting policy and disclosures for unauthorised, fruitless and wasteful and irregular expenditure to be in line with the updated guideline issued by the National Treasury. New text is underlined.

.48 Unauthorised expenditure is recognised in the statement of financial position until such time as the expenditure is either approved by the relevant authority or transferred to receivables for recovery or written off.

…..

.51 Fruitless and wasteful expenditure is recorded in the notes to the financial statements when confirmed. The amount recorded is equal to the total value of the fruitless and or wasteful expenditure incurred. Fruitless and wasteful expenditure is removed from the notes when it is resolved or transferred to receivables for recovery or written off. Any recoverable amounts shall be recognised as a receivable in accordance with par .05.

…..

.53 Irregular expenditure is recorded in the notes to the financial statements when confirmed. The amount recorded is equal to the total value of the irregular expenditure unless it is impracticable to determine, in which case reasons therefor are provided in the note. Irregular expenditure is removed from the notes when it is either condoned by the relevant authority, transferred to receivables for recovery or where it is not condoned by the relevant authority and is not recoverable written-off. Any recoverable amounts shall be recognised as a receivable in accordance with par .05.

Paragraph .55

Removed the detailed disclosure requirements and only included a general requirement. New text is underlined and deleted text is struck through.

.55 A department shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of unauthorised expenditure, irregular expenditure as well as fruitless and wasteful expenditure.

.56 A department shall disclose the following in its notes with regard to unauthorised expenditure:



a) a reconciliation of the opening balance and the balance at the reporting date reflecting the following:

(i) unauthorised expenditure discovered in the current financial year;

(ii) amounts approved by Parliament/Legislature with funding;

(iii) amounts approved by Parliament/Legislature without funding and written off in the statement of financial performance per economic classification; and

(iv) amounts transferred to receivables for recovery.

b) An analysis of amounts awaiting authorisation per economic classification;

c) An analysis of amounts awaiting authorisation per major category; and

d) A general description of the current year’s unauthorised expenditure with an indication of any disciplinary steps taken or criminal proceedings initiated/underway.

.57 A department shall disclose the following in its notes with regard to irregular expenditure:

a) A reconciliation of the opening balance and the balance at the reporting date reflecting the following:

(i) irregular expenditure identified in the current financial year (relating to the current and prior year);

(ii) amounts condoned;

(iii) amounts not condoned and transferred to receivables for recovery; and

(iv) amounts not condoned and not recoverable.

b) An analysis of amounts awaiting condonation per age classification;

c) A general discussion irregular expenditure identified in the current year along with a discussion on disciplinary steps taken/criminal proceedings initiated/underway

d) A general discussion on irregular expenditure condoned;

e) A general discussion on irregular expenditure recoverable (not condoned);

f) A general discussion on irregular expenditure not recoverable (not condoned); and

g) Details of irregular expenditure under investigation.

.58 A department shall disclose the following in its notes with regard to fruitless and wasteful expenditure:

a) A reconciliation of the opening balance and the balance at the reporting date reflecting the following:

(i) fruitless and wasteful expenditure identified in the current financial year (relating to the current and prior year);

(ii) amounts resolved; and

(iii) amounts transferred to receivables for recovery.

b) An analysis of amounts awaiting resolution along with a discussion on disciplinary steps taken/criminal proceedings initiated/underway;

c) An analysis of fruitless and wasteful expenditure transferred to receivables for recovery per economic classification; and

Details of fruitless and wasteful expenditure under investigation.



Amendments to Chapter 11 on Capital assets

Paragraph .09

Editorial amendments to paragraph .09 and the amendment of the definition of cost to acknowledge that guidance on deemed cost may exist outside of the MCS. New text is underlined and deleted text is struck through.

Cost (for the purpose of this chapter) is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction, or the deemed cost where this has been determined in accordance with this Chapter.

Paragraph .13

Clarified the reference to accounting concepts on immovable assets. New text is underlined and deleted text is struck through.

.13 With regards to immovable assets, consideration should also be given to the legislative requirements relating to specific mandates. Reporting in line with the legislative framework is contained in the guidance document on immovable assets, referred to as Accounting and Reporting for Immovable Assets (Property).

