ifrs grap comparisons final 2014

Comparisons between IFRS and GRAP Reporting Frameworks 2013-2014

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents Introduction ........................................................................................................................................................... 3

Part One: Significant differences between the standards of GRAP and IFRS/GAAP ............................... 4

Construction contracts ........................................................................................................................................ 4

Impairment of non-cash-generating assets ...................................................................................................... 5

Government grants .............................................................................................................................................. 5

Presentation of budget information in financial statements ........................................................................... 9

Employee benefits ............................................................................................................................................... 9

The recognition of actuarial gains and losses ............................................................................................. 9

The recognition of past service costs ........................................................................................................... 9

The discount rate used to measure the defined benefit liability ............................................................... 9

Heritage assets .................................................................................................................................................. 10

Financial Instruments ........................................................................................................................................ 10

Classification .................................................................................................................................................. 10

Gains and losses ........................................................................................................................................... 11

Loan commitments and financial guarantees ............................................................................................ 11

Rights and obligations arising from non-exchange revenue transactions ............................................ 12

Concessionary loans ..................................................................................................................................... 12

Regular way purchases and sale of financial assets ............................................................................... 13

Reclassifications ............................................................................................................................................ 14

Derecognition of financial assets ................................................................................................................ 14

Waiver of rights relating to financial assets ............................................................................................... 15

Disclosures ..................................................................................................................................................... 15

Transfer of functions between entities under common control ................................................................... 16

Public-Private Partnerships .............................................................................................................................. 16

Mergers ............................................................................................................................................................... 17

Part Two: Other differences between the standards of GRAP and IFRS/GAAP ..................................... 18

Presentation of financial statements ............................................................................................................... 18

Cash Flow statements ....................................................................................................................................... 19

Inventories........................................................................................................................................................... 19

Leases ................................................................................................................................................................. 19

Investment property ........................................................................................................................................... 19

Property plant and equipment; and intangible assets .................................................................................. 20

Related parties ................................................................................................................................................... 20

Transfer of functions between entities not under common control ............................................................. 20

Part Three: Consistencies between the standards of GRAP and IFRS/GAAP ........................................ 21

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Introduction

The National Treasury has issued an AFS template that will be used in preparing a

GRAP based consolidation of public entities for the financial year ended 31 March

2014. GBEs and other entities applying Statements of GAAP or IFRSs in preparing

their financial statements will need to prepare conversion journal entries where there

are difference between their accounting policies and the National Treasury Group

accounting policies on GRAP. These conversion journal entries will be processed by

National Treasury as part of the consolidation procedures.

This document provides a high-level comparison between the requirements of

IFRS/GAAP and those of GRAP that will be applied in preparing consolidations. The

document is split into three parts – part one focuses on major differences between

IFRS and GRAP, part two discusses insignificant differences and part three provides

a list of standards that are consistent between GRAP and IFRS for consolidation

purposes.

Part one highlights the main differences and considerations that should be made

when preparing conversion journal entries for converting IFRS/GAAP statements into

GRAP compliant financial statements, supplemented by generic journal entries that

must be considered. These journal entries will not be applicable to every entity and it

is the responsibility of management to determine conversion journal entries that are

suitable to their environment. It is also the responsibility of the entity to perform

further detailed analysis to assess if there are specific accounting policies that they

have adopted which may not be consistent with the GRAP policies adopted for

consolidation purposes. Please note that the GRAP-based information and

conversion journals required by the National Treasury is intended for consolidation

purposes and does not change the reporting framework that needs to be applied in

preparing the financial statements of the respective GBEs.

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Part One: Significant differences between the standards of GRAP and IFRS/GAAP

Summary of significant differences in the standards of GRAP and IFRS/GAAP

GRAP Standards IFRS/GAAP Standards

GRAP 11: Construction contracts IAS 11: Construction contracts

GRAP 21: Impairment of non-cash generating assets

No IFRS equivalent

GRAP 23: revenue from non-exchange transactions

IAS 20: Accounting for government grants and disclosure of government assistance

GRAP 24: Presentation of budget information No IFRS equivalent

GRAP 25: Employee benefits IAS 19: Employee benefits

GRAP 103: Heritage Assets No IFRS equivalent

GRAP 104: Financial instruments IAS 32, 39 and IFRS 7: Financial instruments

GRAP 105: Transfer of functions No IFRS equivalent

Guideline on accounting for public-private partnerships

No IFRS equivalent

GRAP 107: Mergers No IFRS equivalent

Construction contracts IFRS states that when it is probable that total contract costs will exceed total contract

revenue, the expected loss shall be recognised as an expense immediately.

