Technical & training

GRAP 1 & 109: Principals & Agents considerations for Municipal Housing Arrangements

August 28, 2018

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GRAP 1 & GRAP 109 Considerations: Municipal Housing Arrangements

GRAP 1 requires an entitity to present its financial position, performance and cash flows for the given financial year and for the information to be useful. It is clear from GRAP 1.8 that it is about the entity. However, due to the interrelationships within Government, many entities find themselves challenged by what they have to account for. Therefore GRAP 109 Accounting by Principals and Agents was developed.

GRAP 109 establishes a mechanism whereby the parties in a principal-agent arrangement, can identify which parts of the transaction with third parties should be accounted for by each: principal or agent. In particular, GRAP 109.42 and GRAP 109.43 have reference: “.

42 A principal recognises revenue and expenses that arise from transactions with third parties in a principal-agent arrangement.

43 An agent recognises only that portion of the revenue and expenses it receives or incurs in executing the transactions on behalf of the principal.”

A good example of this type of arrangement is included in GRAP 109.48: “.48 For example, a municipality is tasked to act as an agent to facilitate the construction of low-cost houses on behalf of a national government department, and the department directs the municipality to incur certain specific reimbursable costs on its behalf. Such costs and the related recovery thereof should not be recognised in the statement of financial performance of the municipality. However, any fee payable to the municipality in respect of the arrangement over and above cost recoveries may qualify for recognition in accordance with the Standard of GRAP on Revenue from Exchange Transactions. Similarly, any costs incurred in excess of the fee received should be assessed in terms of the Standard of GRAP on Provisions, Contingent Liabilities and Contingent Assets.”

ASB Guideline for Arrangements

To provide further high-level guidance, the Accounting Standards Board has issued the Guideline on Accounting for Arrangements Undertaken i.t.o. The National Housing Programme. The Guideline helps municipalities in particular to deal with the question: Who needs to account for what?

A simple answer to this question is that the municipality should not account for all elements of transactions under this Programme, only those elements for which it is the “principal”.


This then comes back to the first point: The entity, i.e. the municipality, should present its financial position, performance and cash flows, arising from the National Housing Programme, and not also transactions for which it is only considered to be the agent.

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