Paragraphs .21 and 22

Amended paragraph .21 to clarify that it provides the criteria when an asset should be recorded in line with paragraph .69 of Chapter 2 on Concepts and Principles states that “An item that meets the definition of an element should be recorded for disclosure (secondary financial information) where it meets the specific criteria established for such items in the relevant chapters of this Standard”. New text is underlined and deleted text is struck through.

.21 An item shall be regarded as a capital asset and be recorded as such if, and only if:

(a) it is probable that future economic benefits or service potential associated with the item will flow to the department; and

(b) the cost or fair value of the item can be measured reliably.

.22 Under this principle, a department evaluates all capital asset related costs at the time incurred. These costs include those initially incurred on the date of acquisition or while construction of a capital asset is underway and all subsequent costs to add to, replace part of, or service it. The principles in paragraphs .74 to .79 and .82 to .86 should be applied in determining the cost or fair value of a capital asset.

Paragraph .24

Editorial amendments to paragraph .24. New text is underlined and deleted text is struck through.

.24 Loose tools, such as saws, spades, knives, axes, hammers, screwdrivers and spanners or wrenches, are normally not treated as capital assets, even though they are often used repeatedly, or continuously, in production over many years. This is because such tools are small and relatively inexpensive and usually not carried in considerable quantities. However, where expenditure on such tools takes place



at a fairly steady rate their value may become material and then, normally can be treated as minor capital assets otherwise where insignificant, as a consumable.

Paragraph .92

Clarification included on the assessment of projects with repairs and maintenance elements. New text is underlined and deleted text is struck through.

.92 A department that has a project with elements of repairs and maintenance, upgrading and additions to it may will have to assess upfront whether the project is significantly a current or a capital project. The project costs will may be recorded as part of the capital asset as set out in paragraph .90 where the project is predominantly capital in nature or expensed where not, if the costs cannot be split appropriately.

Paragraph .101

Clarified the immovable asset disclosures. The notes in the specimen already referred to the asset register. New text is underlined and deleted text is struck through.

.101. A department shall disclose the following in its notes with regards to immovable assets:

a) the cost at the beginning and end of the period in the asset register;

b) the movement in assets in accordance with the asset register at the end of the period (for both the current and the prior year) showing the following:

…..

c) additions to immovable asset in the asset register for the reporting period separately reflecting the following:

…..

d) disposals of immovable assets from the asset register for the reporting period, separately reflecting the following:

…..

e) additional information regarding assets in the asset register as required for immovable assets in the sector guide document.



Amendments to Chapter 12 on Inventories

Paragraph .03, .04 and .05


.03 This Chapter applies to inventory including:

…..

(i) face value forms

(k) Other capital assets held for distribution, in the ordinary course of operations.

.04 This Chapter does not apply to:

(a) …

(b) biological assets at the point of harvest (see Chapter 11 on Capital Assets);

(c) ….

(d) heritage assets (see Chapter 11 on Capital Assets); and

(e) the initial recognition and initial measurement of inventories acquired in a transfer of functions (see Chapter 19 on Transfer of Functions) or a merger (see Chapter 20 on Mergers)

.05 This Chapter only applies to those goods that are essential for satisfying the service delivery obligation of a department. Accordingly, the following items are may be excluded from the scope of this Chapter depending on the service delivery mandate of the department:

…..

Paragraph .07

Editorial amendments to paragraphs .07. Deleted text is struck through.

.07 Inventory encompasses those goods purchased / produced and held specifically for executing the service delivery mandate of the department. That could include biological assets bought for rearing, slaughter/ harvest and consumption within a short space of time. Where this process extends over more than a year the biological assets will be reflected as capital assets.

Paragraph .16

Added clarification on the measurement of inventories held for distribution. New text is underlined.

.16 A department may hold inventories whose future economic benefits or service potential are not directly related to their ability to generate net cash inflows. These types of inventories may arise when a department has determined to distribute certain goods through a non-exchange transaction. In these cases, the future economic benefits or service potential of the inventory for financial reporting purposes is reflected by the amount the department would need to pay to acquire the economic benefits or service potential if this was necessary to achieve the objectives of the department (referred to as the replacement cost).



Paragraph .25

Editorial amendments to paragraphs .25. New text is underlined and deleted text is struck through.

.25 The cost of inventories, other than those dealt with in paragraph .22 .23, shall be assigned by using the weighted average cost formula.