GRAP 11 requires an entity to recognise an expected deficit on a contract

immediately when it becomes probable that contract costs will exceed total contract

revenue (only for contracts that it had intent to fully recover costs from parties)

Consolidation considerations

Entities need to identify those contracts where the intent was not to recover revenue

fully and possibly reverse the expected loss that was recognised as an expense.

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Description Debit Credit

Liabilities – SPO XXX

Expected deficit/losses – SPF XXX

Opening Accumulated surplus/deficit – SNA XXX

Impairment of non-cash-generating assets IAS 36 requires the impairment of assets by assessing carrying value against the

higher of fair value less costs to sell or value in use. Value in use is based on an

analysis of the asset’s discounted cash flows.

GRAP 21 deals with the impairment of non-cash-generating assets which must be

differentiated from Cash generating assets, those held with the primary objective of

generating a commercial return. An entity needs to establish whether its assets are

cash or non-cash generating (this might be different for different types of assets).

GRAP 21 requires that value in use be determined using depreciated replacement

cost, service units approach or restoration cost.


An entity should assess whether its assets are cash or non-cash generating. Entities

that are profit-orientated are not likely to be affected by these differences because it

may be argued that they intend to generate positive cash flows from their assets. If

any assets are non-cash-generating then impairment should be assessed using

GRAP 21. The value in use will be calculated differently and the journal entries

required will be to process necessary adjustments on the impairment losses, i.e.

increased or reversed.

Government grants IAS 20 requires that government grants be recognised in profit or loss on a

systematic basis over the periods in which the entity recognizes as expenses the

related costs for which the grants are intended to compensate.

A government grant that becomes receivable as compensation for expenses or

losses already incurred or for the purpose of giving immediate financial support to

the entity with no future related costs shall be recognised in profit or loss of the

period in which it becomes receivable.

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Government grants related to assets, including non-monetary grants at fair value,

shall be presented in the statement of financial position either by setting up the grant

as deferred income or by deducting the grant in arriving at the carrying amount of the

asset.

• One method recognises the grant as deferred income that is recognised in

profit or loss on a systematic basis over the useful life of the asset.

• The other method deducts the grant in calculating the carrying amount of the

asset. The grant is recognised in profit or loss over the life of a depreciable

asset as a reduced depreciation charge.

There is no equivalent IFRS dealing with other forms of non-exchange revenue, e.g.

other transfers, goods and service received in-kind, debt forgiveness, fines levied,

etc.


GRAP 23 deals with revenue from non-exchange transactions. It defines revenue

from non-exchange transaction as an instance where an entity receives value from

another entity without directly giving approximately equal value in exchange. An

inflow of resources from a non-exchange transaction recognised as an asset shall be

recognised as revenue, except to the extent that a liability is also recognised in

respect of the same inflow.

Conditions on a transferred asset give rise to a present obligation on initial

recognition. Conditions on transferred assets are stipulations that specify that the

future economic benefits or service potential embodied in the asset is required to be

consumed by the recipient as specified or future economic benefits or service

potential must be returned to the transferor.

As an entity satisfies a present obligation recognised as a liability in respect of an

inflow of resources from a non-exchange transaction recognised as an asset, it shall

reduce the carrying amount of the liability recognised and recognise an amount of

revenue equal to that reduction.

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Measurement

• An asset acquired through a non-exchange transaction shall initially be

measured at fair value as at the date of acquisition.

• Revenue from a non-exchange transaction shall be measured at the amount

of the increase in net assets recognised by the entity.

• The amount recognised as a liability shall be the best estimate of the amount

required to settle the presentation obligation at the reporting date.

