MCS AND RELATED DOCUMENTS UPDATES
Overview of updates and amendments to MCS documents for the year 2020/2021, including changes related to measurement periods, transfers of functions, mergers, template updates, and more. The updates cover chapters, specimen financial statements, and practical challenges considered by the Office of the Auditor General. Illustrative examples demonstrate the application of measurement periods for transfers of functions and errors correction in accounting.
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MCS AND RELATED DOCUMENTS UPDATES 2020/2021 1
2020/2021 OVERVIEW No amendments to the MCS other than to include measurement period for transfers of functions or merger [See next slide]; Updates to identified AMD chapters; Updated Specimen AFS aligned with additional disclosures already included in IFS template on COVID-19 spending; AFS Template Macro for minor errors / updates; 2
2020/2021 MCS UPDATE OAG considered measurement practicality challenges raised by Departments when there is Transfer of Function (ToF) or when there is a merger, mainly on capital assets. Subsequently, OAG adopted the measurement period that is in the GRAP Standards dealing with ToF and Mergers in the MCS Chapters 19 and 20. [paragraphs 19.33 to 19.37 paragraphs 20.21 to 20.25] MEASUREMENT PERIOD: Period after the transfer date /merger date during which the acquirer / combined entity may adjust amounts recognised/recorded for a ToF or Merger. If the initial accounting for a ToF or merger is incomplete by reporting date, the acquirer / combined entity shall report in its financial statements that the accounting is incomplete. o acquirer / combined entity shall retrospectively adjust any amounts recognised/recorded at the transfer date / merger date to reflect new information obtained o Measurement period ends when information requires to confirm facts and circumstances that existed at transfer date / merger date is obtained o Measurement period shall not exceed two years from the transfer date / merger date. o After the measurement period ends, the acquirer shall revise the accounting for a transfer of functions only to correct an error in accordance with Chapter 4 o 3
2020/2021 MCS UPDATE Illustration: Measurement period Date Details Dept A AFS reporting 30 Sep 20X1 Legislation passed requires Dept A to take over function Z of Dept B. No AFS (IFS: May report in ToF Note that legislation was passed and the ToF is incomplete) 31 Jan 20X2 Transfer date: Dept A obtains control of the assets and liabilities through a MoU drawn up between the two depts No AFS Measurement period begins 31 Mar 20X2 Reporting date: ToF incomplete Report in ToF Note that the ToF is incomplete 31 Mar 20X3 Reporting date: ToF incomplete Report in ToF Note that the ToF is incomplete 30 Jul 20X3 Information update all ToF except 60% of capital assets No AFS Adjust the financial records with measurement information available 31 Jan 20X4 Measurement period ends No AFS Measurement period ends. 31 Mar 20X3 Reporting date: measurement of 60% of ToF capital assets still incomplete Amounts reported on 60% of the capital assets not measured correctly = error in terms of MCS Chapter 4. 30 Apr 20X3 AOs of Dept A and B sign Inventory i.t.o. PFMA s42 i.e. Dept A accepts all assets and liabilities transferred by Dept B. Update the financial records with measurement information for 60% of capital assets that were not measured correctly Report the adjusting event in terms of MCS Chapter 17. Report correct amounts in the ToF Note 4
2020/2021 AMD UPDATES AMD Chapter Update Various Chapters Minor amendments. E.g. replaced This with These Chapter 6 on Cash Flow Statement Clarification on MCS requirement relating to the disclosure of unrealised gains/losses on the revaluation of cash held in foreign bank accounts. Essentially relevant to DIRCO. [paragraph 3.4] Chapter 7 on Revenue Removed the term depreciated in the example as depreciation is currently not relevant for departments. [paragraph 4.1] Chapter 7 on Revenue Removed reference to stale cheques. [paragraph 6.3.7] Chapter 7 on Revenue Added wording as part of aid assistance guidance indicating that the RDP Fund is established in terms of Act No.7 of 1994 and expanded the definition of spending agency. [paragraph 6.4] Chapter 7 on Revenue Clarification provided on disclosures of donations in-kind . [paragraph 6.6] 5
2020/2021 AMD UPDATES AMD Chapter Update Chapter 9 on General Departmental Assets and Liabilities Added a take note box stating that Disclosure of unauthorised, irregular and fruitless expenditure is based on statutory requirements. Departments are required to use the guidance issued separately by the Governance, Monitoring and Compliance unit of the OAG for the reporting requirements. [paragraph 6.1] Chapter 9 on General Departmental Assets and Liabilities Added a take note box for purchase and capitalisation of shares. The payment is reflected in the statement of financial performance (as budgeted) and the investment is recognised in the statement of financial position. [paragraph 5.1c)] Chapter 11 on Capital Assets Take note box clarifies instances of where assets should be reported as Inventories [paragraph 3] Chapter 11 on Capital Assets Clarification on assets to be transferred (and subsequent events) [paragraph 7] Chapter 11 on Capital Assets Updated guidance on assets under investigation disclosure requirements [paragraph 7] Chapter 11 on Capital Assets Clarification on assets held for distribution [paragraph 7] 6
2020/2021 AMD UPDATES AMD Chapter Update Chapter 11 on Capital Assets Clarification on unbundling of infrastructure assets and componentisation [paragraph 4.4.7] and [paragraph 4.5.3] Chapter 11 on Capital Assets Clarification on measurement and a decision tree added [paragraph 5.1.1] Chapter 11 on Capital Assets Clarification of the terms similar characteristics and similar circumstances as part of guidance on methods applied in determining fair value. [paragraph 5.6] Chapter 13 on Leases Updated example on Expired Leases. Also removed the definition of commitment in the example as it is not required for the purposes of this example. Including the commitment definition in this example is confused with the commitment definition in the Provisions and Contingents chapter. [paragraph 5.4] Chapter 14 on Provisions and Contingents Removed reference to tenders. Reference to tenders is misconstrued to relate to the previously applied concept of approved and not yet contracted . [five instances; various paragraphs] 7
2020/2021 AMD UPDATES AMD Chapter Update Chapter 14 on Provisions and Contingents Specified that Departments should ensure that the latest amounts of long service recognition are used in terms of the relevant DPSA prescripts. [paragraph 5.3.3] Chapter 14 on Provisions and Contingents Updates on capital commitments guidance to align to the MCS [paragraph 8.1] Chapter 14 on Provisions and Contingents Annexure 4 to the AMD addresses accounting for medico-legal claims. [Annexure 4] Chapter 15 on Related party disclosures Clarification on amount to be disclosed by a seconding and / or a receiving department of a seconded KMP. [paragraph 4.2] Chapter 16 on Accounting by Principals and Agents Inclusion of ASB FAQ in the relevant areas of the AMD. [paragraphs 3.1 to 3.4] 8
