ANALYSIS AND RESPONSES TO QUESTIONNAIRE ON · RESPONSES TO THE QUESTIONNAIRE ON THE APPLICATION OF GRAP BY SMALL ENTITIES The Secretariat distributed a questionnaire to stakeholders

ANALYSIS AND RESPONSES TO

QUESTIONNAIRE ON

THE APPLICATION OF GRAP BY SMALL ENTITIES

RESPONSES TO THE QUESTIONNAIRE ON


2

RESPONSES TO THE QUESTIONNAIRE ON THE APPLICATION OF GRAP BY SMALL

ENTITIES

The Secretariat distributed a questionnaire to stakeholders in November 2018 with a

response deadline of 14 December 2018, and an extended deadline of 12 February 2019 for

certain stakeholders. The Secretariat distributed the questionnaire to the following groups:

- Public Sector Accounting Forum

- ASB’s contact list for project groups

- All public entities on the National Treasury’s contact list.

- Provincial managers for TVET colleges

- Parliament and provincial legislatures

In addition, several professional bodies and other stakeholders assisted the Secretariat by

distributing the questionnaire, as follows:

- SALGA to their members.

- SAICA to their members who are interested in public sector financial reporting.

- The Department of Higher Education and Training to TVET colleges.

- National Treasury to municipalities and municipal entities - via the MFMA helpdesk.

- The Department of Arts and Culture to all entities in the portfolio.

- SAIPA was also requested to distribute the questionnaire to their members and PAGs

were requested to distribute it to public entities within their provinces, but no

confirmation was received that it was distributed.

A total of 51 responses were received.

The respondents are listed in the table on the next page, and the responses are summarised

from page 6 onwards.



3

CLASSIFICATION OF RESPONDENTS TO THE QUESTIONNAIRE

No. Name / Organisation Respondent

#

Preparers Users Other

Responses from municipalities and municipal entities

1 Prince Albert Municipality #7

2 Central Karoo District Municipality #9

3 Ulundi Municipality #12

4 City of Cape Town #36

5 Sedibeng District Municipality #45

6 Cape Town Stadium SOC (RF) #46

7 Senqu Municipality #48

8 Umzimvubu Local Municipality #49

9 Mandela Bay Development Agency #51

Responses from public entities

1 Perishable Products Export Control

Board #3

2 Council for the Built Environment #5

3 Small Enterprise Development Agency #6

4 South African Revenue Service #13

5 South African Library for the Blind #14

6 Gauteng Partnership Fund #15

7 National Library of South Africa #16

8 Office of the Pension Funds

Adjudicator #18



4


#


9 Bloem Water #19

10

Commission for the Promotion and

Protection of the Rights of Cultural,

Religious and Linguistic Communities

#21

11 Brand South Africa #22

12 Performing Arts Centre of the Free

State #23

13 Construction Industry Development

Board #24

14 National Consumer Commission #25

15 Co-operative Banks Development

Agency #27

16 Boxing South Africa #29

17 National Regulatory Compulsory

Specifications #30

18 National Museum #31

19 Iziko Museums of South Africa #33

20 South African National Parks #34

21 Property Management Trading Entity

(Department of Public Works) #35

22 Safety and Security SETA #37

23 Performing Arts Centre of the Free

State #38

24 Msunduzi Museum Incorporating the

Voortrekker Complex #39

25 South African Bureau of Standards #41



5


#


26 Robben Island Museum #43

27 William Humphreys Art Gallery #44

Responses from individuals

1 Annette van Schalkwyk (Midvaal

municipality) #1

2 Jonas Lesetja Phoshoko (Office of

Health Standards Compliance) #2

3 Tsheola Matsebe (Services SETA) #4

4 Inge Vieira (Agrement) #8

5 Sandiso Mbalekwa (the Harry Gwala

Development Agency) #10

6 Tania Laing (Afrikaanse Taalmuseum) #11

7 Zwambi Mabuza (SANSA) #17

8 Magugu Maphiwa (Foodbev SETA) #20

9 Andries Jansen van Vuuren (SA Civil

Aviation Authority) #26

10 Devrani Moonsamy (Competition

tribunal) #28

11 Reshma Bhoola (National Arts Council) #32

12 Rodney Petersen (National Treasury) #40

13 Marius Fourie (IRBA) #42

14 Phiko Makiwane (Mangaung metro

municipality) #47

15 Nosiviwe Tsotso #50



6

SUMMARIES OF RESPONSES

1. Challenges with preparing financial statements

Respondent Budget Consultants Accounting Daily controls

HR Broader compliance

Nr Organisation / name

#1 Annette van Schalkwyk

#2 Jonas Lesetja Phoshoko

#3 Perishable Products Export Control Board

#4 Tsheola Matsebe No issues

#5 Council for the Built Environment

#6 Small Enterprise Development Agency

#7 Prince Albert Municipality

#8 Inge Vieira

#9 Central Karoo District Municipality

#10 Sandiso Mbalekwa

#11 Tania Laing

#12 Ulundi Municipality

#13 South African Revenue Service

#14 South African Library for the Blind

#15 Gauteng Partnership Fund

#16 National Library of South Africa

#17 Zwambi Mabuza

#18 Office of the Pension Funds Adjudicator

#19 Bloem Water

#20 Magugu Maphiwa

#21 Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities

#22 Brand South Africa

#23 Performing Arts Centre of the Free State

#24 Construction Industry Development Board

#25 National Consumer Commission



7

Respondent Budget Consultants Accounting Daily controls

HR Broader compliance


#26 Andries Jansen van Vuuren

#27 CBDA

#28 Devrani Moonsamy

#29 Boxing South Africa

#30 National Regulatory Compulsory Specifications

#31 National Museum

#32 Reshma Bhoola

#33 Iziko Museums of South Africa

#34 South African National Parks

#35 Department of Public Works

#36 City of Cape Town

#37 SASSETA x x


#39 Msunduzi Museum Incorporating the Voortrekker Complex

#40 Rodney Petersen

#41 SABS

#42 IRBA

#43 Robben Island Museum

#44 William Humphreys Art Gallery

#45 Sedibeng District Municipality x

#46 Cape Town Stadium SOC (RF) Limited

#47 Phiko Makiwane (Mangaung metro)