An entity should therefore as part of their conversion journal preparation assess the

various grant arrangements and determine whether the arrangements are subject to

conditions or restrictions and this will have to be done at an individual contract level.

Only where the arrangements are subject to conditions (i.e. both a performance and

a return obligation) will revenue be deferred by recognising a liability. Where

arrangements are not subject to conditions and deferred income was recognised in

prior years, this balance will need to be reversed in the relevant periods, along with

the revenue line items (and depreciation line items if the grant was set-off against the

cost of the asset). Record the conditional government grant as revenue to the extent

that conditions have been met and the amount for conditions not met is recognised

as a liability. Grant amount in IFRS should be reclassified to revenue from non-

exchange transactions under Transfers.

In the case where government grants related to assets, the consolidating entries

must be processed to reverse depreciation (revaluation surplus where applicable) for

current and previous years if the grant was set off against the carrying amount of the

asset. Recalculate new depreciation (revaluation surplus/deficit if carried at revalued

amount) based on the cost of the asset excluding the government grant.

Assess whether there are other non-exchange receipt of resources during the year

that are subject to conditions or restrictions. If conditions exist, recognise revenue to

the extent that a liability does not exist (i.e. conditions fulfilled. If no conditions exist,

recognise revenue.

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Generic consolidation journal entries

Conditional transactions Unconditional transactions

Description Debit Credit Description Debit Credit

Deferred revenue (SFP)

Unspent grants (SFP)

Reversal of previously deferred income in terms of IAS 20

XXX

XXX

Government Grant revenue

Revenue non-exchange

Reclassify revenue from exchange to non-exchange

XXX

XXX

Grant income (PERF)


Revenue non-exchange (SFP)

Reverse current year grant income and recognise to extent conditions are met

XXX

XXX

XXX

XXX

Grant offset against cost

PPE/Asset (SFP)


Split the grant from the cost of the asset

XXX

XXX

Accum depreciation (SFP)

Depreciation expense

Accumulated surplus

Reverse recognised depreciation to date

XXX

XXX

XXX

Depreciation expense

Accumulated surplus

Accum depreciation

Recognise depreciation based on new amounts

XXX

XXX

XXX


Revenue from non-exchange (PERF)

Accumulated surplus

Recognise revenue for conditions met

XXX

XXX

XXX

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Presentation of budget information in financial statements No equivalent standard under IFRS/GAAP.

GRAP 24 must be applied by entities that are required or elect to make publicly

available their approved budgets when presenting budget information for

consolidation process. The standard requires a comparison of budget amounts and

the actual amounts arising from the execution of the budget to be included in the

financial statements. It requires disclosure of explanation of material differences

between the budget and actual amounts. There are no conversion journal entries

required.

Employee benefits

The recognition of actuarial gains and losses IFRS allows for the deferral of actuarial gains and losses using the “corridor method”,

or can recognise in the period which they occur in OCI, whereas GRAP requires

actuarial gains and losses to be recognised in full in surplus or deficit in the year that

they occur.

Unrecognised actuarial gains and losses will need to be recognised in full in surplus

or deficit.

The recognition of past service costs Past service costs are recognised on a straight-line basis over their vesting period, in

surplus or deficit. GRAP requires that past service costs must be recognised in full in

the year that they arise.

The value of the obligations will need to be recalculated and any adjustment

processed.

The discount rate used to measure the defined benefit liability IFRS states that the discount rate must be yields on high-quality corporate bonds

whereas GRAP refers to yields on government bonds.

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Heritage assets There is no equivalent IFRS that deals with heritage assets and entities would have

developed accounting policies based on the hierarchy in IAS 8 Accounting policies,

Changes in Accounting Estimates and Errors.

GRAP refers to heritage assets as assets that have cultural, environmental,

historical, natural, scientific, technological or artistic significance and are held

indefinitely for the benefit or present and future generations.

Heritage assets should be recognised when it is probable that economic benefits or

service potential will flow to the entity and the cost or fair value can be measured

reliably. When a heritage asset cannot be measured reliably on initial recognition, an

entity discloses information about those assets in the notes to the financial

statements. Heritage assets are subsequently measured at cost less impairment, or

using a revaluation model (i.e. fair value less impairment).


