This document provides an overview of preparing and analyzing municipal financial reports according to financial reporting standards. It discusses selecting, measuring, recording, classifying, and reporting financial data according to GRAP standards. The document outlines the content and learning outcomes for four units covering: 1) financial reporting standards, 2) preparing reports for different municipality forms, 3) statements of generally recognized accounting practices, and 4) analyzing financial statements for stakeholders. Key aspects of municipal financial reporting like statements, accounting policies, recognition criteria, and the differences between cash and accrual accounting are also summarized.

1. 1
Prepare and analyse municipal financial reports
Unit Standard ID
116363
Senior Managers
Prepared and Presented by Mike Masiyambiri

2. Unit Standard Outcomes
• Select, measure, record, classify and report financial data in
accordance with financial reporting standards;
• Prepare and comment on financial reports for different forms of
municipal entities;
• Apply and comment on statements of generally recognised
accounting practice; and
• Analyse and interpret financial statements for stakeholders.
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3. Content of Learner Manual
• Unit 1: Select, measure, record, classify and report financial
data in accordance with current financial reporting standards
• Unit 2: Prepare and comment on financial reports for different
forms of municipalities
• Unit 3 Apply and comment on statements of Generally
Recognised Accounting Practices
• Unit 4: Analyse and interpret financial statements for
stakeholders
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4. Unit 1
Select measure, record, classifyandreport
financial data in accordance with current
financial reporting standards
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5. Learning Outcomes
• Discuss and comment on the background and purpose of financial
reporting standards in line with the principles of municipal financial
reporting;
• Define, measure, classify and disclose the components of the
statement of financial position in accordance with acceptable local
and international public sector accounting standards;
• Define, measure, classify and disclose the components of the
statement of financial performance in accordance with acceptable
local and international public sector accounting standards; and
• Apply the different types of capital maintenance in line with generally
recognised accounting practices.
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6. Financial Reporting Standards
• Section 216 of the Constitution - establishment of a NT and prescribe measures to
ensure both transparency and expenditure control in each sphere of government, by
introducing GRAP.
• Minister of Finance to appoint the ASB to develop these standards
• The need to comply with the requirements of the GRAP standards.
• The primary purpose of GRAP is to help municipalities provide relevant and comparable
information
• . GRAP identify uniform practices that make financial statements more understandable
and useful.
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7. GRAP standards
• Various standards have been set for various purposes
Accounting Standards
• Summary of accounting treatment required by the standard
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8. MFMA requirements regarding the financial
statements
Section 122 (1) of the MFMA
• Every municipality and every municipal entity must for each financial
year prepare AFS which—
• (a) Fairly presents the state of affairs of the municipality or entity
• (b) Disclose the information required in terms of sections 123, 124
and 125.
Section 121 (2) - MFMA
• A municipality which has sole control of a municipal entity, must in
addition to complying with subsection (1), prepare consolidated AFS
incorporating the AFS of the municipality and of such entity.
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9. MFMA requirements regarding the financial statements
Section 121 (3) - MFMA
• Both AFS and consolidated AFS must be prepared in accordance with
GRAP prescribed in terms of Section 91(1) (b) of the MFMA.
Other important sections within the MFMA;
• Section 123 - the disclosures on intergovernmental and other
allocations
• Section 124 - the disclosures concerning councillors, directors and
officials
• Section 125 - the other compulsory disclosures.
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10. Principles of Municipal Financial Reporting
• Transparency, accountability and openness in reporting and
disclosure of information, both operational and financial, are
internationally accepted to be vital to the practice of good corporate
governance.
• Good corporate governance seeks to promote efficient, effective and
economical sustainable entities that contribute to the welfare of
society by creating wealth, employment and solutions to emerging
challenges, responsive and accountable institutions and recognition
and protection of stakeholder rights.
• The principles of reporting (transparency, accountability and
stewardship) should underlie the preparation and presentation of
financial statements
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11. Objectives of financial statements
Assumptions to be incorporated into financial statements.
• Going concern: That an assessment of a Municipality’s ability to
continue as a going concern was made by management and the
municipality will continue in operation for the foreseeable future.