#48 Senqu municipality

#49 Umzimvubu Local Municipality

#50 Nosiviwe Tsotso

#51 Mandela Bay Development Agency

22 6 37 15 32 3



8

2. Characteristics of entities that could be classified as “small”

Respondent Functions Wholly owned

Has subs

Revenue Expenses # employ

ees

# service recipient

Publicly accounta

ble

Budget Complexity

NT categorisation

Who users

Imm. for

consol

Total assets

Total liabilities

Net assets

Entity type





#4 Tsheola Matsebe




#8 Inge Vieira



#11 Tania Laing





#16 National Library of



9


Has subs


ees

# service recipient

Publicly accounta

ble

Budget Complexity

NT categorisation

Who users

Imm. for

consol

Total assets

Total liabilities

Net assets

Entity type


South Africa

#17 Zwambi Mabuza


#19 Bloem Water

#20 Magugu Maphiwa

#21

Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities






#27 CBDA






10


Has subs


ees

# service recipient

Publicly accounta

ble

Budget Complexity

NT categorisation

Who users

Imm. for

consol

Total assets

Total liabilities

Net assets

Entity type


#31 National Museum

#32 Reshma Bhoola



X



#37 SASSETA


#39 Msunduzi Museum Incorporating the Voortrekker Complex

#40 Rodney Petersen

#41 SABS

#42 IRBA



#45 Sedibeng District Municipality





11


Has subs


ees

# service recipient

Publicly accounta

ble

Budget Complexity

NT categorisation

Who users

Imm. for

consol

Total assets

Total liabilities

Net assets

Entity type




#50 Nosiviwe Tsotso

#51 Mandela Bay Development Agency

12 4 1 34 11 28 2 4 12 7 2 6 1 11 4 1 4

3. Users’ information needs

Respondent Remuneration Council / Board /

management

GRAP 24

MFMA Section 71 / fin. perform

Disclosure Revenue Debtors Assets Cash flow

Statistical info

Expenses/ Spending

on mandate

Sustainability /

Liquidity

Liabilities Commitments

Segment report

Related parties





#4 Tsheola Matsebe




#8 Inge Vieira



12


management

GRAP 24



Statistical info

Expenses/ Spending

on mandate

Sustainability /

Liquidity


Segment report

Related parties




#11 Tania Laing





#16 National Library of South Africa

#17 Zwambi Mabuza


#19 Bloem Water

#20 Magugu Maphiwa

#21

Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities


#23 Performing Arts Centre of the Free



13


management

GRAP 24



Statistical info

Expenses/ Spending

on mandate

Sustainability /

Liquidity


Segment report

Related parties


State




#27 CBDA




#31 National Museum

#32 Reshma Bhoola





#37 SASSETA


#39 Msunduzi Museum



14


management

GRAP 24



Statistical info

Expenses/ Spending

on mandate

Sustainability /

Liquidity


Segment report

Related parties


Incorporating the Voortrekker Complex

#40 Rodney Petersen

#41 SABS

#42 IRBA



#45 Sedibeng District Municipality





#50 Nosiviwe Tsotso

#51

Mandela Bay Development Agency

6 15 12 8 17 4 13 13 1 31 14 14 6 1 5



15

RESPONSES TO THE QUESTIONNAIRE ON THE APPLICATION OF GRAP BY SMALL ENTITIES

Comments

QUESTIONS 2.1 AND 2.2

Are you aware of difficulties that small entities experience in preparing financial statements in accordance with Standards of GRAP?

If “yes”, what are the specific areas of difficulties in the financial statements that small entities experience?

Respondent #1: Annette van Schalkwyk (Midvaal municipality)

Yes.

Small and medium sized municipalities generally do not have in-house capacity to ensure full GRAP compliance leaving them reliant on consultants to perform a

range of activities, some just required GRAP review, others requiring the full compilation of AFS at great cost.

Respondent #2: Jonas Lesetja Phoshoko (Office of Health Standards Compliance)

No.

Respondent #3: Perishable Products Export Control Board

Yes.

Applying GRAP Statements i.t.o. disclosure when using specific financial statement tools, e.g. Caseware.

Respondent #4: Tsheola Matsebe (Services SETA)

No.

Respondent #5: Council for the Built Environment

Yes.

Vast amount of Standards to be applied to the entity while the entity does not always have the resources to apply each and every Standard.



16

Respondent #6: Small Enterprise Development Agency

No.

Respondent #7: Prince Albert Municipality

Yes.

We experience issues during the audit regarding the use of Materiality by the AG. Our sample size is the same as a much bigger municipality with allot more

transactions. The size of a municipality must play a role in determining materiality as well as the sample size calculation.

Respondent #8: Inge Vieira (Agrement)

Yes.

At present we have an accountant, SCM official and CFO in finance. There is no-one at present to upskill to prepare the AFS so the CFO can review. So the review

then becomes part of I/A. This then creates findings etc. that need to be cleared before it can be submitted. The accountant can go on training to prepare the

financials but that it is time and cost we can't afford at present. Contracting a consulting firm in is also not an option as the time delay and cost is too large for our

organisation. In terms of the preparations, it is mostly i.t.o. commitments and contingent liabilities to ensure it is consistently applied to the NT Notices.

Respondent #9: Central Karoo District Municipality

Yes.

Employee benefit calculations, disclosures and funding of associated long term liability; annual assessment of all PPE re remaining useful life.

Respondent #10: Sandiso Mbalekwa (the Harry Gwala Development Agency)

No.

Respondent #11: Tania Laing (Afrikaanse Taalmuseum)

Yes

Training, funding, software, time.



17

Respondent #12: Ulundi Municipality

No.

Respondent #13: South African Revenue Service

No.

Respondent #14: South African Library for the Blind

Yes.

I would say the most crucial challenge most entities face is the cost of compliance and the onerous obligation placed on entities to comply fully to the standards

(versus actual service delivery/mandate carried out) and the sometimes subjective interpretation when the AG comes to audit the entity on specific standards.

There are specific areas in some of the standards for which interpretation is subjective in how it is applied to the smaller entities due to uniqueness and niche

environment in which we operate in. Due to the nature of some entities the changes or new standards may be regarded as challenging and could impact the

already strained budget in particular regard to cost of compliance vs. service delivery / mandate of the entity. Sometimes we have also experienced that

counterparts in International Countries (first world) have not even considered or applied the standard in that manner and yet we in South Africa are required to

comply or be at risk of being qualified by the AG due to this.

Respondent #15: Gauteng Partnership Fund

Yes.

Accounting for financial instruments in accordance with GRAP 104.

Respondent #16: National Library of South Africa

Yes.

Presentation and disclosures in accordance with all requirements of the standard of GRAP. Often the disclosures or presentation of financial statement do not fully

comply with all the requirements therefore creates hindrance to fair presentation.



18

Respondent #17: Zwambi Mabuza (SANSA)

Yes.

The Property Plant & Equipment requirements are difficult to comply with due to budgetary constraints and operating in a small industry where open market value

costs are not available. SANSA's mandate is also not profit making and our AFS are not used to source out funding, thus market value costs do not add value to

the users of our AFS.

Respondent #18: Office of the Pension Funds Adjudicator

Yes.

GRAP 104 Financial Instruments. Financial risk management paragraph 123.

Respondent #19: Bloem Water

Yes.

Technical new GRAP requirements (Example classification Biological assets, Impairment, Post Retirement Benefits).

Respondent #20: Magugu Maphiwa (Foodbev SETA)

Yes.

FULL Compliance with the following standards tend to be very onerous and unfundable: GRAP 17, 27 and 103 especially with respect to maintaining a full register

for small items, accounting for biological assets, valuations and component accounting. Staff is not competent for components accounting.

Respondent #21: Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities

Yes.

Small entities must perform all the financial functions performed by bigger organisations. In the bigger organisation you will have more specialised teams to deal

with certain functions, for example the revaluation of assets. The small organisation has only one person, normally at a clerical level to perform the full asset

management function. This results in the senior person (CFO) to be involved in the valuation process, the approval of the valuation and the compiling of the

financial statements. To employ a diversified team is not possible, as the work load will not require all the skills all the time. For example the asset valuation is an



19

annual project that should not take more than 2 to 3 three days in a small institution. Procuring these services for such a once off project, also incur additional

costs.

Respondent #22: Brand South Africa

Yes.

Application of the standards fully applied such as GRAP 17, 31,103 for revaluation model to hire experts tend to be expensive and difficult to implement.

Respondent #23: Performing Arts Centre of the Free State

Yes.

Valuation of assets. Consolidation of required information to support the statements

Respondent #24: Construction Industry Development Board

Yes.

Most GRAP standards possess too many technical requirements which defeat the purpose of establishment of those entities which is at main is service delivery.

Respondent #25: National Consumer Commission

Yes.

Staff capacity constraints in terms of numbers, expertise and experience. Current staff capacity comprises 1 Assistant Director. High costs in terms of outsourcing

suitable expertise.

Respondent #26: Andries Jansen van Vuuren (SA Civil Aviation Authority)

Yes.

Fixed assets, Intangible assets, Impairment, Financial instruments.

Respondent #27: Co-operative Banks Development Agency

Yes.



20

When new standard become effective, there is no proper training and guidance on how the standard is applied. This results in disagreement with the AG on how it

is treated. New transaction require staff to look at different standards that must be applied but insufficient time due to time constraints and insufficient staff

resources resulting in finance staff doing other responsibilities.

Respondent #28: Devrani Moonsamy (Competition tribunal)

Yes.

Lack of understanding of the requirements of the Standard.

Respondent #29: Boxing South Africa

Yes.

Accounting Policies, lack of or inadequate interpretation which negatively affect the proper application of the standards of GRAP on the Annual Financial

Statements.

Respondent #30: National Regulatory Compulsory Specifications

Yes.

To prepare the AFS in line with GRAP 23: completeness and cut-off of non–exchange.

Respondent #31: National Museum

Yes.

