| Aligning local guidance on transfer of functions and merger with IPSAS 40 on Public Sector Combinations |
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Most public sector entities applied GRAP 105 on Transfer of Functions Between Entities Under Common Control, GRAP 106 on Transfer of Functions Between Not Entities Under Common Control and GRAP 107 on Mergers (GRAP Standards) since April 2015 to account for transfers of functions and mergers.
The International Public Sector Accounting Standards Board issued IPSAS 40 on Public Sector Combinations in January 2017, and was effective for periods commencing on or after 1 January 2019. IPSAS 40 provides guidance on accounting for combinations, which are either amalgamations or acquisitions. |
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As the GRAP Standards have been applied for a number of years, the Accounting Standards Board (Board) decided to assess if these Standards should be aligned with IPSAS 40. An analysis of differences between the GRAP Standards and IPSAS 40 was considered by the Board at is September 2022 Board meeting, and actions agreed to progress the project.
Retain local guidance and amend where relevant
Preparers are familiar with when they should apply a specific GRAP Standard, based on whether the transaction is a transfer of functions, a merger, and the existence of common control. Furthermore, to date, no substantive issues were raised by stakeholders on the implementation of these GRAP Standards.
This led the Board’s to conclude that the local guidance on transfer of functions and mergers, i.e. GRAP 105, 106 and 107 should be retained.
To improve the GRAP Standards, and to align with the international thinking, authoritative guidance in IPSAS 40, will be incorporated into the GRAP Standards where this is relevant to the local environment.
In addition to considering the guidance from IPSAS 40, any amendments to IFRS 3 on Business Combinations, that became effective after IPSAS 40 was issued, will also be considered when revising the GRAP Standard.
Treatment of the excess in a transfer of functions
One of the most significant differences between the GRAP Standards and IPSAS 40 is the treatment of the excess, i.e., the difference between the assets acquired, the liabilities assumed, and the consideration paid.
IPSAS 40 requires the excess to be recognised and measured as goodwill. Goodwill is defined as “an asset representing the future economic benefits arising from other assets acquired in an acquisition, that are not individually identified and separately recognised”.
In comparison, GRAP 106 requires the excess to be expensed. This follows the Board’s decision during the development of the Standard in 2010 that any excess of the purchase consideration paid over the fair value of the assets acquired and liabilities assumed, is a premium that is paid by the acquirer to the previous owners. This excess is also likely to be paid for policy reasons.
In reviewing the principles on how the treat the excess in a transfer of functions, the Board concluded that its previous arguments remain relevant and appropriate. It was therefore agreed that the principle to recognise goodwill as in IPSAS 40, should not be introduced in the GRAP Standards.
When can stakeholders except an Exposure Draft?
The Board intends to issue proposed amendments to the GRAP Standards as an Exposure Draft (ED) early in 2023.
If you are interested in the revisions to GRAP 105, 106 and 107, subscribe to the ASB’s Newsletter to receive further updates, or follow us on social media for updates on this project, or contact Amanda Botha on amandab@asb.co.za. |
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