Entities should assess whether any of their assets meet the definition of a heritage

asset and account for them accordingly.

Financial Instruments

Classification IFRS classifies financial assets as financial assets at fair value through profit or loss;

financial instruments at cost, held-to-maturity investments; loans and receivables;

and available-for-sale financial assets; and financial liabilities as financial liabilities at

fair value through profit or loss and those at amortised cost.

GRAP classifies financial instruments as financial instruments at fair value including

financial assets/liabilities designated at fair value, financial instruments at amortised

cost; and financial instruments at cost.


An entity will need to assess its financial instruments and test them against the

definitions of the categories as outlined in GRAP 104 and “map” the instruments

from the IFRS to the GRAP categories (Note: this may change from year to year

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depending on whether the reclassification requirements in GRAP are met, i.e.

combined instruments to be measured at fair value and investment in residual

interest that is unlisted).

Gains and losses A gain or loss arising from a change in fair value of a financial liability measured at

fair value through profit or loss that is NOT part of a hedging relationship shall be

recognised in profit or loss. For financial liabilities at amortised cost that are hedged

items, the accounting for the gain or loss shall follow paragraphs 89-102 of IAS 39.

GRAP 104 states that a gain or loss arising from a change in the fair value of a

financial asset or financial liability measured at fair value shall be recognised in

surplus or deficit. It does not deal with hedge accounting and requires that the

principles in IAS 39 be followed in this regard.


Gains/losses on an investment in an equity instrument recognised in other

comprehensive income, along with any other instruments held as “available for sale”

in terms of IFRS, have to be reversed and recorded in surplus or deficit.

Gains/losses on a financial liability designated as at fair value through profit/loss with

a requirement that changes in the liability’s credit risk be recorded in other

comprehensive income in terms of IFRS shall be reversed in other comprehensive

income and be recorded in surplus or deficit.

Loan commitments and financial guarantees At initial recognition, an entity measures loan commitments and financial guarantees

at fair value. After initial recognition, an issuer of such a contract (financial guarantee

contract or a loan commitment) shall (unless paragraph 47(a) or (b) applies)

subsequently measure it at the higher of:

• the amount determined in accordance with IAS 37 Provisions, Contingent

Liabilities and Contingent Assets and

• the amount initially recognised (see paragraph 43) less, when appropriate,

cumulative amortisation recognised in accordance with IAS 18 Revenue.

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Obligations from loan commitments and financial guarantee contracts are

recognised, measured and/or disclosed in accordance with the Standard of GRAP

on Provisions, Contingent Liabilities and Contingent Assets and derecognised in

accordance with this Standard. Where a fee is charged, GRAP 9 on Revenue from

Exchange Transactions is applied. As financial guarantee contracts and loan

commitments expose an entity to certain financial risks, the disclosure requirements

of this Standard also apply to such contracts.


The fair value initially recognised for the loan commitment or financial guarantee

should be reversed. The value of the loan commitment or financial guarantee will be

based on the amount determined in accordance with the GRAP 19 on Provisions,

Contingent Liabilities and Contingent Assets, or the amount determined in

accordance with GRAP 9 on Revenue from Exchange Transactions.

Rights and obligations arising from non-exchange revenue transactions No explicit mention in IFRSs. IAS 39 applies, by definition, to all contractual

arrangements that otherwise meet the definition of a financial instrument.

GRAP states that contractual rights and obligations under non-exchange revenue

transactions may give rise to receivables and payables that meet the definition of

financial assets and financial liabilities. These receivables and payables are initially

recognised and initially measured in accordance with the Standard of GRAP on

Revenue from Non-exchange Transactions (Taxes and Transfers) and subsequently

measured, derecognised, presented and disclosed in accordance with GRAP 104.


Please note that financial liabilities or assets that arise in terms of GRAP 23 will be

subsequently measured, presented and disclosed in terms of GRAP 104.

Concessionary loans Entities are required to measure loans on below market terms initially at fair value.

