THE DEVELOPMENT OF GENERALLY ACCEPTED MUSICIPALACCOUNTING PRACTICE (GAMAP) * Read more on GENERALLY RECOGNISED ACCOUNTING PRACTICES (GRAP) Background Process of issuing revised GAMAP The Need for GAMAP Replacement of new GAMAP by GRAP Application of new GAMAP Guidance on issues not covered by new GAMAP Effective Date List of current GAMAP Background National Treasury commissioned a study to develop accounting standards for municipalities in July 1997. GAMAP was developed under the auspices of a representative group of stakeholders and the Minister of Finance approved GAMAP in October 1998. However, the promulgation of municipal accounting standards under the ASB in terms of the PFMA and the ASB was delayed until October 2002, thus postponing promulgation of these standards. The Statements of GAMAP were initially developed, based on South African GAAP as at 30 November 1997, with the exception of GAMAP 114 (developed to give recognition to the funding of property, plant and equipment and to National Treasury’s policy position on reserving and statutory funds). Statements of GAAP were in the process of being converted to IFRS at that time and a number of the Statements of GAAP on which the 1997 GAMAP was based, have been subsequently revised or withdrawn, without the associated revision to GAMAP. National Treasury then developed a support program to pilot reforms at 37 municipalities around the country. These support programs have numerous objectives, including assistance in implementing the new budget reforms, and recently, guiding the Statements of GAMAP into general practice. [ BACK TO THE TOP ] Process of issuing revised GAMAP The Accounting Standards Board has reviewed old GAMAP with a view to amending as appropriate or withdrawing individual Statements if considered to be in conflict with International Public Sector Accounting Standards (IPSASs) on which the statements that the Board are developing are based. The broad findings of the review were as follows: Most of the SA GAAP statements that were used as a basis to develop equivalent statements of old GAMAP have changed. As indicated above, there is no comparative SA GAAP for GAMAP 114. A number of IPSASs have now been issued that cover topics addressed by old GAMAP statements. There are a number of new accounting statements in SA GAAP for which there are no equivalent old GAMAP. The revised Statements issued as a result of this review are known as Statements of Generally Accepted Municipal Accounting Practice (new GAMAP). The Need for GAMAP The need to issue and implement new GAMAP is driven by the following main factors: Old GAMAP is no longer up to date Significant capacity building has taken place since the Minister of Finance approved old GAMAP in October 1998, and an anti-GAMAP sentiment has moved to an eagerness to implement it. Momentum to improve financial reporting should not be lost. The enactment of the Municipal Finance Management Act, which requires the different categories of municipalities to base their financial statements on Statements of Generally Accepted Accounting Practice. The ASB has therefore decided to reduce the exposure period for new GAMAP to two months in recognition of the process adopted in the development of old GAMAP and the extent of consultation and training that has taken place to date. [ BACK TO THE TOP ] Replacement of new GAMAP by GRAP When issued, Statements of Generally Recognized Accounting Practice will supersede the equivalent new GAMAP Statement. The numbering of new GAMAP is based on the numbering of IPSAS statements. Thus, new GAMAP has the same number as the equivalent IPSAS statements. Application of new GAMAP New GAMAP is applicable to municipalities only. Boards, commissions, companies, corporations, funds or other entities under the ownership control of a municipality are encouraged to comply with new GAMAP in order to facilitate the preparation of consolidated financial statements by municipalities. Municipalities and their boards, commissions, companies, corporations, funds or other entities under their ownership control also have to comply with Statements of Generally Recognized Accounting Practice. A Municipality is categorized in Section 55 (1) of the Constitution of the Republic of South Africa, 1996 as: Category A: A municipality that has extensive municipal executive and legislative authority in its area; Category B: A municipality that shares municipal executive and legislative authority with a Category C; and Category C: A municipality that has executive and legislative authority in an area that includes more that one municipality. Category A is also known as a metropolitan municipality, Category B as a local municipality and Category C as a district municipality. The implementation of new GAMAP will recognize the different capabilities of those different categories of municipalities. The ASB will consider applications for an exemption by a municipality from compliance with a Statement of new GAMAP based on capacity to implement a Statement. Guidance on issues not covered by new GAMAP The ASB recognizes that the scope of new GAMAP is incomplete and that users will seek guidance in respect of these issues not considered. The attention of preparers is drawn to the following paragraph in the exposure draft of the Statement of Generally Recognized Accounting Practice on Accounting Policies. [ BACK TO THE TOP ] Changes in Accounting Estimates and Errors: “In the absence of a particular Statement of Generally Recognized Accounting Practice or an Interpretation of a Statement that specifically applies to an item in the financial statements, management shall use its judgment in developing and applying an accounting policy that results in information that is: relevant to the decision-making needs of users; and reliable in that financial statements: o represent faithfully the results and financial position of the entity; o reflect the economic substance of transactions and other events, and not merely the legal form; o are neutral, i.e. free from bias; o are prudent; and o are complete in all material aspects. In making the judgment described in the paragraph above, management shall consider the following sources in descending order: the requirements and guidance in Statements of Generally Recognized Accounting Practice, and Interpretations of Statements, dealing with similar and related issues, and Appendices and Implementation guidelines issues in respect of those Statements; the definitions, recognition criteria and measurement concepts of assets, liabilities, income and expenses set out in the Framework for the Preparation and Presentation of Financial Statements; and pronouncements of other standard-setting bodies (in descending order, International Federation of Accountants – Public Sector Committee, International Accounting Standards Board, the South African Institute of Chartered Accountants’ Accounting Practices Committee) and other countries that use similar conceptual framework to develop accounting standards, other accounting literature, and accepted industry practices, to the extent that, but only to the extent these are consistent with (a) and (b) of this paragraph).” The Board has not yet considered the guidance contained in these standards, nor have they determined the appropriateness of applying these standards in a municipality. Accordingly, there is no requirement to comply with the guidance in this list to claim compliance with new GAMAP. Fair presentation of financial statements depends, inter alia, on the appropriateness and application of accounting policies adopted in their preparation. Whilst applying GAMAP will assist in achieving fair presentation, the adoption of these new statements will not by itself achieve that objective as the scope of new GAMAP is not comprehensive. [ BACK TO THE TOP ] Effective Date New GAMAP is effective for the preparation of financial statements by all municipalities for financial years commencing on or after 1 July 2004. Early implementation by pilot municipalities is encouraged. List of current GAMAP Acknowledgement is given to information directly obtained from publicly available ASB documents, ASB documents circulated at the technical sub-committee meetings, as well as information obtained from publicly available IFAC documents. 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