In 2017, the International Public Sector Accounting Standards Board (IPSASB) issued IPSAS 40 on Public Sector Combinations to provide guidance on accounting for public sector combinations.  

The Board undertook a project in 2023 to identify similarities and differences between IPSAS 40 and the local Standards to better align with international guidance. This resulted in the issue of a local Exposure Draft to include guidance from IPSAS 40, and additional guidance from the IFRS Accounting Standard® on Business Combinations (IFRS 3) that was issued since the approval of IPSAS 40.  

Even though the IPSASB issued a single IPSAS to deal with public sector combinations, the Board agreed to retain the format of the local guidance as three separate Standards, as local stakeholders understand which Standard to apply in specific circumstances. No significant application issues on the local Standards have been raised to date.  

Additional guidance from IPSAS 40 included in the local Standards are: 

• scope exclusions relating to the formation of a joint arrangement and the transfer of an investment entity as defined in GRAP 35 on Consolidated Financial Statements; 

• an additional factor to consider whether a transaction is part of a transfer of functions or a separate transaction involving the acquisition of an asset or liability; 

• additional exceptions to the recognition and measurement principles;  

• examples of how control of a function is obtained in a non-exchange transaction;  

• additional disclosures that require applying the disclosures in aggregate, for collective immaterial transfers of functions or mergers, the composition of the combined entity’s first set of financial statements after a merger, and disclosures where the initial accounting for a transfer of functions or merger is incomplete and provisional amounts used; and 

• illustrative examples on the application of principles in the local Standards.   

The revisions to GRAP 105 and GRAP 106 include application guidance from IFRS 3:  

• an optional concentration test to assess whether a transferred set of activities, assets and/or liabilities is not a function; and 

• guidance to assess if a transferred set of activities, assets and/or liabilities, that does not have outputs is substantive.   

Illustrative examples are also included to explain the application of these principles and guidance. 

The Board agreed to depart from IPSAS 40’s guidance in the following areas: 

• The local Standards retain a measurement period of two years due to practical considerations. IPSAS 40 only permits a one year measurement period.  

• IPSAS 40 requires that the carrying amounts of assets acquired or received and/or liabilities assumed be adjusted to conform to the acquirer’s or combined entity’s financial statements. Transactions between the parties involved in the transfer of functions or merger also need to be eliminated prior to the transfer of function or merger. To avoid additional costs, similar requirements are not included in the GRAP 105 or GRAP 107.  

• IPSAS 40 requires an entity to present financial statements for periods prior to the date on which the assets and/or liabilities are acquired, received or assumed. A similar requirement is not included in the local Standards as the entities involved in a transfer or functions or merger present their own sets of financial statements prior to the transfer or merger taking place. Any newly acquired or received functions will be reflected in financial statements prepared after the transfer or merger date.   

• The treatment of the excess of the consideration transferred (if any), and the net of the acquisition date amounts of the identifiable asset acquired or received, liabilities assumed, and any non-controlling interests in GRAP 106, differs from IPSAS 40. IPSAS 40 requires that the excess be recognised as an asset, and annually assessed for impairment. In GRAP 106, the excess is recognised in surplus or deficit on the transfer date as it is seen as a premium paid by the acquirer to the previous owners. The Board also concluded that an entity may not be able to reliably measure the “goodwill”, and the excess should therefore not be recognised as an asset.   

A recommendation will be made to the Minister of Finance (the Minister) to approve the proposed effective date of 1 April 2026 for the revised GRAP 105, GRAP 106 and GRAP 107.  

Until the effective date for the revisions to the local Standards is approved by the Minister, entities will not be required to apply the requirements in the local Standards, or consider them in developing an accounting policy.