1. Accounting treatment of revenue received (especially revenue received from grants and/or subsidy).

2. The preparation of sound quality financial statements and reports in accordance with GRAP standards.

3. Non-compliance with PFMA and the relevant accounting standards that govern the public departments.

4. Improper classification of expenses as different entities have different or unique expenses and therefore making it difficult to disclose such as expenses as there

is no clear guidance from GRAP on how to treat the expenditure items.



21

Respondent #32: Reshma Bhoola (National Arts Council)

Yes.

The Annual Financial Statements are prepared on the interpretation of the standards. Please note that training has been attended regarding GRAP but the

language used can be ambiguous.

Respondent #33: Iziko Museums of South Africa

Yes.

PPE- residual values and useful life recalculations. GRAP 103 - Heritage Asset revaluations, Financial instruments - discounting and fair value calculations.

Respondent #34: South African National Parks

No.

Respondent #35: Property Management Trading Entity (Department of Public Works)

Yes.

Entities, not only small entities, does not have the systems to comply with the requirements of GRAP. Most entities have legacy systems and processes that are

still designed around cash accounting. Obtaining information for GRAP reporting purposes is a manual process and is prone to error. Specialists are appointed to

assist which leads to high consulting fees.

Respondent #36: City of Cape Town

Yes.

The componentisation of property, plant and equipment and the yearly determination of value in use. The level to which GRAP standards are in actual fact relevant

and applicable to smaller entities i.e. there are a large amount of standards specifically drafted in the context of a large local government entities.

Respondent #37: Safety and Security SETA

No.



22

The answer is No, but I felt the need to substantiate. 1. Directive 5 clearly provides guidance of the all the GRAP Standards to be adhered to during the year as

well as during preparation. 2. Finance requires technically competent personnel, and these individuals are easily accessible in the market; from Accountant to

Management Accountant. 3. Where an organization does not have a CFO, the cost of review is also manageable.


Burden of compliance with the GRAP Standards. For example, GRAP 12 - The requirement to determine the Net Realisable Value/Current Replacement Cost of

inventory. GRAP 17 - the assessment for possible impairment of assets, compiling GRAP compliant asset register, etc. The underlying reasons for all this

requirements are not applicable to PFMA Schedule 3A and 3C entities as they are not permitted to borrow, parliamentarians or National Treasury does not rely on

the Statement of Financial Position to interrogate entities performance or grant allocations, and so on and so forth - so why this costly and time consuming burden,

really?

Respondent #39: Msunduzi Museum Incorporating the Voortrekker Complex

Yes.

The most difficult area currently is the application of GRAP 103 standard. There standards specified in GRAP, which will not be applicable to small entities, but the

audit when they audit GRAP 103 they will require these to be disclosed in the notes even there is nothing to disclose. For small entities with capacity constraints

this is time consuming.

Respondent #40: Rodney Petersen (National Treasury)

Yes.

Difficult to apply accounting principles, and complete AFS correctly.

Respondent #41: South African Bureau of Standards

No.

Respondent #42: Marius Fourie (IRBA)

No. I think the difficulties lies more in getting technical assistance. Small entities does not always have expertise and dealing with something.



23

Respondent #43: Robben Island Museum

Yes.

Specific areas on GRAP 17 on PPE and GRAP 103 on Heritage Assets makes it difficult to comply due to the nature of the organization. Also the impact on costs

is affected specifically on heritage assets valuations. There is a requirement to value the heritage assets at least once every five years which comes at a huge cost

for small entities. Consideration should be given as to whether this should only be a once off valuation and the entity must decide whether a valuation is required

only if there is a change in circumstances of the heritage assets.

Respondent #44: William Humphreys Art Gallery

Yes.

Small entities are faced with small budgets and small staff compliments. Often segregation of duties is practically impossible to implement. GRAP standards

require these small entities to employ consultants to perform valuations for various natures, compile GRAP compliant financial statements, etc. The standards are

"advanced" for small entities requiring a vast amount of disclosure, while departments handling budgets 10 times more than that of a small entity is only required to

apply the cash basis of accounting. Small entities are required to fully comply with GRAP standards while the Auditor-General has even adapted its audit approach

to small entities. It is costly to comply with the standard.

Respondent #45: Sedibeng District Municipality

No

Respondent #46: Cape Town Stadium SOC (RF)

Yes

The full compliance with GRAP 23 (Revenue from Non-exchange transactions) and the GRAP standards relating to the impairment of non-current assets.

Respondent #47: Phiko Makiwane (Mangaung metro)

Most Small entities do know even know what GRAP is and it is therefore difficult for them to apply the principles of GRAP. Secondly, application of GRAP by small

entities will have cost implications for them and the aim of Government is to ensure that these businesses grow and contribute towards economic growth. applying



24

GRAP will just be costly and an unnecessary exercise.

Respondent #48: Senqu municipality

Yes.

Some of the standards have onerous measurement and disclosure requirements such as GRAP 25 Employee benefits, GRAP 21 and 26 on impairments and

GRAP 104 financial instruments. These items cause the incurrence of consulting costs due to their potentially specialist nature.

Respondent #49: Umzimvubu Local Municipality

Yes.

In the case of Municipalities we are experiencing challenges in preparing Financial statements with MSCOA as the Auditor General only recognises GRAP yet we

transact on MSCOA.

Respondent #50: Nosiviwe Tsotso

Yes.

Application of heritage assets.

Buildings used by the entity for years, but not owned by the entity and title deed not in the name of the entity.

Application or consistency in applying some GRAP Standards, e.g. the inventory - books to be treated as inventory or PPE when voluntarily returned by students.

Respondent #51: Mandela Bay Development Agency

Yes.

Meeting AGSA submission deadline.

PPE/Fixed Asset Registers.

Weak internal controls thus leading to negative audit outcomes.

Expenditure control thus leading to UIFW.

Performance information reporting.



25

QUESTION 2.3

What are the reasons for difficulties that small entities experience in preparing financial statements in accordance with Standards of GRAP?


Current perception of public sector, struggling to attract the right skills as well as limitations on municipalities to pay market related salaries to skilled accountants.


No response.


As above (question 2.2).


I don’t foresee any difficulties preventing small entities to comply with GRAP in the preparation of financial statements, there are many qualified official willing to

work for public service, SAIPA is on a drive to train Professional Accountants (SA) for the public sector.


* Limited knowledge of the GRAP.

* Impracticalities to apply a Standard where there is a vast number of requirement but you are a small entity e.g. assets, review of useful life and extensive

disclosure. Also budget versus actual comparison becomes very technical and entities struggle to comply.


GRAP is very comprehensive and not all is always applicable to entities. Difficult sometimes to determine which parts of GRAP is applicable and in what format to

include in AFS.



26


We experience issues during the audit regarding the use of Materiality by the AG. Our sample size is the same as a much bigger municipality with allot more

transactions. The size of a municipality must play a role in determining materiality as well as the sample size calculation.


Unless you have someone or a system to do it per month, with review, then year-end is just too much work with too little time for one person, that also needs to

finalise all other responsibilities.


We do not have staff willing to life in the small towns that can prepare full GRAP statements and do the annual work re the asset registers, consultants therefore

have to be appointed at astronomical costs.


No response.


Staff does not have adequate training in the Standards of GRAP to compile the financial statements. It also have to be noted that it is done once a year which

makes it even more difficult as staff would need to go for yearly training in order to ensure they are up to date with the Standards. This is very expensive. Also, the

software that needs to be used can be extremely expensive with year registration fees. A small entity simply does not have the financial means to send staff on the

same type of training on a yearly basis, train them in using the software, licence and registration fees and this for an exercise that is done once a year. Even if you

do it quarterly, it will still not be feasible as staff simply does not have the time. In most cases with smaller entities, the staff has to fulfil more than one function.


N/A



27


GRAP not taught formally at school or tertiary level. Only two providers of GRAP compliant software, cost implications and skills required.


Refer to 2.2 above; cost of compliance vs. actual service delivery mandate.


