| Background to the proposed revisions |
|
|
The Board issued ED 204 on Proposed Revisions to the Standards of GRAP on Transfer of Functions Between Entities Under Common Control (GRAP 105), Transfer of Functions Between Entities Not Under Common Control (GRAP 106) and Mergers (GRAP 107). The ED primarily aligns the guidance in GRAP 105, GRAP 106 and GRAP 107 (the local Standards) with IPSAS 40 on Public Sector Combinations. IPSAS 40 classifies public sector combinations either as an amalgamation, or an acquisition.
The revision compared the amalgamation principles in IPSAS 40 to GRAP 107. The definition of an amalgamation in IPSAS 40 requires that no party gains control of one or more operations. This is similar to the principles for a merger in GRAP 107 which requires that no party acquires control, no acquirer can be identified and no party is seen to be dominant. |
|
| What changes are proposed to GRAP 107? |
|
|
a. Additional scope exclusions
The ED proposes additional scope exclusions for: - the formation of a joint arrangement in the financial statements of the joint arrangement itself; and
- the transfer of an investment entity as defined in GRAP 35 on Consolidated Financial Statements.
b. Additional exceptions to the recognition and measurement principles
Additional exceptions are proposed for: - licences and similar rights previously granted by one combining entity to another, that are recognised as an intangible asset – the combined entity recognises and measures the intangible asset at its carrying amount, and tests it annually for impairment. An intangible asset granted for a finite period is amortised over the remaining period of the binding arrangement under which the right was granted.
- transfers, concessionary loans and similar benefits – the combined entity should not account for any revisions to a transfer or concessionary loan granted to a combining entity prior to the merger. Revisions are accounted for at the point that the grantor makes its intention known.
c. Additional disclosures
The ED describes the composition of the combined entity’s first set of financial statements following a merger. In addition, the following disclosures are proposed: - for individually immaterial mergers that occurred during the reporting period that are material collectively, the disclosures in GRAP 107 should be presented;
- reasons why the initial accounting for a merger is incomplete where amounts have been determined provisionally, and the nature and amount of any measurement period adjustments; and
- for the combining entity, disclosures when the merger date is after the end of the reporting period but before the financial statements are authorised for issue.
|
|
| Principles retained in GRAP 107 |
|
|
The Board agreed to retain the following principles in GRAP 107:
a. Measurement period
The measurement period grants an entity additional time to account for a merger where the initial accounting is incomplete by the end of the reporting period in which the merger occurs. IPSAS 40 allows a measurement period of one year while GRAP 107 allows a two year period. The Board agreed to retain the two year measurement period as, from local experience, entities need more time to obtain the necessary information to identify and measure the assets and/or liabilities in a merger.
b. Measurement principle
IPSAS 40 requires that the acquirer measures the acquired or received assets and/or liabilities at their carrying amounts. Prior to the transfer of the assets and/or liabilities, the transferor should adjust their carrying amounts to conform to that of the acquirer. Adjustments also need to be made to eliminate transactions between the transferor and acquirer in calculating the excess.
To avoid additional costs to effect the merger, the Board agreed to retain the measurement principles in GRAP 107 which requires that the assets acquired or received, and/or liabilities assumed are measured at their carrying amounts. No adjustments need to be made to the carrying amounts prior to the merger, and no transactions between the combining entities need to be eliminated. |
|
| How can you comment on ED 204? |
|
|
| Share your comment on the proposed revisions to GRAP 107 with Amanda Botha at amandab@asb.co.za. Comment on ED 204 closes on 15 July 2023. The ED can be accessed on ED 204 – ASB. |
|
|
|
