Annual financial statement (AFS) are the culmination of the transactions and events during the financial year, as well as transactions and balances of the prior years. Annually, officials tasked with the preparation and oversight of the AFS need to consider information impacting the AFS. In many instances the preparation of this information is outside the direct management and control of the financial department itself. The preparers will therefore have to implement a sound process to gather such information as well as to ensure the accurate capturing of this information on the IT accounting system. This has to be done in an effective and timely matter within the prescribed format and timelines set by legislation and as support for the subsequent audit.

Ducharme has developed a three-day seminar which sets out processes to assist officials with managing and monitoring the year-end procedures and AFS compilation process.  This also includes key GRAP implementation issues. The execution of these processes will allow adequate and accurate information to prepare the AFS.

Day 1 addresses key GRAP implementation challenges impacting municipalities, as identified from Auditor-General reports, technical enquiries and frequently asked questions.  This is to provide context and understanding of the GRAP requirements and the underlying AFS information required.  

 Day 2 addresses procedures to monitor and manage the AFS preparation process. These include Information gathering procedures, which form part of the AFS considerations of recognition, measurement and disclosure of transactions and balances in the AFS. This also addresses the compilation of supporting audit file information which can also be used by the Auditor-General in the audit of the AFS. 

Day 3 addresses the AFS Compilation plan as well as on Ducharme’s automated AFS reporting solution for the pre-population of GRAP- and NT aligned AFS, based on the financial information contained in the electronic financial and accounting systems used. The DC AFS Reporting Tool has been successfully implemented by municipalities using E-Venus, Abacus, Munsoft, Samras, Sebata, and Promun systems.  It is also compatible with Dolphin, Pastel, Phoenix, Quill, Sap, Vesta, Bas and Oracle systems.

AFS Year-End Timeframes

This sets out a time framework related to key AFS processes and activities such as the compilation and implementation of a comprehensive AFS plan of action, key reconciliations, review of draft & final AFS (CFO, MM, Internal Audit, Audit Committee), submission to NT and the Auditor-General, management of audit queries system and subsequent implementation and monitoring of corrective measures.
This also addresses the process allocation to individuals in terms of a responsibility matrix, which sets out transactions and responsibility levels and target execution dates.  These individuals may include the MM, CFO, Divisional Heads (Budget & Treasury, Expenditure, Income, SCM), Head of Departments, Managers (Corporate-, Developmental-, Electrical-, Technical Services), Internal Audit, Performance Management Officer

Supporting information Memoranda

To assist the AFS prepares to gather and obtain the information as part of the Year-End AFS completion plan, we have also a repository of template memorandums which are tailored and circulated by the AFS prepares to the relevant departmental managers, where applicable, to identify and explain the information for each of the AFS line items required. Memoranda examples include:

• Income / Accounts Receivable: Splitting of debtor age analysis, impairment of debtors not included in billing system, prepayments received (building plan approvals. Prepayments, hall rentals); Grant detail summaries.
• Asset / Inventory Management: Verification of assets & inventory; review of useful lives and depreciation, water inventory, sub-store stock, summary details of finance & operating leases, spare parts and servicing equipment, inventory NRV considerations, donated PPE items and its FV considerations; theft, losses and damage of assets (impairment).
• Other disclosures: unauthorised, irregular, fruitless and wasteful expenditure, adjusting and non-adjusting events after reporting date; provisions assumptions and estimates (cleaning of illegal dumping, clearing of alien vegetation), potential assets and liabilities (litigation and arbitration, etc.), related party interests and transactions.
• MFMA Circular 50 Audit File & NT GRAP Disclosure Compliance Checklist

Our overview includes the supporting information required by the Auditor-General in their audit of the information in the annual financial statements. This also includes an overview of National Treasury’s GRAP Disclosure / Compliance Checklist which is part of the AFS submission processes and a self-review mechanism for the AFS.
This audit file information is to support the information included in the statements of Financial Position, Financial Performance, Net Assets and Cash Flows which the Auditor-General considers in expressing an audit opinion whether the AFS are free from material misstatements whether due to fraud or error. The information includes:

• Component lead sheets and reconciliations. These reconciliations include unspent grants, work in progress statement reconciliations, VAT reconciliations, stores & consumables (inventory counts, valuations, impairments, loss reconciliations), etc.
• Financial management information: Management finance related policies, procedure manuals, etc.
• Strategic Planning documentation: IDP Evaluations and SDBIP, with linkages to MTREF, strategic plan, risk assessment, risk strategy, performance information, fraud prevention plan, minutes of meetings of council.
• Internal audit: audit plan, charter, reports.
• Auditor-General / Audit Committee specific: evidence of remedial action taken to address previously raised matters of concern, audit queries or qualifications, minutes of meetings, progress reports from audit committee, measures taken by municipality, to address outstanding concerns.