GPF has concessionary loans which are valued at amortised cost. In arriving at the fair value, we do consider indicators of impairment and the expected losses

that could affect the recoverability of the concessionary loan. In developing models to estimate credit losses based on past, current and prospective data we are

guided by our portfolio management unit (PMU). This unit monitors the GPF loan book post construction. GPF has concessionary loans that have floating rates,

multiple tranches/drawdowns and have frequent amendments to the contracts. The calculation thereof is overwhelming.


Lack of resources to keep up with new developments or changes in the application of the standard of GRAP. High reliance on external auditors for guidance on the

application of GRAP (Especially the guidance from the Technical division at the Audit firm). The use of small size internal audit firms with limited expertise of

GRAP, they tend not to be aware of the GRAP revisions or application instructions in order to timely assist preparers of the AFS.


Lack of budgets thus it is not possible to engage experts to e.g. provide valuation expertise. Secondly due to budgetary constraints we are sitting with a lot of old

assets that do not even have a replacement value and are being used, however the standards require these assets to have a value, more the space industry is a

small industry thus it is difficult to obtain open market values.


Disclosure requirements of GRAP 104 (from paragraph 123) on financial instruments have to be reviewed and condensed. More especially as they relate to small

entities with straight forward operations and that have financial instruments measured at cost or amortised cost.



28

An example is most of the Schedule 3A entities that are not involved in commercial operations but rather exist as regulatory authorities. The Office of the Pension

Fund Adjudicator is mandated to resolve pension fund complaints. It consists of Receivables, Bank and Payables as its financial instruments mainly from study

loans and accruals. As a result, FULL GRAP 104 disclosure requirements, mainly as it relates to the financial risk management is considered irrelevant and

information overload that is not useful to the users. We propose that specifically for small entities the disclosure requirements should be reviewed and be more

concentrated.


Lack of technical capacity/skills for the first-time adoption of GRAP and the set-up of financial systems to ensure GRAP compliance.


1. Availability of financial resources.

2. Availability of knowledgeable and competent staff.

3. Practicability and applicability of such request to smaller public sector entities (lack of value for money and usefulness to users of those AFS).


The difficulties mainly relate to the quality of the statements, as there are not technical analysts and reviewers available to advise on corrections before publishing

of the statements for auditing. The statements are prepared by one person, reviewed by the CFO and one internal auditor. The entity then relies on the Auditor

General to improve the quality of the financial statements.


To always hire experts for the valuation of assets whilst cost exceeds the benefit because of compliance.


Smaller entities are unable to staff the number of knowledgeable and competent individuals to form a team due to budget constraints. This results in the entity

having to employ consultants to compensate for the need or gaps identified, although they are unable to afford the service.



29


Lack of reference on the imposed reporting requirement to the establishments mandate.


Insufficient staff capacity and lack of expertise. Cumbersome and irrelevant information required for Financial statements.


Limited resources, both financial and human capital. Lack of computer systems and information to accurately reassess useful lives and calculate impairments and

valuation of financial instruments.


The accounting software such as Caseware to prepare financials is very costly but it is needed to ensure the entity is complying with all standards. Set up of

management accounts are different to compliance to GRAP standards. This result in transactions needing to be reclassified in terms of the respective standards.

E.g. Grants funds are accounted for separately to report to stakeholders. For the financials it needs to be incorporated into the classes of expenditure. This creates

additional work.


Lack of skills and knowledge.


Lack of or Inadequate training and updates leads to improper application of the standards of GRAP. Inadequate of lack of proper review due to insufficient numbers

in terms of the staff complement within the entity. Lack of financial resources to employ qualified staff.


The NRCS Act mandates the NRCS to collect levies for a calendar year from January to December split into two periods of 6 months (Jan - June and July - Dec).



30


Lack of proper training on the staff of the entities, not only qualification wise but the need of the government employees to attend regular trainings to be abreast

and to be able to engage and possibly come with solutions on how to disclose different transactions of the entities that will in turn lead to the reporting being

conducted in a proper manner as the standards requires.


Don’t generally experience difficulty but as per above sometimes find it a challenge to interpret the standards.


Not enough time and resources - with the audit being extremely onerous. (The AG spends at least 4 (usually 5) months on Iziko's premises. It is expensive and

detracts from our primary function - as financial professionals, we need to take responsibility for good financial management, meet reporting deadlines, contend

with compliance issues, audits on performance, keep up with changing and new accounting standards, perform normal transactional accounting, manage tenders,

debt collection, asset management, contract management and a host of SCM regulations within a constantly changing regulatory environment. It becomes difficult

to cope which results in too little time available to deal with the complexity of compliance with GRAP compliance AFS. Sometimes the management and

compliance requirements differ from the GRAP reporting requirements and systems need to be aligned achieve GRAP compliance. AG focus is also on compliance

and performance auditing which makes the audit extremely difficult for entities of Iziko's size with limited resources. In summary, the standards themselves are not

the problem, but issues arise with the other aspects. Entities may find that they are able to achieve GRAP compliance but still do not get clean audits.


Difficulty could be in attracting staff who are knowledgeable in GRAP, in addition the continuous changes in GRAP standards.


Mainly lack of adequate systems and skilled resources.



31


Small entities struggle to attract the resources with the necessary skill sets due to the size of entity. In addition, the location of the entity also plays a role in

attracting the required resources.


None to my knowledge.


Cost and burden of compliance and limited capacity. What is the purpose of a GRAP compliant museum asset register, where obscene amount of money is spent

trying to determine a value of an insect, some rare mosquito? Won't only maintaining a complete and accurate listing of assets suffice?


- Lack of knowledge in application of GRAP Standards.

- Proper training not provided by Accounting Standard Board.

- Limited support received from the ASB advisers.

As the entity has a small administration department the staff in the department are required to undertake all administrative operational duties and the task of

preparing financial statements needs to be considered in this regard.


Lack of skills and knowledge, complexity of standards.


No response.



32


Smaller entities are in their setup and require more technical assistance.


Limited resources available to comply with specific standards. In small entities funding is limited and instances where funding has to be used to comply with a

GRAP standard as opposed funds rather being used to provide the service as per its mandate. The cost of compliance in line with its income streams is not

feasible and the increased focus on compliance makes it difficult for entities to focus on its core mandates. The standard is designed for big public entities.


The most significant reason is the lack of financial resources. This has a ripple effect bringing about challenges to employee the desired human resources and

capacitate the small entity to allow all aspect of GRAP to be adhered too.


Not being kept abreast of requirements of new standards developed as well as effective date of standards adopted.


Budget constraints and this result in not enough manpower to compile a set of annual finance statements.


Costs and knowledge of GRAP principles.


In addition to the aforementioned - the disclosure requirements are sometimes excessive and more applicable to much larger entities. An example of this is the

GRAP disclosure checklist which is quite long. This results in time and costs in order to comply.



33


There are ever changing Standards but we hardly get updates on them and too often than not we get surprised during the audit.


Staff employed not competent.

There is no proper illustration like IFRS in terms of treatment to ensure more is consistent.


Capacity constraints/resources/skills

Minimum competency requirements

mSCOA compliance

Poor administration support and systems

Lack of adequate finance policies and SoP's

QUESTION 3.1

What are the characteristics that the Board could consider to classify entities as “small”?


Consider linking it to the MFMA minimum competency levels - Above R1 billion and below R1 billion.


Revenue, net assets and staff compliment.



34


Complexity of transactions, Revenue value.


Revenue and type of users of financial statements.


Turnover other than grant income. Amount of grant spent on assets.


Turnover in Rand, number of employees and public accountability.


Look at the size of a municipality based on the National Treasury categorisation method.


Value of Grant funding received, % of this grant funding towards employee cost. As an example we only receive R30 million and R20 million is for employee cost.


Number of employees - at municipalities it must however be taken into account that most of the employees are employed in labourer positions. A certain amount

allocated re Equitable Share could also be used as determination.


Staff complement, Turnover, Grant income, Expenditure and Carrying amount of Assets.



35


The number of employees and R-value of turnover.


Budget and/or Assets.


Combination: number of employees, amount of turnover/grant, book value of total assets, amount of expenses, R value of liabilities.


