The withdrawal of Statements of Generally Accepted Accounting Practice (GAAP) has had far-reaching effects on financial reporting in the public sector, particularly government business enterprises (GBEs).  Tsholo Tshoke explains the impact of the withdrawal of Statements of GAAP on GBEs

The constitution requires the National Treasury to develop measures to ensure transparent reporting of revenues, expenses, assets and liabilities so that accountability can be demonstrated. To give effect to this, chapter 11 of the Public Finance Management Act 1 of 1999 requires the Accounting Standards Board to set Standards of Generally Recognised Accounting Practice (GRAP) for entities in all spheres of government.

During 2002, when the Board initially determined the application of the Standards of GRAP, the issue of the appropriate reporting framework for GBEs arose. At that time, the Board had not developed a full suite of Standards of GRAP so the only options available to the Board were Statements of GAAP, IFRSs  and IPSASs.  The Board was of the view that activities of GBEs were more comparable to entities with a profit motive, and internationally, the IPSASB had concluded that GBEs should apply IFRSs. As such, the Board also concluded that GBEs should apply IFRSs. As a result, some GBEs applied Statements of GAAP, and others, with the approval of the Accountant-General, applied IFRSs. The Board then agreed that all other public sector entities should apply Standards of GRAP.

Since standard-setting decisions are made at a point in time, and are the result of a consensus reached by a group of decision-makers at a given time, the decisions may be subject to modification like any laws and regulations.

The withdrawal of Statements of GAAP, as well as the issue of whether GBEs should apply the same reporting framework as other public sector entities, prompted the Board to initiate a research project to determine which reporting framework is most appropriate for GBEs. As the project was aimed at those entities that apply Statements of GAAP or IFRSs, it impacted the Board’s earlier decision to allow GBEs to apply either Statements of GAAP or IFRSs. Some constituents argued that there is no need for the Board to determine the reporting framework for entities that already apply IFRSs. However, the Board believed that there may be entities applying IFRSs, when the most appropriate reporting framework for them is Standards of GRAP.


Directive 12 prescribes a set of criteria that public sector entities are required to consider in determining what reporting framework they should apply, that is, IFRSs or Standards of GRAP. This means that entities will perform a self-assessment to determine which framework should be applied by them going forward using the criteria in the directive. The self-assessment requires management to exercise judgement, and consider all relevant historical facts and circumstances, as well as prospective information.

These criteria have been developed considering the nature of entities’ operations and their funding, and considering who the users of the financial statements are likely to be and their information needs. The criteria require entities to perform a self-assessment to determine if they should apply IFRSs, by considering whether they meet one of the following:

  1. The entity is a financial institution.
  2. The entity has ordinary shares or potential ordinary shares that are publicly traded on capital markets, or
  3. Its operations are such that they are (i) commercial in nature; and (ii) only an insignificant portion of the entity’s funding is acquired through government grants or other forms of financial assistance from government.

The Board concluded that, when these criteria are met, the needs of users of the financial statements will be satisfied if the financial statements are prepared in accordance with IFRSs rather than Standards of GRAP.

If entities do not meet any of these criteria, then they should apply Standards of GRAP. The directive is applicable only to those entities that currently apply Statements of GAAP or IFRSs. Those entities that apply Standards of GRAP are exempt from the directive as the Board has already approved Standards of GRAP as their reporting framework.

When should entities apply the directive?

The directive is effective for financial years commencing on or after 1 April 2018 so as to provide entities sufficient time to prepare for any change in reporting framework, however earlier application is permitted. The assessment is performed initially, and then subsequently where entities believe that a significant change has occurred that leads them to conclude that they meet, or no longer meet, the criteria in the directive. For instance, when there is significant change in an entity’s operations, an entity may need to reassess whether it should change its reporting framework.

What is the status of current exemptions issued by the National Treasury?

Historically, some entities were granted exemptions allowing them to apply IFRSs instead of Statements of GAAP or Standards of GRAP. As a consequence of issuing the directive, the status and legality of these exemptions will need to be assessed by the Office of the Accountant-General.