Year-end AFS Completion Plan

The Comprehensive plan sets out the various activities per department covering all components of the AFS and activities within each component, with timeframe and responsible personnel allocations.  This provides guidelines for the collation and preparation of supporting documentation and working papers as part of evidence for the audit file to be used by the Auditor-General. Examples of these AFS components include:

• Transactions: the accounting guidelines and standards applicable to the entity, GRAP compliant Chart of Accounts, related party transactions, foreign exchange transactions, financial instruments, contingent liabilities & contingent assets, events after the reporting date, control accounts, suspense accounts,  accruals, pre-payments, preparation of cash flow statements.
• Revenue: tariffs, program reporting (e.g. property rates and service charges), miscellaneous requirements.
• Expenditure: general, employee cost / payroll; borrowing costs, hyperinflationary economics; construction contracts, segment reporting; mergers.
• Assets: PPE, intangible assets, investment property, heritage assets, biological assets, non-current investments, investments in controlled entities, joint ventures and associates, long-term receivables.
• LIABILITIES: Long-term Loans, Interest Bearing Borrowings, Finance Leases, Employee Benefits, Defined Benefit Plans, Non-current Provisions, Consumer Deposits, Current Provisions (includes Performance Bonuses, Current Portions of Retirement Benefit Liabilities and Non-current Provisions), Accounts Payable, Conditional Grants and Receipts, VAT Payable, Short-term Loans, Operating Lease Payables, Bank Overdrafts. Current Portion of Long-term Liabilities.
• Net assets: Reserves, Statutory funds,
• Disclosures: other gains & losses, discontinued operations, associated operations, non-cash investing & financial transactions, financing activities, utilisation of long-term liabilities reconciliations, unauthorised irregular fruitless & wasteful expenditure, MFMA disclosures, commitments for expenditure, multi-employer retirement benefit information, in-kind donations and assistance, comparison with budget, Private Public Partnerships, Comparative figures, Standards and Interpretation in issue not yet adopted

Automation of AFS

This will cover the automation of the AFS reporting process, based on the DC 2014 AFS Reporting Tool, which includes the latest changes applicable to the GRAP accounting reporting framework, accounting policies and NT requirements. This feature provides for account balances and transactions to be populated from the mapped trial balance based on the applicable Chart of Accounts / Vote Structure. 

The mapped structure and composition are based on the respective votes included for the Financial Performance (revenue, expenditure, appropriations, disposal of assets) or Financial Position Votes (non-current assets & liabilities, community wealth, suspense votes, old vote numbers, CAPEX totals for IYM, etc.) Each transaction and balance category will be further allocated to a sub-category item, item type, movement, etc. It also provides for the rollover of balances from the previous years for comparative information.
An example of a mapped balance from a vote:

• Non-current assets:
• Property Plant & Equipment
• Land And Buildings
• Historical Cost: Completed
• Balance Beginning of the Year

The tool also provides for pro-forma GRAP adjustments to be included the AFS which are not reflected in the TB, with separate reconciliation thereto. These include debtors with credit balances, contingent liabilities and / or assets.

Once a mapped AFS has been prepared, changes can also still be made in the underlying accounting systems (due to journals or further processing). These changes can then be easily updated and reconciled in the automated AFS to reflect the update position. Computer check-balances are in place to identify unmapped details.

Due to the integrated data linking from the TB to the mapped AFS, detailed working papers and reports can be run.  These working papers can be used as lead sheets for audit purposes to be included in the audit files, matching back to the TB. Other reports include:  

• Unauthorised expenditure comparison reports, based on actual and budget information included in the AFS (e.g. difference between actual amount, original budget, actual budget, final budget, variance, unauthorised variance / Thresholds reports based on percentage of vote variance).
• Detailed reports per cost centre vote number reports (cost centre per Department).
• Other reports run include the automated population of the cash flows based on the information, with details included of previous years’ audited outcomes, comparison to the original and adjusted budgets, as well as the Medium Term Revenue & Expenditure Framework information

Target participants

South African public sector officials preparing or managing the GRAP-compliant AFS processes, e.g. Chief Financial Officers, officials from the Finance Department and any officials involved in Annual Financial Statements (AFS) compilation or processing of information included in the AFS (Schedule 3A & 3C entities, Municipalities, certain Legislatures, Constitutional Entities, FET Colleges, etc.).

Officials in the employ of the National Treasury, Provincial Treasuries and District Municipalities who advise and guide public sector entities in the application of GRAP will also benefit.

For dates, course venues, costing, and registration processes please contact us. 

Alternatively contact Daniel Erasmus on 0722 58 12 45 or at derasmus<at>ducharmeconsulting.co.za.