The size of the entity; the budget/actual expenditure of the entity; the status of the entity e.g. NPO where SARS has given s18A qualification.

The actual revenue/expense is less than R50-100m currently and linked to CPI for future consideration and therefore could be deemed insignificant; the parent

department can report the entity in their consolidated AFS, as they have more resources. This will definitely save costs from an audit perspective as well.


Revenue of less than R500m; assets with fair value of less than R2bn, mandate of the entity, whether the entity is a national or provincial.


The number of employees employed. The entity's income from permanent sources (i.e. Grant Budget from Revenue fund). Whether it is a service delivery entity,

regulatory entity and/or oversight structure.


Number of employees, budgets of the entities, industry in which the entity operates in, mandate of the entity, budget of the entity as a percentage of total budget

within the reporting entity (Department it reports into/ Shareholder), asset value of the entity as percentage of total assets within the reporting entity.



36


1. Mandate of the entity.

2. Expenditure Budget.

3. Number of employees.


Revenue and expenditure, Assets.


1. Size of the entity based on budget allocation.

2. Users of the AFS and what is their priorities.

3. Nature of the entity.


The number of employees. If the entity has regional offices, or only a "head office". The revenue (Baseline allocation) of an entity at a determined threshold. If the

entity has subsidiaries or operates more as an individual judicial entity.


The entities to prepare the financial statement in a cost effective manner.


- The grant received.

- Turnover.

- The level of involvement in service delivery to the public hence accountability.



37


Revenue, size and maturity level of each entity.


The mandate of the entity, as reflected in its staff numbers and annual budget allocation. Staff complement in Finance comprises 3 persons, and the budget

R66 million.


Get guidance internationally. If not available revert to same guidelines as IFRS for SME.


As mentioned above the revenue, expenditure, type of transactions and relationships with third parties. Number of employees and offices of an entity. The nature

of services and products provided by an entity. This relates to the complexity of how transactions are recognised.


Number of employees.

Revenue (total based on % to other entities perhaps).

Method of financing (incl. or excl. loan facilities.

Really think this would differ from entity to entity based on the core functions.


Number of employees, the total budget allocation from appropriate revenue funds. The nature of operations such as a museum. The total revenue generated.


Revenue and Expenditure up to R750 million. Less than 500 employees.



38


1. The turnover/income received.

2. The value of the assets of the entity.

3. The number of significant transactions that are entered into by the entity.

4. The type of services that are offered to the public (are they basic services needed by the community i.e. water and electricity).


a) Budget of the organisation. b) Complexity of annual financial statements. c) Size of organisation.


Number of employees, size of government grant, % of own income generation relative to government grant, whether or not the entity has a "parent company" - e.g.

Iziko receives an allocation from the Department of Arts and Culture (DAC) and Iziko's results could be incorporated with that of DAC - all inter entity consolidations

to be done at this level. (Note: All DAC entity CFO's are subjected to the same challenges with audits as noted above).


As entities with public accountability, there should be no small entities. This could be applicable in the private sector, not in the public sector.


No loans; shares by external parties.


In terms of National Treasury determination of payment to section 67 employees (i.e. turnover).


1. Total revenue base. 2. Complexity of revenue stream including multiple funding parties. 3. Organogram. 4. Payroll cost. 5. The size/rand value contribution of



39

the cluster in relation to the total GDP. 6. Political influence.


Number of employees and the size of the budget.


The total revenue of the entity, total number of employees, total assets (perhaps exclude value of Heritage assets when considering general assets as for the

purpose of size as there is no intention to dispose of such assets and the value of various collections would be misleading a misleading indicator of the importance

of a collection) owned by the entity. Composition of staff on high level (Executive Directors and Non-executives directors). Total remuneration of Directors of the

Entity.


This should be a combination of quantitative and qualitative characteristics based on size, number of employees, funding received, how funded, and ant other

contributing factors which international standard-setters have considered.


Turnover, nr of employees, dominancy in field, ownership.


I agree with the characteristics of the companies act relating to a PI Score, further to this, I would think that the nature of the entities program(s) mandate should

also have an impact.


Number of employees, Revenue, Value of grants, Value of grants in comparison to total funding, Number of council/board members.



40


* The extent of funding received.

* The number of operations within the entity (how many streams of revenue? How many core business operations?)

* Staff compliment

* Public interest (Is this a listed company? Will the disclosures impact the users’ decisions? Does the user of the AFS actually require the disclosures currently

required?)

* Nature of the industry

* What does the user of a small entities AFS want from the AFS?


Annual income, staff component, constituency population


The entity's turnover should classify an entity as small.


Revenue projection and the industry they operate in.


The requirements of the public interest score and also the user requirements of the financial statements. The consideration is of users in the public sector such as

the Treasury, AG and COGTA are interested in seeing the disclosures and requirements that are deemed onerous then they should be complied with. If not the

user requirements must be explored and adapted to suit their needs. In addition, the value of assets both tangible and intangible can be used as a measure.



41


The level of complexity involved in preparing Financial statements. The amount of disclosure an entity has to achieve before they can be deemed to have prepared

credible Financial statements.


Annual turnover, number of employees, capital assets


Different legislation and not MFMA for both small and big entities

Organisation size (headcount)

Budget of the organisation

Liquidity of the organisation

Access to human resource capacity

Whether an entity must be linked to a metropolitan or local municipality

QUESTION 4.1

What sources of information could the research consider to establish the typical transactions small entities undertake, other than the financial

statements?


Specific interviews with CFO of a few local municipalities.


Strategic plan and annual performance plan.



42


Journal listings, chart of accounts (general ledger), annual report.


Annual Performance Plan and Strategic Plan or documents.


Annual report and performance plans. The annual report highlights various business transactions which might have a special impact on the accounting records.


Annual Performance Plan of the Entity.


National Treasury's calculation on how to determine the Municipality's categorisation.


The actual expenditure is very little if: facility rental is R2.2 mil, Board remuneration is R1.3 mil and ITC is R2 mil. R4.5 mil is left for actual expenditure. Travel is

R1,4mil and the balance is consulting, paper and printing, advertising, recruitment and entertainment.


National Treasury returns for municipalities.


Budget Reports, IDP & SDBIP.



43


Small entities run the risk of losing focus of its core mandate due to all the compliance regulations that needs to be adhered to. In the case of a heritage institution

it runs the risk of losing focus on ensuring that its collections if cared for, educational programmes is according to the National Education standard, exhibitions is

kept up to date.


From a local government point of view, there's no differentiation between small and big entities in relation to sources of information; no transactions are attributable

only to small entities and not to "big" entities.


Performance information, other regulatory reports (e.g. quarterly reports to Reserve Bank/National Treasury), industry specific reports (e.g. to StatsSA or other

relevant industry specific reports, ENE and MTEF submissions, Ministers Report and Grant Retention Letter.


No response.


Company website.


No response.


The annual reports would detail all other operating activities of the entity which will assist in understanding the transactions that small entities undertake. The

mandate as per the Acts that govern the establishment of the entities.



44


Mandate of entity as per PFMA and other entity specific founding legislation.

Example: OPFA resolves pension funds complaints. Funded from Levies. Expenditure driver: Salaries (Legal professionals) and ICT costs for systems used to

administer complaints. Direct relationship between mandate and expenditure. We argue that one can estimate nature of expenditure if they are aware of the entity's

mandate.


Business Plan and Annual Report.


1. Budgets.

2. Monthly finance reports and explanations.


Budget documentation submitted to National Treasury. Tenders advertised.


ENE and treasury reports for reporting requirements.


Contracts/ agreements entered into with different stakeholders.


No response.



45


Quarterly and monthly financial reports on budget and spending. The volumes of financial transactions, such as payments and orders. Relevant low numbers of

staff in Finance and SCM units.


National Treasury and Auditor General should be valuable additional sources of information.


The agreements signed between entities and other stakeholder/suppliers/customers/clients. What type of product or service offered directly or indirectly? The

legislation or act that created the entity to perform its mandate.


Annual reports / annual performance information.


The enabling legislations that governs how entities should operate, in addition the same enabling legislations forms the basis from which revenue derived from

operations is determined.