Paragraph .30

Clarification that comparative information is not required in the first year of implementation of the Chapter. This will apply to each major category introduced where implementation is over a period of time. New text is underlined.

.30 A department shall apply the requirements of this Chapter on Inventories prospectively from the effective date of the Chapter. Comparatives will not be required in the year in which this Chapter is first applied to a major category of inventory.



Amendments to Chapter 14 on Provisions and Contingents

Paragraph .02A

Clarified that a department may recognise advances in the statement of financial position or as an expense in the year in which the advance was made. Previously this paragraph only referred to prepayments. New transitional provisions introduced for the provincial departments of Human Settlements. New text is underlined.

.02A This Chapter does not apply to obligations (legal or otherwise) in relation to the dismantling, removal or restoration of assets and/or any sites related thereto.

Paragraph .04, .62 to .66

Amended the disclosure requirement on commitments, to require only the disclosure of commitments on capital expenditure. New text is underlined and deleted text is struck through.

.04 …

A commitment is a binding arrangement that commits the department to incur future expenditure on goods, services and capital assets that are still to be received. These exclude employee related commitments and those related to transfers and subsidies arises when a department has irrevocably bound itself to future transactions of a capital nature that will result in an outflow of cash.

…

.62 Items are classified as commitments when a department has irrevocably bound itself to future transactions that will result in the outflow of cash. A department has a commitment when it has irrevocably bound itself to future transactions of a capital nature that will result in the outflow of cash. For example, a department awarded a tender and signed a contract with a company for the construction of a dam and at the reporting date construction work has not yet begun. The department accordingly discloses the unrecognised expenditure as a commitment in the notes.

.63 A department shall record its commitments, at cost (as evidenced by the contract value), as at the reporting date.

.64 A department shall disclose its commitments for capital expenditure as at the reporting date. In disclosing the commitments, the department shall differentiate between different classes of capital assets. A department shall separately disclose its commitments for current expenditure and capital expenditure at the reporting date. In disclosing the commitments, the department shall differentiate between the following:

a) Approved and contracted; and

b) Approved but not yet contracted.

.65 Commitments as per paragraph .64 excludes salary commitments relating to employment contracts or social security benefit commitments and transfer and subsidies. Contracted commitments as per paragraph .64 (a) should be disclosed if both the following criteria are met:

a) contracts should be non-cancellable or only cancellable at significant cost to the department (for example, contracts for computer or building maintenance services); and

b) contracts pertain to goods and services, including capital assets irrespective of their routine (administrative) nature. Salary commitments relating to employment contracts or social security benefit commitments and transfer and subsidies commitments are excluded. Qualitative and



quantitative materiality should be considered.

.66 A department shall further disclose comparative information in respect of the previous period for capital commitments. Although commitments (as defined) should be disclosed, a department shall further disclose which of its commitments are for projects / programmes / contracts that exceed one year.



Amendments to Chapter 15 on Related Party Disclosures

Paragraph .20

Clarified that the nature of the related party relationship should be disclosed and that the scope included all departments reporting to the Minister/MEC. New text is underlined.

.20 A department shall further disclose a list and the nature of its related party relationships with government entities (including departments) falling under its Minister/MEC portfolio, irrespective of whether there were any transactions between the related parties.



Amendments to Chapter 17 on Events after the reporting date

Paragraph .06

Included example, from the equivalent GRAP, on how to identify the date of authorisation for issue of the financial statements. New text is underlined.

.06 The reporting date is the last day of the reporting period to which the financial statements relate. The date of authorisation for issue is the date on which the financial statements have received approval from management to be issued to the executive authority. The audit opinion is provided on these finalised financial statements. For example, the accounting office of the Department of Defence approves the financial statements for the year ended 31 March 20X1 on 28 May 20X1 and submits the financial statements to the auditors for auditing. The financial statements are approved by the accounting officer for issue to the executive authority on 30 July 20X1. On 31 August 20X1, the accounting officer submits the annual report, including the financial statements and the audit report on those financial statements, to the executive authority for tabling in the National Assembly. The executive authority tables the approved annual report to the National Assembly on 15 September 20X1. The financial statements were authorised for issue on 30 July 20X1, as the audit opinion was provided on those financial statements.

annual improvements to the mcs 2020. annual financial... · the mcs amendments, are effective from...

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