| How well are entities presenting the comparison of budget and actual information in financial statements? |
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To hold entities accountable for the resources allocated during a particular period, the Standard of GRAP on Presentation of Budget Information in Financial Statements (GRAP 24) requires a comparison between an entity’s budget and actual information.
The Accounting Standards Board recently undertook a review of GRAP 24 with the objective to assess compliance with the requirements in the Standard, and to identify potential issues with the application of the Standard. The results of the review is published in a Review Report that is available on the ASB’s website. |
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| GRAP 24 is applied when budgets are publicly available |
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GRAP 24 is applied when an entity is required, or elects, to make its approved budget publicly available. This means that the entity’s budget should be published for the public at large.
The review noted that, for municipalities, the concept of “publicly available” is not of concern as the Municipal Finance Management Act requires a municipality to publish, on its website, its annual and adjustment budget as approved by council.
For public entities, whether their budgets are made publicly available may not be as clear. Some public entities budgets may be published in the Estimates of National Expenditure (ENE). In these instances, it may be unclear whether GRAP 24 should be applied. Public entities should consider a range of factors to conclude if their budgets are publicly available. For example, whether their Annual Performance Plan includes their approved budget and is tabled in Parliament or a provincial legislature.
The Secretariat will develop a Fact Sheet that respond to questions on the application of GRAP 24, including what “publicly available budget” means for public entities. The OAG will also be requested to amend their GRAP 24 Accounting Guideline to include specific guidance and scenarios for entities to consider. |
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| In what format should the comparison be presented? |
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The comparison of actual and budget amounts can either be presented as a separate additional financial statement - “the Statement of Comparison of Budget and Actual Information” (hereafter referred to as “the Statement of Comparison”), or by including an additional budget column in the financial statements. When the budget and financial statements are not prepared on the same basis of accounting (a comparable basis), the Statement of Comparison should be presented. An entity can select to either present an additional column or the Statement of Comparison when the comparable basis is the same.
Budget information is usually aggregated into broad classes, budget classifications, or budget headings based on an entity’s specific activities and programmes. The comparison of budget and actual information should be presented to be consistent with these broad classes, classifications, or headings to enable the relevant authority responsible for the approval of the budget, to compare information at the relevant level of oversight.
Among others, the review noted that: the majority of entities presented the Statement of Comparison, even when the budget and financial statements were prepared on the same basis; some entities that included the Statement of Comparison and an Appropriation Statement, as required by the National Treasury, repeated the information; and for a number of entities, the classes, classifications or headings used in the Statement of Comparison were the same as those used to prepare the financial statements rather than those in the approved budget. Entities should consider FAQ 3.7 to avoid the duplication of information in the financial statements. This FAQ clarifies that entities may present, in a single statement or a note, information that is required by GRAP 24. Any additional information can be presented separately as an annexure to the financial statements.
It is critical that the basis of preparation of the Statement of Comparison should be consistent with that used in the preparation of the approved budget. The Board agreed that guidance on the method, format and extent of the comparison should be provided in the Fact Sheet to ensure the correct application of GRAP 24. |
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| Other matters to be addressed in the Fact Sheet |
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The review of GRAP 24 also highlighted a number of practical application matters which will be addressed in the Fact Sheet. These include: Material differences between actual and budget information – a number of entities did not provide explanations of material differences between budget and actual information, or provided vague explanations. Changes from approved to final budget – most entities that made changes to their approved budget following reallocations or changes in budget parameters, did not explain these changes in their financial statements. Presenting budget and actual amounts on a comparable basis – some entities used boilerplate disclosures to explain adjustments reflecting the same basis of accounting, classification system, period and entities to those included in the approved budget. This resulted in inconsistent information being disclosed about the budgetary basis and the classification system as the budget, with what was presented in the comparison. The review also noted that note disclosures were not always tailored to the entity’s specific circumstances.
The review highlighted that more time should be devoted to the preparation of the comparison between budget and actual information to ensure that only relevant information is presented. There should be greater focus on holding management accountable for the preparation of high-quality financial statements that will improve accountability and inform decision-making. |
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