GENERALLY ACCEPTED MUNICIPAL ACCOUNTING PRACTICE (GAMAP)
The Minister of Finance has approved new municipal accounting statements that will be introduced through legislation as required by Section 216(1) of the Constitution. These statements, which are provisionally referred to as Generally Accepted Municipal Accounting Practice (GAMAP), have been developed in consultation with key role-players in the Local Government arena and will apply to all municipal bodies. The role-players include the South African Government Association (SALGA), Institute of Municipal Finance Officers (IMFO), Department of Finance (DoF), Department of Constitutional Development (DCD), Development Bank of South Africa (Dabsa) Department of State Expenditure (DSE), the South African Institute of Chartered Accounts (SAICA) and the Auditor General's Office (as observer).
GAMAP is being introduced to overcome shortcomings experienced with existing municipal accounting practices. Current practices are complex and are based on the different provincial ordinances. It does not promote transparency and encouraged taxation in advances of need and adversely effect the accurate costing of services. As a result, the financial statements of municipalities tend not to accurately portray their financial position thereby creating a barrier to the accessing of external loans and other finance to fund much needed development. Furthermore, the constitutional obligation of national and provincial government to monitor the financial position of municipalities is compromised.
GAMAP is primarily based on International Accounting Standards as well as South African Generally Accepted Accounting Practices, adjusted where necessary to take into account the attributes unique to municipalities. The most significant change will relate to the accounting treatment of fixed assets that are presently recorded in the accounting records and financial statements at original purchase price. In terms of GAMAP, fixed assets will now be depreciated and disclosed in the financial statements at historical depreciated values. Changes to the accounting treatment of the funding of fixed assets have also been made to eliminate the necessity to disclose internal transactions in the financial statements, prevent the expensing of loan repayments and to reflect the true cost of service provision.
The introduction of GAMAP will also ensure that there is consistency in the accounting treatment of transaction and classification of account balances in municipalities, facilitate comparability between similar sized municipal bodies on a national basis and enable users to financial statements to make more accurate assessments of risks and returns.
The introduction of GAMAP will also have other positive implications for local authorities. Other than more relevant and detailed disclosures in financial statements to improve accountability and transparency, municipalities will need to focus specifically on cash flow budgeting to ensure that sufficient cash will be generated to finance operating and capital expenditure. Attention will also need to be given to the management of working capital, as detailed disclosure will now be required in the financial statements. Accounting practices are continually evolving to reflect changing business practices and therefore there will be a need to ensure that GAMAP is updated to keep abreast of these changes. Legislation (i.e. the Treasury Control Bill) will shortly be passed enabling a Public Sector Accounting Standards Board to be established and will be responsible for introducing GAMAP statements and updating these where necessary. It is envisaged that this Board will operate on a similar basis to the Accounting Practices Board that is tasked with updating South African Generally Accepted Accounting Practices for the private sector.
Processes are presently being put in place to ensure that local authorities will be in a position to introduce the changes emanating form GAMAP. Training materials are being prepared and will be used to capacitate councillors and finance officials on the significant changes emanating from these accounting standards.
In conclusion, government is confident that GAMAP will benefit all users of municipal financial statements. The introduction of these changes demonstrates government's commitment to building an accountable, transparent and financially viable local government system.
Contact persons at the Department of Finance: Roland White (012) 315-5346
and TV Pillay (012) 315-5154
Issued by: Department of Finance, 14 December 1998