Act / Mandate of the entity, e.g. Regulator, APP, etc. customers, vendors, calendar year versus a financial year, timing of reporting and AFS, mandatory

submission dates.


1. The services that the government entity provides to the public (this will typically define or provide a guideline of the type of income that the small entities

receive on a daily basis).



46

2. The demographics or the type of community that visits or transacts with the government entity. (This will assist in determining the expenses incurred by the

entity e.g. the National Museum is an exhibition site to the public therefore repairs might also be a big expenditure as there has to be constant renovation and

upliftment for tourist attraction and also the items on display and the type of knowledge needed to operate the entity may lead to a direct cause of the

significant expenses incurred by the entity).


No response.


Bank reconciliations, debtor and creditor age analysis, management financial statements, including cash flow statements and budget variance information, payroll

reports and reconciliations, performance information, donor financial statements and reports.


Not aware - maybe annual reports, etc. to understand the mandate of some of these 'small entities'.


The question is unclear. Most entities with limited external exposure receive their revenue through augmentation or other government institutions and payables

mainly relate to short term payables for goods and services.


Pieces of legislation applicable to local government.


No idea.



47


Annual Reports and entity websites.


Strategic Plan, and the Annual performance plan. Budget.


Government reporting and any associated regulatory body's reporting requirements, including banks, professional bodies etc.


No response.


The entities mandate (act).


No response.


No response.


The types of services rendered by the municipality e.g. basic services, core and non-core municipal functions.



48


The entity's income tax return to the South African Revenue Service.


Use bank statements to analyse the transactions these company enter into and the amount of revenue generated


Monthly, quarterly, bi annual statements. The budget of the entity to understand the OPEX structure of transactions.


They could consider the environments that the entities operate in. To consider the purpose the entity exists for and how robust that purpose is.


Management accounts, as it summarises the accounting data. Can use the GL as well.


Simple cash flow management models

Performance management

Risk management

Management accounts

Section 87 reports

Other: oversights from committees such as audit committee and capital programmes planning and implementation committee.



49

QUESTION 4.2

What information in the financial statements is important for the users of small entities’ financial statements to hold entities accountable and make

decisions, and why (i.e. what decisions and / or actions does it inform)?


Information about liquidity, liabilities and commitments.


Revenue and reported irregular, fruitless and wasteful expenditure.


Balance sheet, cash flow, budget, segment report, financial performance.


Revenue, Expenditure, Liabilities and Disclosures of contingent liabilities and compliance with applicable legislation - this will assist in assessing the entities going

concern and if there are any form of financial misuse or misconduct (i.e. Commitments that are more than accumulated reserves and % of irregular, fruitless and

wasteful expenditure on the total expenditure.


Budget versus actual. If the entity is under or overspent. Expenditure on key management remuneration. Other sources of other income.


Details related to the entity's mandate to deliver (in our case programme and projects related to SMMEs). Details to see that entity is financially stable. Budget vs.

actual on Income and expenditure. Commitments. Assets. This information will assist on strategic direction of following year that the entity financials are in

compliance and above board. Will also inform Portfolio Committee at parliament.



50


Statement of Financial Performance, Statement of Financial Position and Cashflows.


I think a general understanding if a mandate has been complied with and the cost to do it. What value did the grant funding give to the citizens of SA? Materiality

per organisation is important but it could be very low for smaller organisations, therefore a lot of information is being disclosed. Which doesn't add value to the

users. Maybe align it to the expenditure irt tender value, if >R500 000.00 per line item grouped together, then it should be disclosed? A general expenditure list for

instance can be applied even? What are the main cost drivers for small entities?


Cash on hand; unspent conditional grants; outstanding debtors; outstanding creditors; actual employee costs (cost of wage bill); remuneration of councillors;

repairs and maintenance costs split between general maintenance and maintenance on infrastructure.


Expenditure must match budget i.e. non-budgeted expenditure should not be allowed.


Information relating to the entities core mandate needs to feature more. Is spending done according its mandate and the goals it set for itself for the financial year?

A donor would want to see that a heritage institution is spending its funds on preserving artefacts, not on compliance.


Refer to 4.1 above. What is important for the users of big entities' financial statements is also applicable where small entities are concerned.


Statement of financial position (provides going concern and liquidity confirmation, allows for subsequent financial year planning),



51

Statement of financial performance (confirms money spent as per mandate, grant allocation and utilisation thereof),

Cash flow statement (provides information in a format that the common man understands,

Budget vs. actual statement (lends itself to accountability),

Related party transactions, unauthorised and fruitless expenditure (allows for comparison to market related transactions, and able to review accountability),

Governance compliance: especially those that relate to Supply Chain Management.


Has the mandate of the library been fulfilled... the performance information / predetermined objectives has more relevance. The financials should only reflect total

revenue; total expenses; total assets and total liabilities and not be specific in terms of greater detail.


Users are able to see whether the entity delivered on its mandate, and was efficient in doing so in terms of supply chain management. It also enables users to see

the deployment of resources to the entity mandate, cost of employment, operational expenses.


Expenditure on budget items linked to service delivery objectives is important to assess performance of a Government entity.


Utilisation of the approved budget in comparison to the original budget. The budgets are based on strategic goals of the entities and thus the manner in which the

budget is utilised against the original approved budget will inform enable users to hold entities accountable for delivering against the set mandate. And other

collaborative information such as evidence of assets being constructed and commissioned within the set time lines.


1. Revenue. OPFA is funded from Levies paid by Pension Funds based on registered pension fund members at a point in time. Variables used must be

consistent to the Revenue collected to ensure that consumers are protected from higher levies that would normally be filtered down to them by Pension Funds

(Higher levies result in higher fees charged by Pension Funds to members).



52

2. Operating expenditure. The nature of the operating expenditure must support the mandate and primary programmes of the entity. Example, OPFA has to focus

on complaints resolution and public awareness and its costs must be directed towards these 2 programmes.

3. Retained earnings or Operating Surplus. Any excess of Revenues over expenditure may indicate a possible overcharging of levies, operating inefficiencies

and/or budget misalignment.

4. Key management remuneration disclosure. Oversight authorities (on behalf of users) can evaluate the appropriateness of the entity's remuneration policy and

also consistency of implementation of approved remuneration policy compared to actual remuneration paid out.


Capital projects and commitment detail.


1. Year on year performance information.

2. Actuals vs. budget performance.

3. Utilisation of budget against predetermined objectives (APP).

4. Disclosure notes on irregular expenditure, fruitless expenditure, related parties, and commitments.


Smaller entities are mainly accountable in respect of expenditure and if targets were met. For example, the CRL Rights Commission is a Constitutional Institution.

The main users of our financial information are NT, AG and Parliament. Beyond these users, the CRL Rights Commission had never encountered any other users

that required financial information.


The irregular and fruitless expenditure.


All current information reported on is useful. I cannot see a section separately identifiable as unimportant.



53


Financial performance and position, cashflows as well budget reconciliation and procurement fair value report issued by AG.


Performance information. Budget spending as compared to allocated budget, with emphasis on goods and services that constitute cost drivers. Budget outcome,

being net saving or surplus. Numbers and values of expenditure exceptions, such as irregular and fruitless expenditure, losses, theft and late payments.

Compliance to legislation.


Cash and cashflow seems of increasing importance. Performance - Mandate/ Financial and otherwise and then Risk / sustainability.


The budget information is important to ensure that entity do what they have funds for. Related party transactions which reflect dependence of the entity.


Everything.


Contributions made or Revenue recognised from exchange and non-exchange transactions and associated expenditure , how the entity is utilising resources and

how to properly disclose such transactions for the users.


Performance of the entity, meeting its mandate / APP, governance and compliance: irregular, fruitless and wasteful expenditure. Are entities managing responsibly

in line with regulations and prescripts? Is the entity driving BBBEE, PPPFA, using the CSD, rotating vendors, managing contracts, effective and efficient SCM

processes? Holding service providers to SLA. Adhering to NT cost containment instructions and measures. Ensuring the appointment of consultants are in line with



54

PFMA and NT Regulations.