• Accrual basis: That the financial statements should be prepared using
the accrual basis of accounting. Under this basis, the effects of
transactions and other events are recognised when they occur
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12. Elements of Financial statements
Financial statements in relation to a municipality refers to
statements consisting of the following:
• a statement of financial position;
• a statement of financial performance;
• a statement of changes in net assets;
• a cash-flow statement;
• a summary of significant accounting policies; and
• notes to the statements.
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13. Notes to the Accounts on Accounting Policies
Purpose of the Notes
• To present information about the basis of preparation of the financial
statements and the specific accounting policies used;
• To disclose the information required by Standards of GRAP that is not
presented on the face of the statement of financial position,
statement of financial performance, statement of changes in net
assets or cash flow statement; and
• To provide additional information that is not presented on the face of
the statement of financial position, statement of financial
performance, statement of changes in net assets or cash flow
statement, but is relevant to an understanding of any of them.
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14. Accounting Policy Notes on the AFS
• When a Standard of GRAP specifically applies to a transaction, other
event or condition, the accounting policy or policies applied to that
item shall be determined by the Standard and any relevant Directives
and Guidelines issued by the ASB for the Standard.
• If one or more alternative accounting policies (benchmark or allowed
alternative) are available under a standard of GRAP, a municipality
should choose and apply consistently one of those policies unless the
standard specifically requires or permits categories of items
(transaction, events, balances, amounts, and so on) for which policies
are to be chosen.
• If a standard requires or permits separate categorisation of items, a
single accounting policy should be selected and applied consistently to
each category.
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15. Accounting Policy Notes on the AFS
• In the absence of a particular Standard of GRAP that specifically
applies to a transaction, other event or condition, management shall
use its judgment in developing and applying an accounting policy that
results in information that is:
• relevant to the economic decision-making needs of users;
• reliable in that the financial statements represent faithfully financial
positions, financial performance and cash flows of the entity and
reflect the economic substance of transactions;
• neutral, that is, free from bias;
• prudent; and
• complete in all material respects.
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16. Consistency of Accounting Policies
• A municipality shall select and apply its accounting policies for a period consistently for
similar transactions, other events and conditions, unless a standard of GRAP specifically
requires or permits categorisation of items for which different accounting policies may
be appropriate.
• If a Standard requires or permits such categorisation, an appropriate accounting policy
shall be selected and applied consistently to each category.
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17. Distinction between Cash and Accrual Accounting
Cash basis of accounting
• Transactions and events are recognised when cash is received or
paid;
• Cash receipts, disbursements and balances are measured at
historical cost;
• Financial results are measured as the difference between cash
received and cash disbursed; and
• Information is provided about the sources of cash raised the uses
to which those funds are applied and cash balances at the
reporting date.
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18. Distinction between Cash and Accrual Accounting
Accrual basis of accounting
• Transactions and events are recognised when they occur;
• All assets and liabilities are measured on the historical cost basis,
sometimes with the re-measurement to the fair value or discounted
present value of certain assets and liabilities;
• The measurement focus is on economic resources or service potential
and changes therein; and
• Information is provided about the resources controlled by the entity,
the cost of operations or providing services, the financial position and
changes in the financial position and operational efficiency.
• The accrual accounting basis is required by GRAP.
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19. Recognition criteria for assets, liabilities, revenue and expenditure
Assets
• a resource controlled by a municipality
• as a result of past events (must exist at reporting date)
• from which future economic benefits or potential service provision are
expected to flow.
Liabilities
• a present obligation of the municipality,
• arising from past events,
• the settlement of which is expected to result in a sacrifice of potential
service provision or an outflow from the municipality of resources
embodying economic benefits.
Refer to the conceptual framework for the definition
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20. Recognition criteria for assets, liabilities, revenue and expenditure
Revenue
• increases in economic benefits or potential service provision
• during the accounting period
• in the form of inflows or enhancements of assets or decreases in
liabilities that result in increases in own capital.
Expenditure
• decreases in economic benefits or consumption or losses of potential
service provision;
• during the accounting period; and
• in the form of outflows or depletions of assets or increases in
liabilities that result in decreases in own capital, other than those
relating to distributions to own capital participants.
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