Municipalities participate in housing programmes undertaken by the National or relevant provincial Department of Human Settlements in terms of the Housing Act, Act No. 107 of 1997 (Housing Act). Municipalities often account for revenue, expenditure, and the completed houses inconsistently and/or incorrectly. As the housing programme arrangements are complex, so too is the accounting. Much of the complexity in accounting arises from the fact that municipalities provide goods and services to the relevant Department, while also undertaking transactions on behalf of the Department. As a result, it is difficult to understand what should be reflected in the municipalities’ financial statements.

What roles do municipalities play in the housing programme?
Municipalities participate in the national housing programme according to their level in the Accreditation Framework. In terms of this Framework, municipalities can hold a level 1 or level 2 accreditation. Level 1 municipalities are generally ‘project managers’, while level 2 municipalities can be ‘project managers’ and ‘project developers’.
Where a municipality is a project manager, it typically does the following:

When fulfilling the role of the project manager, the municipality is typically an agent for the Department in dealing with both contractors and beneficiaries. In this case, municipalities would only recognise revenue and expenses related to the goods and services that it provides to the Department, for example, project management services, services provided as an accredited municipality and other administrative services provided.
 

Where the municipality’s role is the project developer, it is responsible for fulfilling the construction related activities in the arrangement. The municipality may construct the houses itself or appoint sub-contractors. If the municipality is the project developer, it accounts for the construction costs and related contract revenue in its financial statements. As the houses are being constructed for the Department, they are accounted for by the Department.

What guidance is available from the ASB?
The Board issued a Guideline on Accounting for Housing Arrangements Undertaken in Terms of the National Housing Programme in March 2017. Entities are required to apply the Guideline for financial years commencing on or after 1 April 2019. The Guideline is intended to apply to entities that have a level 1 or level 2 accreditation. If entities undertake similar housing activities but are not accredited, the Guideline can still be applied. Judgement will, however, need to be applied to assess whether the activities are similar to that of a level 1 or level 2 accredited municipality.
A summary of the accounting treatment for revenue, expenses, land, houses and related infrastructure, as explained in the Guideline, is included in this link.