September to November: audit season
GRAP 104 in the 2025/26 audit: what the auditors will test in your expected credit loss model
The 2025/26 financial statements are the first under the revised GRAP 104. Here is what an auditor looks for in a municipal expected credit loss model, and how to have the answers ready.
The revised GRAP 104 applies to financial years beginning on or after 1 April 2025, which makes the 2025/26 municipal financial statements the first prepared under it. The main change for municipalities is the move from an incurred loss model to an expected credit loss model for consumer debtors and other receivables. That change lands in the audit that is running right now, and the auditors will treat the loss allowance as a significant estimate. Here is what they will look at, and how to have the answers ready before they ask.
Why the impairment number attracts attention
Consumer debtors are usually the largest current asset on a municipal balance sheet, and the loss allowance is often the largest single estimate in the statements. It moves revenue, receivables and the statement of financial performance at the same time. A small change in assumptions changes the number by millions, so the auditor's work is about whether the assumptions are reasonable, supported and consistently applied, not about whether the arithmetic adds up.
The five things the auditors will test
1. The data underneath the model
Before any judgement is discussed, the auditor will agree the debtors age analysis to the general ledger at 30 June, by service and by debtor category, and will check that the population in the model is complete. If the age analysis used in the model was drawn on a different date, or excludes certain accounts, the whole model is questioned. Keep the extract, the reconciliation and the sign-off together, and make sure the balances in the model are the balances in the statements.
2. How the book is segmented
An expected credit loss model groups debtors that behave the same way. Households, businesses, government departments and indigent accounts do not pay the same way, and rates, water, electricity, refuse and sanitation do not either. The auditor will ask why the segments were chosen and whether the payment history supports the grouping. A single blended rate applied to everything is the fastest route to a finding.
3. Historical loss rates
The model has to rest on the municipality's own collection and write-off history over a period long enough to be meaningful. The auditor will want to see the source data, the period used, how write-offs were treated, and that the rates are recalculated each year rather than rolled forward from a spreadsheet nobody remembers building. If the credit control and debt collection policy says accounts older than a set period are handed over or written off, the model and the policy must tell the same story.
4. Forward-looking adjustments
Expected credit losses are forward-looking by definition. The standard requires reasonable and supportable information about future conditions, which for a municipality usually means the outlook for collection rates, the economic position of the community and any planned changes in credit control. The auditor is not looking for a macroeconomic thesis; they are looking for a documented reason for any adjustment to the historical rates, and for evidence that the adjustment was reviewed rather than plugged to reach a number.
5. Consistency, disclosure and review
Because this is the first year under the revised standard, the auditor will check how the change was accounted for and disclosed, that the loss allowance reconciliation in the notes agrees to the model, and that the credit risk disclosures describe what the municipality actually did. They will also ask who reviewed the model and when. A model prepared and reviewed by the same person, on the last day before submission, is a finding on its own.
Have these on file before the request arrives
- Age analysis at 30 June reconciled to the ledger by service and category, signed off.
- A one-page description of the model: segments, data period, loss rates, forward-looking adjustment and who approved it.
- The prior-year comparison and an explanation of the movement in the allowance.
- Evidence that the credit control policy, write-off decisions and the model agree with each other.
- The disclosure notes, agreed to the model to the rand.
Two areas that trip municipalities up
The first is statutory receivables. Property rates, traffic fines and similar amounts arise from legislation rather than contracts and sit under GRAP 108. The auditor will expect a separate, documented assessment for these balances under that Standard's own impairment requirements, drawing on the same reconciled data as the rest of the book, not a footnote saying they were "included in the ECL model".
The second is government debtors. Amounts owed by national and provincial departments and other organs of state are frequently in dispute or paid slowly, but they do not carry the same credit risk as household accounts. Treating them at the household loss rate overstates the allowance; assuming they are risk-free understates it. Assess them on their own evidence, and keep the correspondence that supports the assessment.
When the finding has already arrived
If the auditors have raised a finding on the loss allowance, respond to the specific point. If the data was incomplete, complete it and rerun the model. If the segmentation or the rates are challenged, provide the evidence for them or accept the point and correct the estimate. A corrected allowance, supported by a reperformed model and a reconciliation from the submitted statements to the corrected ones, is a far better outcome than defending a number that cannot be supported.
Where we help. Ambition Partners Advisory prepares and reviews GRAP 104 and GRAP 108 impairment models for municipalities and municipal entities, and our 360DebtorsPro tool produces the model, the movement reconciliation and the disclosure notes from the municipality's own age analysis. If your allowance is under audit right now, we can review the model and the auditor's finding quickly. Read about our GRAP 104 and 108 service or message us on WhatsApp.
Discuss your municipality’s requirements
Ambition Partners Advisory is a Chartered Accountant (SA) led practice working with municipalities, municipal entities, government departments and public entities across South Africa. Tell us where you are in the reporting cycle and we will send you a scope, timeline and fee.