In terms of GRAP, a concessionary loan is a loan granted to or received by an entity

on terms that are not market related. An entity first assesses whether the substance

of a concessionary loan is in fact a loan by applying the principles in paragraphs .25

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to .35. On initial recognition, an entity analyses a concessionary loan into its

component parts and accounts for each component separately, i.e. a loan paid or

received, and the difference between the nominal and fair value of the loan. An entity

accounts for the off market part of a concessionary loan that is:

• a social benefit in accordance with the Framework for the Preparation and

Presentation of Financial Statements, where it is the issuer of the loan; or

• non-exchange revenue, in accordance with the Standard of GRAP on

Revenue from Non-exchange Transactions (Taxes and Transfers), where it is

the recipient of the loan.

The part of the concessionary loan that is a social benefit or non-exchange revenue

is determined as the difference between the fair value of the loan and the loan

proceeds, either paid or received. After initial recognition, an entity measures

concessionary loans in accordance with paragraph .45.


The requirements of GRAP 104 and IAS 39 are similar in that loans granted or

received at below market interest rates must be measured at fair value. IAS 39 is

however not prescriptive about how to deal with the difference between nominal

value and fair value. A journal to process the difference between the fair value of the

loan and the amount paid or received must be recorded as required by GRAP 104.

Note that the journal processed will be to reclassify the difference to the correct

financial statement line item (FSLI). Subsequent readjustment journals to be

processed will depend on whether the loan is measure at fair value, amortised cost

or at cost in terms of GRAP 104.

Regular way purchases and sale of financial assets IAS 39 allows both trade and settlement date accounting whereas GRAP 104

requires trade date accounting.


Assess at year end whether any acquisitions or sales exist where the “trade date”

has not yet passed and make appropriate adjustment to recognise or derecognise

the asset and related gains and losses.

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Reclassifications IFRS states that an entity shall not reclassify a financial liability except:

• if a reliable measure becomes available for a financial liability for which such a

measure was previously not available and the liability is required to measured

at fair value

• If in rare circumstances a reliable measure of fair value is no longer available,

and entity shall measure the financial liability at cost rather than at fair value.

On the other hand, GRAP requires an entity not to reclassify a financial instrument

while it is issued or held unless it is:

• a combined instrument that is required to be measured at fair value in

accordance with paragraphs .21, .22 and .52; or

• an investment in a residual interest that meets the requirements for

reclassification in paragraphs .53 and .54.


Please note any financial assets that are reclassified in terms of IFRS need to be

reconsidered in terms of GRAP. This will need to be considered in determining the

classification of instruments from the categories in IFRS to GRAP.

Derecognition of financial assets GRAP does not require ‘Pass through’ testing (i.e. where an entity retains the

contractual right to receive the cash flows but assumes a contractual obligation to

pay those cash flows to one or more entities) and the recognition and derecognition

of assets based on a continuing involvement approach is not allowed.


Entities will need to assess whether financial assets under GRAP qualify for

derecognition and vice-versa.

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Waiver of rights relating to financial assets Not explicit in IFRS, but would be included under the section dealing with

derecognition of financial assets.

GRAP states that an entity may waive the right to receive contractual receipts under

the terms of an existing arrangement. Where the waiver of rights results in the

provision of a social benefit, it is accounted for in accordance with paragraph .37(a).

When a financial liability is waived, it is treated as debt forgiveness (non-exchange

revenue) in accordance with GRAP 23.


The entities that are applying IFRS/GAAP when preparing their annual financial

statements must consider the above requirements of GRAP where an entity has

waived its right to a financial asset, or a loan owing by an entity is waived.

Disclosures The carrying amount of financial assets measured at fair value through other

comprehensive income and no requirement for disclosure of concessionary loan in

IFRS.

GRAP has no concept of “other comprehensive income”. If an entity has granted or

received a concessionary loan, it shall disclose:

• the existence of such loans;

• their significant terms and conditions; and

• the nominal value of the loan balances at year end.


The gains and losses on available for sale financial instruments shall be reclassified

and disclosed as part of financial assets measured at fair value through profit or

loss, or at amortised cost. The net gains/losses on these financial assets will be

disclosed under the fair value through profit or loss or amortised cost category.