The revenue sources and the significant expenditure by the small entities: The source of revenue for the users and decision makers is important as this will allow

users of the financial statements to be able to determine by looking at their largest source income the driver for the entity, the sustainability of the entity for future

periods and possible through sustainability the decision makers can be able to project the growth of the entity in future periods.

The expenditure will provide a guideline of the significant expenses of the entity as that will lead into the users ascertaining what is driving the operation of the

entity and the decision makers to be able to determine or plan for the projected future years on how much more do they need in line with their strategic plan and

goals. (For the National Museum over 80% of the expenditure goes to salaries as the entity is driven by research discovered by scientists, field work to be able to

provide more knowledge to the public and the general administration of the entity).


No response.


While financial information is important in increasing accountability, openness, transparency and trust, It should be noted that users require a relatively high level of

financial literacy to make use of information from financial statements. Sometimes disclosure leads to misunderstandings - for instance the perception in the media

that irregular expenditure implies financial mismanagement is not necessarily true. Iziko had irregular expenditure in excess of R19 million arising from an inability

to secure a tax clearance certificate from a foreign supplier, which had no other business interests in South Africa. No financial mismanagement had occurred, the

entity received value and the supplier was not guilty of non-tax compliance. This was disclosed because we could not win an argument with the AG and an

incorrect perception was created. Another example is the fact that disclosure of the value of Iziko's collection in terms of GRAP 103 has placed the entity's

collections at risk.


I am assuming here - 'small' entities would be those that are reliant on governments grants, therefore information that would be useful would be that that presents



55

how the grants were utilised to support the mandate of that entity.


Impairments; Losses incurred; Payments in advance and accruals (both from receivables and payables); Delays in contracts.


Comparative between the budget and actual results as a measurement of the execution of their mandate as the budget inform the tariff.

Notes to the financial statements do not need to be extensively disclosed, except for the quality of the debtor’s book.

Exposure to debt and other liabilities/contingent liabilities should be disclosed. Compliance with legislation also gives an indication of the governance within the

entity.


Fundamental/significant fluctuations in the overall expenditure line items within any new announced plans.


Statement of Financial Performance: Users will be able to determine the revenue generating capacity of the entity and the key transactions expenses the entity

spends its grant allocation on vis a vis its key mandate.

Cashflow statement: This will provide an analysis of how much money was received and spent, and how much cash is left over. This can provide guidance on

whether the entity has enough cash flow for operations.

Irregular, fruitless and wasteful expenditure disclosure notes. This will provide a reader with an idea of how well internal control is working and whether entities

comply with the supply chain management prescripts.


- The Statement of financial position (Current liabilities and current assets, as this will tell whether an entity is a going concern or not (the liquidity of the company).

- The Statement of cash flow, to determine where cash is coming and going to.



56

- The Statement of financial performance (Profit/Deficit), to establish whether the entity is overspending or not.

- The statement of financial performance (Compensation of staff), to established how much is spent on staff compensation as opposed to operational activities.

- The main users of the financial statements are the Council of the entity, the Executive Authority (DAC) and Portfolio Committee. The Financial statements

together with the Performance information indicate the capacity and performance of the institution. And the proportion of income utilised on compliance and

governance vs. performance. In small entities the cost of these may need to be considered when providing funding for the entity or making associated decisions

regarding the value provided.


This should be consistent with what is important for all entities regardless of size. Lesser reporting requirements should not diminish the importance of the

information.


Ownership, relative control, management.


Disclosure of non-compliance and what actions were taken to correct it. For our entity as an example the only user that can hold us accountable is NT for decisions

taken. That information is also reported through other channels. Financial stability would probably be relevant for users who provide funding/finance. Salary

information to top management.


Cash flow statement, Income Statement & Balance sheet. It informs the cash management, profitability and the management of assets and liabilities.


The user would most like want to know the going concern status of the entity, identify the areas of significant income and expenditure, be informed about significant

changes in the entity within the financial year, the liquidity and gearing ratios. The user of financial statements for small entities ultimately needs to see the



57

resources of the entity are being used optimally and the mandate is being achieved. As a user of the financial statements of small entities, I would want to know

management have been making the right decisions in the past financial year to secure operational effectiveness and if not, why. The current disclosures do not

provide this, but rather meet the requirements of a user of financial statements of large enterprises which have shareholding and significant investment

opportunities. This is not the case with small entities. The standards should be tailored to meet the needs of the users taking into account the constraints of small

entities.


Financial performance (surplus vs. deficit), cash flow management, accumulated surplus used to fund future projects, revenue collection levels, compliance with

legislation (FWUI expenditure), grant expenditure performance


Financial sustainability.


The bank balance and the loans agreements that they have entered into compared with the assets they have accumulated.


The level of debt held, the level of accounts receivable, the cash realised form revenue and other income i.e. the cash flow statement, conditional grants spending,

the amount of own revenue generation.


The Assets and Liabilities of the Entity will give an indication of the position of the entity. The Income and Expenditure will be an indication of performance of the

entity.


Disclosure as it explains the activities that influenced the entities' results because it will assist the users to determine the above.



58

Accounting policy because it is a summary of the accounting policies followed by the entity which have impact ton financial statements.


Expenditure information linked to the performance targets to determine performance

Actual expenditure vs approved budgets

SCM disclosure noted (UIFW)

Cash Flow management

QUESTION 4.3

What information in financial statements is not important to the users of small entities’ financial statements to enable them to hold entities accountable

and make decisions, and why?


No response.


None.


Standard notes, policies / statements not adopted.


Financial instruments, especially for entities that receive subsidy or grant from government.



59


Financial assets and liabilities disclosure per category.


All info in our AFS is important - none can be left out.


Many many notes as well as the Appendixes.


I think the Risk management is more of a repeat of the notes and doesn't add value particularly to the users. Also if there is only grant income or say 10% of

additional income (excl. interest), the full disclosure note is not needed. Accounting policies should also be shortened. Remuneration of key officials can be

disclosed under related parties rather, same format as Board. Minimises the reporting disclosure.


Post-employment employee benefit data - nobody understands it and it is irrelevant to municipalities as they budget for the actual expenditure to be incurred in

post-retirement medical aid payments as part of the MTREF.


The split of Salaries for Section 57 employees as well as Directors. This does not add any value to the users, it causes unrest instead.


Compliance spending like audit costs are in our case normally between 5 and 10% of our total expenditure whereas bigger entities only spend about 1%.



60


Assets like roads because the value attached to them cannot be used as a measure for their condition. Money spent by municipalities on experts to do evaluation

of roads is therefore unnecessary expenditure.


Statement of Net Assets, Any fair value disclosures, Segment Reporting.


The users of the information for smaller entities are mostly the parent department and a few other interested stakeholders. The greater detail in terms of complying

fully to the GRAP standards is not fully/wholly understood by most users and hence the notes should be simplified to reflect this. The face of the statement of

financial performance and position should suffice for reporting and accountability requirements.


None, all information is relevant. As a public entity, disclosure is paramount to ensure that principles of objectivity and transparency are met.


The book value of assets in the AFS. Capital Budgeting for replacement, maintenance or acquisition is not concluded on the basis of depreciation expenses and

usage life of existing asset, this financial information is not so important for those allocating funding.


Assets - if mandate is to construct asset. Liabilities if mandate is utilising funds to construct assets if money is not utilised the liability value will not decrease. Cash

in the bank, high cash balances for non-profit making entities is a sign that grant funding was not used.


None.



61


Separate disclosure of immaterial transactions.


Detailed disclosures on assets and financial instruments as these do not affect the decisions of users with respect to service delivery and safe guarding of

resources.


The CRL Rights Commission does not generate revenue and is not involved in any complex transactions. Therefore, the minimum disclosure is preferable. A basic

set of statements with basic disclosures in respect of Balance Sheet and Income Statement items should be sufficient. In addition, remuneration information and

irregular expenditure disclosure can suffice.


Budget statement is not required as ENE reports are already required.


In my opinion, all information reported on is useful. Whether it becomes reported at the level of the small entity or its parent institution.


Accrual basis of reporting, fair value and disclosure requirements.