Applying Directive 12 may affect entities in many ways. The illustration below indicates four scenarios that may arise when an entity applies the directive.

Scenario A:

Reporting framework changes to IFRSs

Entities that apply Statements of GAAP and conclude that IFRSs is an appropriate reporting framework for them will need to change their reporting framework in accordance with directive 12.

As an interim measure, and prior to finalisation of the project, these entities would have been applying Statements of GAAP as at 1 April 2012, which includes those IFRSs and IFRICs (or amendments thereto) issued by the IASB up to May 2011. Since this date, the IASB has continued to issue new requirements, and as a result, any Standards or amendments issued by the IASB after May 2011 were not part of their reporting framework.

The continued application of Statements of GAAP has compromised the relevance and usefulness of information provided by an entity’s financial statements as the IASB’s recent developments have not been applied. The result of the self-assessment is that entities that now conclude that IFRSs is appropriate will need to consider, for the first time, the effects of these developments in their financial statements.

Scenarios B and C:

Reporting framework changes to Standards of GRAP

Scenarios B and C are similar because these entities will ultimately change their reporting framework from Statements of GAAP or IFRSs to Standards of GRAP, as they do not meet any of the criteria in Directive 12.

Legislation requires the Board to consider best practices both nationally and internationally. As a result, when the Board develops accounting standards, it uses IPSASs as a basis. IPSASs are based on IFRSs at a particular point in time. The Board deviates from the requirements of these IPSASs in specific circumstances. Where there was no IPSAS which provided guidance on a particular accounting issue, the Standard of GRAP was based directly on IFRSs, where applicable. As a result, many of the initial Standards of GRAP were similar to the IFRSs. Over the years, however, there have been several new Standards of GRAP which provide guidance on accounting for public sector specific transactions. Consequently, there are now several Standards of GRAP for which there is no equivalent IFRS, and over time, some of the Standards of GRAP have diverged from the IFRSs.

It is important for preparers and users of financial statements, and auditors to be cognisant of these differences. To properly understand the implications of adopting Standards of GRAP, preparers, users and auditors need to understand the difference between the public sector and the private sector.

Scenario D:

No change in reporting framework

Entities that apply IFRSs and also meet one of the criteria will continue to apply IFRSs. There will be no change in reporting framework for these entities.

For consolidation purposes, these entities, as well as the entities discussed in the scenario A, will continue to complete the GRAP template that is required by the National Treasury.


The Secretariat of the ASB will be hosting several workshops with preparers, users and auditors to explain the effects of changes in the reporting framework to Standards of GRAP. The primary of focus of the sessions held with preparers will be to have a detailed discussion about the differences between Standards of GRAP and IFRSs. These sessions will be coordinated through the Office of the Accountant-General (OAG).

In addition, a series of articles will be published to communicate further developments in the project prior to the directive becoming effective. In the next article, the Secretariat of the ASB will discuss the differences between Standards of GRAP and IFRSs.

The Board is grateful for the support of various preparers, users and other stakeholders throughout the project. Their input has resulted in the development of a self-assessment framework that establishes clear criteria to determine an appropriate reporting framework, and results in a transparent, credible and consistent process.

The Board has published all documents relating to this project on its website: http://www.asb.co.za/GRAP/Directives/Directive-12-The-Selection-of-an-Appropriate-Reporting-Framework-by-Public-Entities


1 Government business enterprises are entities listed in schedules 2, 3B and 3D of the Public Finance Management Act (PFMA), 1999 (Act 1 of 1999) (as amended by Act 29 of 1999).

2 International Financial Reporting Standards (IFRSs) are issued by the International Accounting Standards Board (IASB).

3 International Public Sector Accounting Standards (IPSASs) are issued by the International Public Sector Accounting Standards Board (IPSASB).

AUTHOR |Tsholo Tshoke CA(SA) is a project manager at the Accounting Standards Board