ACCOUNTING STANDARDS BOARD COMPARISON OF THE STANDARD OF GENERALLY RECOGNISED ACCOUNTING PRACTICE ON FINANCIAL INSTRUMENTS (GRAP 104) TO INTERNATIONAL FINANCIAL REPORTING STANDARDS Issued by the Accounting Standards Board October 2009
Comparison of the Standard of GRAP on Financial Instruments to International Financial Reporting Standards The Standard of GRAP on Financial Instruments (GRAP 104) has been drawn primarily from the equivalent International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). In particular, the Board has considered the following IFRSs in developing its Standard: IAS 32 on Financial Instruments: Presentation; IAS 39 on Financial Instruments: Recognition and Measurement; IFRS 7 on Financial Instruments: Disclosure; and IFRS for Small and Medium-sized Entities. In developing a Standard of GRAP on Financial Instruments, the Board s objective was to simplify and streamline existing accounting principles for financial instruments as far as possible and, develop guidance that is appropriate for the public sector. As a result, the Board has deviated from the principles in the equivalent IFRSs in certain areas. This document compares, at a high level, the principles in the Standard of GRAP on Financial Instruments to the equivalent IFRSs. This comparison does not form part of the Standard of GRAP on Financial Instruments, but accompanies it and provides additional information to the users of the Standard, particularly those entities that have historically applied Statements of Generally Accepted Accounting Practice (GAAP). This comparison should be read with the basis for conclusions published with GRAP 104 as these outline the Board s rationale for deviating from certain requirements in IFRSs. Area Deviation of the Standard of GRAP on Financial Instruments from the equivalent IFRSs Scope GRAP 104 excludes the recognition, measurement and presentation of financial guarantees from its scope. There is also no option to treat financial guarantees as insurance contracts, unless the entity is primarily engaged in insurance activities. Financial guarantees are accounted for in accordance with the Standard of GRAP on Provisions, Contingent Liabilities and Contingent Assets and, if a guarantee fee is charged, the Standard of GRAP on Revenue from Exchange Transactions. The Standard excludes the recognition, measurement and presentation of all loan commitments from its scope. Loan commitments are accounted for in accordance with the Standard of GRAP on Provisions, Contingent Liabilities and Contingent Assets and, if a guarantee fee is charged, the Standard of GRAP on Revenue from Exchange Transactions. The Standard includes the subsequent measurement, derecognition, presentation and disclosure of assets and liabilities arising out of contractual non-exchange revenue transactions. Issued October 2009 2 Comparison of GRAP 104
The Standard does not provide guidance on hedge accounting. Entities are required to comply with the hedge accounting requirements of IAS 39 if they wish to apply hedge accounting. Definitions Initial recognition Initial measurement Definitions of a financial instrument, financial asset and a financial liability The definition of an equity instrument has been replaced with the definition of a residual interest. The term equity instrument has therefore replaced the term residual interest in the definition of a financial instrument and a financial asset and throughout the document (where appropriate). The definition of a financial asset and a financial liability does not refer to settlement of a transaction in an entity s own equity instruments. Entities are however required to apply the relevant IFRSs if they enter into such transactions. Categories of financial instruments The definitions of the various categories of financial instruments in IAS 39 have been streamlined and replaced with the following definitions: Financial instruments at fair value. Financial instruments at amortised cost. Financial instruments at cost. These categories are discussed further in the subsequent measurement section. Other definitions The definition of regular way purchases and sales has been deleted. The following definitions have been added: Concessionary loans: A concessionary loan is a loan granted to or received by an entity on terms that are not market related. Loan commitments: A loan commitment is a firm commitment to provide credit under pre-specified terms and conditions. Regular way purchases of financial assets This Standard does not distinguish between regular way purchases and sales of financial assets and other financial assets (such as derivatives) as the Standard prescribes that trade accounting must be used for the purchases and sales of any financial assets. The Standard includes guidance on concessionary loans. Issued October 2009 3 Comparison of GRAP 104
Subsequent measurement Derecognition Categories of financial instruments There are only three categories of financial instruments, i.e.: Financial instruments at fair value. This category comprises financial assets and financial liabilities that are: derivatives; combined instruments designated at fair value, i.e. instruments that include a derivative and a non-derivative host contract; held-for-trading; non-derivative instruments with fixed or determinable payments that are designated at initial recognition to be measured at fair value; investments in a residual interest for which fair value can be measured reliably; and other instruments that do not meet the definition of financial instruments at amortised cost or cost. Financial instruments at amortised cost. These are non-derivative financial assets or financial liabilities that have fixed or determinable payments. Financial instruments at cost. These are investments in residual interests, for which fair value cannot be measured reliably. Reclassifications Reclassification are only allowed in the following instances: a combined instrument that is required to be measured at fair value because the fair value of the derivative cannot be measured reliably; or an investment in a residual interest for which fair value can be determined after initial recognition, or for which fair value can no longer be determined reliably. Derecognition of financial assets The derecognition requirements of GRAP 104 are based on the principles in the IFRS for SMEs, although additional guidance is provided on derecognising parts of financial assets. Pass through testing is not required and the recognition and derecognition of assets based on a continuing involvement approach is not allowed. Waiver of debt owing to and by an entity Principles have been added to explain how to treat the waiver of debt either owing to or by an entity. Issued October 2009 4 Comparison of GRAP 104
Presentation Disclosures Application guidance and illustrative examples Terminology The equivalent IFRSs refer to a statement of comprehensive income for the presentation of certain gains and losses. As the Board has not considered the revisions to IAS 1, this Standard refers to the statement of financial performance. GRAP 104 does not include any principles on the presentation of treasury shares. Where treasury shares exist, entities are required to apply the relevant IFRSs. The disclosures have been modified for the new categories introduced. The following disclosures are encouraged rather than required: The disclosure of fair values for financial instruments. Certain disclosures about the use of the fair value using the three tiered hierarchy. A market sensitivity analysis. Both the application guidance and illustrative examples have been modified for transactions and circumstances that exist in the South African public sector. Additional explanatory guidance has been added in the following areas: The initial measurement of financial instruments at fair value, particularly in the identification of material financing transactions and the determination of market related rates of interest. The initial measurement of concessionary loans. Waiver of debts either owing by or to an entity. This Standard uses the following terminology, which is different from the equivalent IFRSs: Net assets instead of equity. Statement of financial performance instead of income statement. Issued October 2009 5 Comparison of GRAP 104