Standards in practice: GRAP 104
The GRAP 104 transition: what the first year requires, and how to handle consumer debtors
The revised GRAP 104 applies for the first time to the 2025/26 financial statements. The transition has its own rules, and most of them are reliefs rather than burdens. Here is how they work, how they apply to consumer debtors, and what 360DebtorsPro produces for the opening adjustment and the transition note.
Why the transition is its own piece of work
The revised GRAP 104 on Financial Instruments, issued in 2019, took effect for reporting periods beginning on or after 1 April 2025. Municipalities have a 30 June year end, so the 2025/26 financial statements, the ones being audited right now, are the first prepared under it. A good deal has been written about what the new Standard requires once you are on it. Less has been said about the transition itself, and in our experience that is where first-year findings tend to arise.
The transition matters because a change of accounting standard is normally handled under GRAP 3, which means retrospective application: restate the comparatives, adjust the opening balances, disclose the effect on every line. The Standard itself does not set out its own transitional rules. Chapter 9 of GRAP 104 (2019) says that the transitional provisions are prescribed in the ASB's Directives. For municipalities those are Directive 3 (high capacity municipalities, paragraphs .91 to .99V) and Directive 4 (medium and low capacity municipalities); municipal entities look to Directive 2 (paragraphs .80 to .88V). The GRAP 104 (2019) provisions are the same in substance across the Directives and only the paragraph numbers differ, so check your own Directive and cite it in the accounting policy note. Miss that reference and you will either do far more work than the Directives ask of you, or take the adjustment through the wrong place.
The short version is that the Directives keep the principle of retrospective application but remove most of the work it would normally involve. You do not have to restate the prior year. For consumer debtors the whole effect lands in one adjustment to opening accumulated surplus or deficit. And the impairment reliefs for consumer debtors are close to automatic. The rest of this article explains how.
If your municipality adopted the Standard early in 2024/25, the transition described here happened a year earlier and the 2025/26 statements should carry no transition adjustment.
The transitional provisions in plain terms
Stripped of the cross-references, the transitional provisions come down to this.
The date of initial adoption is the first day of the year in which you apply the Standard. For municipalities that is 1 July 2025. Everything in the transition turns on the facts and balances at that date.
The Standard is applied retrospectively, except where the Directives say otherwise. The starting principle is GRAP 3. The exceptions that follow are what make the transition manageable.
You are not required to restate the prior year. The Directives say so in as many words. If you do not restate, the 2024/25 comparatives stay on the old GRAP 104 (2009) basis, and the difference between the old carrying amount and the new one at 1 July 2025 is recognised in the opening accumulated surplus or deficit of 2025/26 (or another component of net assets where that is the appropriate home). It is shown as a separate adjustment line in the statement of changes in net assets, between the 30 June 2025 closing balance and the 1 July 2025 opening balance. It does not go through the statement of financial performance for the year.
Items already derecognised before 1 July 2025 are left alone. Debt written off, loans repaid and investments sold before the date of initial adoption are not reworked under the new Standard.
Classification is decided on the facts at the date of initial adoption. Whether a financial asset is held within a management model whose objective is to collect the contractual cash flows, and whose contractual terms give rise to cash flows that are solely payments of principal and interest, is assessed as at 1 July 2025, and the resulting classification is then applied retrospectively. Designations at fair value through surplus or deficit are made or revoked at that date on the same basis.
Where retrospective application is impracticable, there are practical fallbacks. If applying the effective interest method retrospectively is impracticable, the fair value at 1 July 2025 becomes the new gross carrying amount. Similar relief exists for assessing modified time value of money and prepayment features on old instruments.
For a municipality whose financial assets are mostly consumer debtors, bank balances, short term investments and a few loans, the classification questions are usually quick. Consumer debtors are held to collect the contractual cash flows and are measured at amortised cost under both the old and the new Standard. The work is in the impairment, which is where the next section goes.
Impairment on transition: what the reliefs actually mean
The impairment requirements of the new Standard are applied retrospectively, but the Directives immediately qualify that in a way that matters. Because comparatives need not be restated, applying impairment retrospectively means one thing in practice: measure the loss allowance on an expected credit loss basis at the date of initial adoption. You are not rebuilding the allowance for every earlier year end. You are producing one number at 1 July 2025.
For consumer debtors that number is a lifetime figure, and there is no choice about it. Paragraph 5.30 of GRAP 104 (2019) requires the loss allowance on receivables to be measured at lifetime expected credit losses at every reporting date, so the question of whether credit risk has increased since the account was opened is never asked. A municipality therefore has one job at transition on its consumer debtors: measure a lifetime expected credit loss allowance on the 30 June 2025 book and recognise the difference against opening accumulated surplus or deficit.
The other financial assets, such as loans to employees or to entities, long term receivables and investments in bonds, fall under the general approach, where the allowance is a 12-month figure unless credit risk has increased significantly since initial recognition. Few municipalities have any record of a debtor's credit risk when the account was opened, so the Directives give three reliefs at transition: approximate the credit risk at initial recognition from reasonable and supportable information that is available without undue cost or effort; rely, if you wish, on the rebuttable presumption that credit risk has increased significantly once payments are more than 30 days past due; and where the determination would require undue cost or effort, recognise a lifetime allowance on that instrument at every reporting date until it is derecognised, unless it is low credit risk at a reporting date. These assets are usually few in number and the assessment can be done one by one.
