GRAP Standards Presentation Slide Revaluation by MikeJenny


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									      GRAP 17 vs IFRS for
Erna Swart

25 November 2010

The views and opinions expressed in this
 presentation are those of the individual.
     Official positions of the ASB on
 accounting matters are determined only
     after extensive due process and
• IASB issued IFRS for SMEs in July 2009
• ASB are considering application in public sector
   – May align requirements in existing GRAPs with
     IFRS for SMEs
   – Discussion paper 5

• Detailed analysis and comparison
• Preliminary views and specific matters requiring
• National Treasury issued accompanying material
• What is the IFRS for SMEs
  – Less onerous set of accounting standards
  – To be applied by entities not publicly
  – Developed using full suite of IFRs
     • Simplifications based on user needs
     • Simplifications to recognition/measurement
       and fewer disclosures
• GRAP v IFRS for SMEs
  – Introduce concept of “undue cost and effort”
    as a test for complying with certain
  – ASB is considering how this can be used in
    public sector (if at all)
  – Broad test: Cost of disclosure versus benefits
    of increased transparency
  – Specific requirements in Stds – apply unless
• DP addresses three areas:
  – Differential reporting in the public sector
      • additional reporting framework for public sector
  – Standards-level simplifications
      • ASB preliminary views on where Standards can be
        simplified using IFRS for SMEs
  – Identification of conceptual differences
      • no proposed amendments to Standards of GRAP

   Differential reporting considered separately from
                 standards-level changes
       Differential reporting
Two basic questions:
• Is the IFRS for SMEs a suitable framework for
  the public sector?

• Should there be more than one reporting
  framework in the public sector?
         Differential reporting
1. Is the IFRS for SMEs appropriate
   for the public sector?
  – Designed for entities that are not publicly
  – Use of taxpayers & public money results in public
        Differential reporting
2. Should there be more than one
   reporting framework in the public
  – Board’s view: No
  – Legal requirements for consolidation using
  – Using two frameworks would result in an
    additional reporting burden
  – Adverse impact on capacity and skills
• In what areas can Standards of GRAP be
  simplified using the IFRS for SMEs?
    Assets: Common Issues
• Recognition and measurement of assets
  acquired in non-exchange transactions
  – GRAP requires measurement at fair value
  – IFRS for SMEs no similar guidance
• Measurement of assets held for sale
  – GRAP 100 applies when entity commits to a plan to
    sell an asset or disposal group
  – IFRS for SMEs has no specific accounting
    requirements but requires assessment of impairment
    Assets: Common Issues
• Treatment of borrowing costs
  – GRAP 5 requires capitalisation of BC unless
  – In IFRS for SMEs BC is always expensed
• Elimination of measurement alternatives
  – IFRS for SMEs eliminated subsequent measurement
Type of asset                IFRS for SMEs            Standards of GRAP

•   Property, plant and      Cost model               Choice of cost        model   or
    equipment                                         revaluation model

•   Intangible assets        Cost model               Choice     of  cost   model   or
                                                      revaluation model

•   Investment property,     FV unless FV cannot be   Choice of cost model (which
    including property       determined reliably      comprises cost less accumulated
    interests held by a      without undue cost and   depreciation and accumulated
    lessee in an operating   effort                   impairment losses) or fair value
    lease                                             model.
                             Where FV cannot be
                             determined       without Note: The same measurement
                             undue cost and effort, model must be applied for all
                             IP is measured using investment properties.
                             cost     model        in
                             accordance          with
                             requirements for PPE

                             IP under construction
                             measured at cost at
                             initial recognition
    Assets: Common Issues
• Re-assessment of useful lives, depreciation
  methods and residual values
  – GRAP 17 = re-assessment at each reporting date
  – IFRSs for SMEs = re-assessment ONLY if indication
    that circumstances have changed
     • Change in how asset is used
     • Significant unexpected wear and tear
     • Technological advancements
     • Change in market price
             Assets: PP&E
• Scope
  – Investment property
     • If fair value cannot be determined without
       undue cost and effort – measure using cost
       model in accordance with requirements for
  – Heritage assets
     • Guidance only in GRAP 17
             Assets: PP&E
• Componentisation of assets
  – GRAP 17
    • Separate into parts when cost significant
    • Depreciate each part separately
  – IFRS for SMEs
    • Separate into components if parts have different
      useful lives (different patterns of consumption of
      economic benefits)

    ASB proposes adoption of IFRS for SMEs approach
            Assets: PP&E
• Disclosure requirements
  – GRAP 17 has additional disclosure
    requirements and encouraged disclosures
  – Comparative information – not required in
    IFRS for SMEs
                         Assets – PP&E
IFRS for SMEs                 GRAP                           Board’s proposal
Parts have different useful   Significant parts (not only    Proposed approach in
lives                         when useful lives different)   IFRS for SMEs

Fewer disclosures             Additional disclosures:     Views?
                              • Additional line items in
                                reconciliation of opening
                                and closing balances
                              • Disclosure of
                                depreciation either in
                                surplus or deficit or
                              • PP&E under
                              • Compensation from third
                                parties for PP&E lost,
                                impaired or given up
        Assets: Impairment
• Two GRAP Standards dealing with impairment
• GRAP 26 vs IFRS for SMEs
  – Impairment approach similar
  – GRAP more guidance to determine FV and value in
  – GRAP additional disclosure requirements
                Assets – Impairment
IFRS for SMEs       GRAP                         Board’s proposal
Fewer disclosures   Additional disclosures:      Views?
                    • Impairment loss
                      recognised or reversed
                    • Recoverable amount
                      determined – FV less
                      cost to sell or value in
                    • Manner in which
                      recoverable amount was
                    • Key assumptions
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