Please note that disclosure has to be included in terms of GRAP disclosure

requirements for concessionary loans.

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Transfer of functions between entities under common control There is no equivalent standard under IFRS. Entities would have developed

accounting policies based on the hierarchy in IAS 8 Accounting policies, Changes in

Accounting Estimates and Errors.

GRAP 105 sets out the principles for the acquirer and transferor in a transfer of

functions between entities under common control.

Assets and liabilities acquired, by the receiving entity, through a transfer of functions

are measured at initial recognition at the carrying value that they were transferred.

The difference between the carrying value of the assets and liabilities transferred

and any consideration paid for the assets and liabilities transferred is recognised in

accumulated surplus or deficit. The carrying value at which the assets and liabilities

are initially recognised is therefore the deemed cost thereof.

Public-Private Partnerships A public-private partnership is a commercial transaction between an institution and a

private party in terms of which the private party:

a) performs an institutional function on behalf of the institution; and/or

b) acquires the use of state property for its own commercial purposes; and

c) assumes substantial financial, technical and operational risks in connection with

the performance of the institutional function and/or use of state property; and

d) receives a benefit for performing the institutional function or from utilising the

state property, either by way of:

(i) consideration to be paid by the institution which derives from a Revenue Fund or,

where the institution is a national government business enterprise or a provincial

government business enterprise, from the revenues of such institution; or

(ii) charges or fees to be collected by the private party from users or customers of a

service provided to them; or

(iii) a combination of such consideration and such charges or fees.

The Accounting Standards Board issued a guide for use by a grantor (public party) in

a PPP agreement on how to account and report on assets, liabilities, revenue and

expenditure. The ASB has adopted the control approach in accounting for PPPs and

this is consistent with the IFRS/GAAP approach that was adopted when determining

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the accounting treatment by the private party. The control approach requires the

grantor to use the following criteria in determining whether it controls the use of the

underlying asset in the PPP agreement:

• The entity controls or regulates what services the private party must provide

with the associated asset, to whom it must provide them and at what price.

• The entity controls - through ownership, beneficial entitlement or otherwise -

any significant residual interest in the asset at the end of the agreement.

The entities that are making use of the capacity and skills of private sector entities to

help with delivering of services must assess if these agreements meet the definition

of PPP in terms of the ASB guide and apply the requirements where applicable to

account for assets, liabilities, revenue and expenditure.

Mergers The standard deals with transactions that result in the establishment of a new

combined entity in which none of the former entities obtains control over any other

and no acquirer can be identified. There is no equivalent standard under IFRS and

entities are required to apply the requirements of GRAP 107 in accounting for

mergers. GRAP 107 was used in formulating accounting policies for consolidation

purposes.

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Part Two: Other differences between the standards of GRAP and IFRS/GAAP

In our comparisons of the standards of GRAP to the IFRSs, we found other

differences that in our view do not have major impacts on the consolidation process.

These differences have been addressed below for completeness purposes and for

management to review in assessing the impact in their converted financial

statements.

GRAP Standards IFRS/GAAP Standards

GRAP 1: Presentation of Financial Statements IAS 1: Presentation of financial statements

GRAP 2: Cash Flow Statements IAS 7: Cash flow statements

GRAP 12: Inventories IAS 2: Inventories

GRAP 13: Leases IAS 17: Leases

GRAP 16: Investment property IAS 40: Investment property

GRAP 17: Property, plant and equipment IAS 16: Property, plant and equipment

GRAP 20 Related party disclosures IAS 24: Related party disclosures

GRAP 102: Intangible assets IAS 38: Intangible assets

GRAP 106: Transfer of functions between entities not under common control

IFRS 3: Business combinations

Presentation of financial statements There are differences between GRAP 1 and IAS 1 that highlight the public sector

bias of the standards of GRAP. These differences include terminology differences,

e.g. the statement of profit or loss and other comprehensive income is referred to as

the statement of financial performance; new concepts such as service potential and

the requirement to present budget information as a separate statement if the basis of

preparing budget information is not the same as the GRAP basis.