Most of the information of the balance sheet, cash flow statement and disclosure notes.



62


Detailed and complex accounting policies and new statements. Componentised fixed assets. Restatement of useful lives of non-material assets. Forced valuation

of assets/intangibles. Detailed Financial assets/liability / risk management disclosure.


No response.


None; if there is a Standard that requires disclosure that is irrelevant to the entity, it is not disclosed and (??) accordingly.


Most information is relevant except where information is disclosed in a complex format for the users. GRAP 104 about disclosure of net balances of Receivables

instead of disclosure for classes of debtors and days of outstanding debts.


Some of the GRAP have more technical use rather than substantive value. E.g. GRAP 23. It’s about correctly accounting in the correct period. It’s a timing issue

because in the swing and round about the revenue is accounted for and there is no financial risk to the entity if the mandate is managed and complied with. The

amount of resources and time spent on managing GRAP 23 does not contribute any financial benefit, nor is there any risk. However, the entity incurs costs to

comply.


All information is necessary due to the nature of the different needs of the users of the financial statements (as what is not relevant to the one user, maybe relevant

to the user and vice versa).



63


No response.


Users are not interested in the entity profitability because they do not have a financial interest in the entity e.g. they are not investors likely to obtain any return on

investments. They are interested in stability and sustainability. Important to users are non- financial measures related to performance which will enable them to

access the extent the institution has fulfilled its mandate, service delivery to the public, custodianship of public assets and impact on the community.


All is important.


Risk analysis relating to financial instruments is usually of little use unless the entity specifically deals with high level financial instruments and debtors that are

outside the sphere of government - most entities' financial instruments are limited to receivables and payables.


It is not that all information is not important but it is the extent of the disclosure of the information which could clutter the financial statements and could divert the

users' focus from important information.


All information from financial to non-financial is imperative for decision making and should be scrutinized at all times.


Majority of the GRAP 12 and GRAP 17 requirements, as outlined earlier. These Standards need to be drastically watered down.



64


Value of heritage assets is not the only indicator of the importance of a heritage asset / collection. Hence the Rand value could lead to misleading decisions being

made on the importance of a collection and the associated museum/institution.


See above comment, same principle applies.


Contractual relationships or other ties affiliate it with a large business.


Accounting policies, transactions are generally not complicated and would not influence decisions.


Limited financial Instruments disclosure and not required to disclose information that is not easily understood by users of the annual financial statements.


It is unlikely the user will be interested in the actuary reports of various valuations of liabilities and financial instruments. Most disclosure information which is not

relevant to the core operation of the entity will not be used by the user of the financial statements of a small entity.


N/A


Requirements as determined by the MFMA which must be disclosed. Namely bank account details and appropriation statement for budget information. Clear



65

duplication and waste of human resources and time.


inventory balances - most small entities don’t hold large inventory in stock, retained earnings - as most small entities retained earnings are hardly substantiated or

backed up by anything.


Regular fair valuation of assets - such as investment property and financial instruments (dependent on policy chosen) - these items value are determined by

market forces not necessarily in the control of the entity. This does not mean that it should not be recorded at all (policy dependent) but a regular determination

basis such as annual is sometimes costly. These can be done say on a 2 or 3 year basis.


All information disclosed is important.


There are disclosure items which I feel should not be mandatory like the risk management disclosure as the items to be disclosed are disclosed separately, as

receivables, payables and cash and cash equivalents. Only applicable disclosure and policies to be included.


With the exception of cash equivalents, unspent grants and expenditure all other items are not critical.

Financial risk management objective/policies

Cash flow statements



66

QUESTION 4.4

Is there information in the financial statements that is important / necessary to meet other reporting requirements? If yes, please provide details about

the information.


Yes.

MFMA disclosure requirements.


No.


Yes.

Budget variances & segment reports (used by National Treasury).


Question not clear, all transaction are necessary to meet reporting requirements in order to meet a the objective of financial statements.


No.


Yes.

We received adhoc requests from National Treasury, our national department as well as parliamental questions where we use the AFS info. Also our bank request

info from AFS.



67


Yes.

Comparisons between budgeted amounts and Actuals.


Yes.

National Treasury reporting template alignment. What you do for the one you would need to do for the other document as well. Otherwise you will have double

reporting, therefore making a smaller AFS null and void.


Yes.

The MFMA requirements must remain.


No.


Yes.

Mentioned in 4.2 - spending towards an entities core functions in order to fulfil its mandate with not only reflect in the financial statements, but also in the annual

report which indicates if the targets set for the year were met or not.


No.



68


Yes. Industry specific reports, other required reports (e.g. reports relating to Trade Statistics, Transfer Pricing etc.).


No.


Yes.

The fair value of concessionary loans, related party transactions, executive remuneration, grant funding received.


Yes.

Yes, Information in the AFS about Irregular Expenditure & Fruitless & wasteful Expenditure, this disclosures are not regulated by a standard GRAP however to

comply with instructions issued in terms of the PFMA, such information is important.


Yes.

Commitments is utilised to construct surplus / retention funds required by National Treasury. Liabilities and expenses are utilised to report to departments on

whether grant funding was utilised.


Yes.

A reconciliation on Impact of non-cash expenditure included as an additional disclosure for the Statement of Comprehensive Income. Operating deficit may at

times be misleading and we believe it must be explained further and a cash Surplus or Deficit be disclosed. We consider the 'Cash generated from operations' to

be too generic at times and may not be the most reliable and useful manner to explain the impact of non-cash items on the SoCI.



69


Yes.

Capital projects and commitment detail.


No.


Yes.

A standard Balance Sheet and Income Statement remain essential. Other statements such as cash flow and changes in net assets may not be of so much

importance.


No.


Yes.

Legal fees: Legal costs could provide an indication of how susceptible to litigation an entity is, this translating into the overall risk faced by the parent/ reporting

entity.


No.

Financial performance and position, cashflows as well budget reconciliation.



70


Yes.

Budget and spending information as required for monthly and quarterly reporting. Linking of budget spending to the strategic objectives and key projects.


Yes.

Include information on Annual performance plan and how legal mandate was met.


No.


None.


Yes.

Budget information.


Yes.

NT requires Reports on: Irregular, Fruitless and Wasteful Expenditure, Cost containment, Contingencies and Events after the reporting date, Remuneration of

committee members and key management.


Marketing expenses - This information can be used to determine either the decline or increase in the tourist that visits the Museum.



71

Capital projects - This can allow decision makers to be able to determine if the strategic objectives/goals are being implemented.

Increase in the value of heritage assets - This may indicate the number or the increase/decrease in the new discoveries by the researchers or scientists.

Security services - Indication of the importance or value of assets or objects held by the government entity.

The significant donor/subsidiser of the entity - This can indicate the amount of interest or the type of work carried by the small entity.


No response.


Yes.

Financial information is necessary for reporting to National Treasury, The Department of Arts and Culture (DAC), donors, financial institutions.


No.


No.


Yes, considering section 71 and 52 reporting requirements the financial statements could be used to test the validity of such information which has been presented

in the public domain prior to the conclusion of the financial statements.


Yes.

Information relating to donations between entities. Reasons for such donations should be disclosed in full.



72


No.


No.


Yes.

I would think information in the reporting requirement could be used elsewhere, and are important. We need to be careful not to duplicate efforts especially if the

financial reporting requirements are not the primary reporting source.


No response.


No.


No.


No


Yes



73

MFMA Chapter 12 requires additional disclosures for financial reporting and auditing; AFS are used for credit rating and financing and investment; fulfilment of

Systems Act requirement to provide services that are financially sustainable (MSA 73(2)).


Yes

As it relates to compliance with the Companies Act and CIPC.


No.


Same considerations as per statement 4.2.


No


No


PPE

Assets and Liabilities

Contingent Liabilities

Other challenges for consideration: High audit fees, Highly regulated environment e.g. SCM

Documents

ANALYSIS AND RESPONSES TO QUESTIONNAIRE ON · RESPONSES TO THE QUESTIONNAIRE ON THE APPLICATION OF GRAP BY SMALL ENTITIES The Secretariat distributed a questionnaire to stakeholders