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Cash Flow statements The principles of GRAP 2 are consistent with IAS 7, although there are differences in

terminology consistent with those discussed in the presentation section above. The

difference worth noting is in the presentation of the cash flow statement, whereby

GRAP 2 eliminates the use of the indirect method, whereby net surplus or deficit is

adjusted for the effects of transactions.

Inventories IFRS does not have specific requirements for assets (PPE, inventory, intangibles,

etc.) that are acquired for no consideration. Inventory is subsequently measured at

the lower of cost and net realisable value. Standards of GRAP require that assets

acquired at no or nominal consideration be recognised at fair value. Inventory is

subsequently measured at the lower of cost and current replacement cost.

Leases The standard of GRAP, consistent with IAS 17, requires that discount rate used at

initial recognition of a finance lease to calculate the present value of the minimum

lease payments to be the rate implicit in the lease. When the lessee’s incremental

borrowing rate is used because the rate implicit in the lease is impracticable to

determine; the lessee shall take into account any borrowings which are guaranteed

by the government to adjust the incremental borrowing rate accordingly.

The standard of GRAP also specifically allows entities to disclose depreciation and

the finance charge relating to the leased asset as part of the total depreciation and

finance charges respectively.

Investment property The standards are consistent in terms of the principles; however GRAP provides

specific guidance regarding property that is used to provide housing as a social

service, whereby such a property does not qualify as investment property although

rentals are earned during transaction. Additional public sector specific scenario

relates to when the investment property is acquired at no cost, or for a nominal cost,

whereby the fair value as at the date of acquisition will be deemed as the cost.

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Further consolidation considerations should be made regarding investment

properties that are used by other entities within the group, whereby these will be

reclassified to owner-occupied at consolidation.

Property plant and equipment; and intangible assets IFRS does not have specific requirements for assets (PPE, inventory, intangibles,

etc.) that are acquired for no consideration. Standards of GRAP require that assets

acquired at no or nominal consideration be recognised at fair value.

Related parties IFRS requires entities that have transactions and balances with related parties to

disclose the nature of the related party relationship, information about outstanding

balances for the user to understand the potential effect of the relationship on the

financial statements. Public sector entities transact with one another on a daily basis,

these transactions may occur at cost, less than cost or free of charge. Disclosure in

terms of IPSAS 20 or GRAP 20 requires entities to only disclose information about

transactions and balances between entities that are undertaken on terms and

conditions that is not normal (non-arms-length).

Transfer of functions between entities not under common control There is a difference between GRAP and IFRS on the treatment of the excess of the

purchase consideration over the fair value of the assets acquired and liabilities

assumed at acquisition date, i.e. goodwill, whereby the excess is required to be

recognised immediately in surplus and deficit.

The standard allows an entity to report provisional amounts for items which there is

incomplete information at the acquisition date. GRAP states that the measurement

period ends as soon as the acquirer receives the information it was seeking about

facts and circumstances that existed as of the acquisition date or learns that more

information is not obtainable, but limits the measurement period to two years from

the acquisition date, whereas IFRS allows a period of one year.

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Part Three: Consistencies between the standards of GRAP and IFRS/GAAP

Our analysis and comparisons between the standards of GRAP and IFRS have

found that the principles between GRAP and IFRS for the following standards are

consistent with only minor differences in terminology to accommodate for public

sector specific transactions. Management should take into account their entity-

specific circumstances when evaluating the impact of any differences that may exist

when preparing conversion journal entries. These standards are included in the list

below:

• GRAP 3: Accounting Policies, Changes in Accounting Estimates and Errors

• GRAP 4: The effects of changes in foreign exchange rates

• GRAP 5: Borrowing costs

• GRAP 6: Consolidated and separate financial statements

• GRAP 7: Investments in Associates

• GRAP 8: Investments in Joint Ventures

• GRAP 9: Revenue from exchange transactions

• GRAP 10: Financial reporting in Hyperinflationary economies

• GRAP 14: Events after the reporting date

• GRAP 19: Provisions, contingent liabilities and contingent assets

• GRAP 26: Impairment of cash-generating assets

• GRAP 100: Non-current assets held for sale and discontinued operations

• GRAP 101: Agriculture

ifrs grap comparisons final 2014

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