Consumer debtors: what changes on 1 July 2025 and what does not
The transition on consumer debtors is a comparison of two allowances on the same book at the same date, and one journal to record the difference.
The old allowance. Under GRAP 104 (2009) the allowance was an incurred loss number. In most municipalities that meant a percentage per age bucket set in the accounting policy, or a full provision on everything older than a fixed number of days. Whatever the method, the 30 June 2025 allowance is the closing figure under the old basis and it stays as reported in the 2024/25 statements, unless a prior period error in it is corrected under GRAP 3. That correction is a separate adjustment, shown separately from the transition, and the transition is then measured off the corrected figure.
The new allowance. The same 30 June 2025 age analysis, reconciled to the debtors control account and VAT inclusive, is run through a lifetime expected credit loss model: segmented by debtor type and service, with historical loss rates from the municipality's own collection and write-off history, a documented forward looking adjustment, and a documented view on discounting. Expected credit losses are measured at present value, so on a book with balances several years old the working paper needs to show either the discounting applied or why its effect is immaterial. That produces the opening loss allowance under GRAP 104 (2019) at 1 July 2025.
The adjustment. The difference between the two is recognised in opening accumulated surplus or deficit for 2025/26. If the new allowance is higher, the opening surplus goes down. If it is lower, which we have seen on organs of state and on well collected services, the opening surplus goes up. Either way, it is not an impairment charge or reversal in the 2025/26 statement of financial performance.
The charge for the year. The impairment loss for 2025/26 is the movement in the allowance from 1 July 2025 to 30 June 2026, adjusted for the accounts written off against the allowance during the year and for any recoveries. The loss allowance reconciliation in the note shows each of those separately. Carrying the 30 June 2025 figure forward and calling it the opening expected credit loss allowance is not a transition; the opening figure has to be measured on the new basis, and the reconciliation between the two has to be disclosed.
A few practical points follow from this.
The transition uses the balances that existed at 1 July 2025. Accounts written off under the credit control policy before that date are derecognised items and are not part of the exercise. Write-offs during 2025/26 are movements in the year.
The model built for 1 July 2025 and the model run at 30 June 2026 must be the same model. The transition adjustment and the year's charge only make sense if the segments, the rate methodology and the forward looking approach are consistent between the two dates. Building one model at year end and working an opening figure back from it is, in our experience, a reliable way to attract a finding, because the opening allowance becomes an estimate of an estimate.
Either restate the comparatives in full under GRAP 3 or do not restate at all. Changing the prior year impairment line while leaving the prior year receivable untouched produces statements that do not add up.
Statutory receivables such as property rates and traffic fines are outside this exercise. They are dealt with under GRAP 108 on an indicator based assessment, and their allowance is not restated to an expected credit loss basis. Which services are contractual (GRAP 104) and which are statutory (GRAP 108) is a judgement each municipality has already made in its accounting policies; the transition follows that split rather than changing it, and the same split must be applied to the old and the new allowance. Where the billing system mixes rates and services on one account, the split has to be made before the model runs.
The VAT component travels with the receivable. The whole contractual amount, VAT included, is one financial asset and the lifetime expected credit loss is measured on it. Running the matrix on VAT exclusive balances understates both the opening and the closing allowance by the VAT on the expected loss. The related VAT accrual, being the output VAT that only becomes payable to SARS when the debtor pays, is presented separately and kept in step with the collection assumptions, as covered in our earlier article on VAT in consumer debtors.
The disclosures the first year has to carry
The relief from restating comparatives comes with a set of transition disclosures that appear only in the 2025/26 statements, and they are an obvious starting point for an auditor reviewing the financial instruments note.
A reconciliation of measurement categories. For each class of financial asset and liability at 1 July 2025: the original measurement category and carrying amount under GRAP 104 (2009), the new category and carrying amount under GRAP 104 (2019), and the changes split between those arising on the old basis and those arising from the change in measurement attribute on transition. The Directives ask for this in a table unless another format is more appropriate.
A reconciliation of the impairment allowance. The closing allowance under GRAP 104 (2009), together with any related provisions under GRAP 19, reconciled to the opening loss allowance under the new Standard, shown by measurement category and separating the effect of any change in category. For most municipalities this is the single most important line in the note, because it is the transition adjustment on consumer debtors made visible.
Qualitative information. How the classification requirements were applied to anything whose classification changed, and the reasons for any designation or de-designation at fair value through surplus or deficit. There are further transition disclosures for anything reclassified into or out of fair value, including the fair value and effective interest rate of those items; they seldom apply to a municipality's consumer debtors.
The GRAP 3 change in accounting policy note. GRAP 3 requires, on initial application of a Standard, the title of the Standard, a statement that the change was made in accordance with its transitional provisions, the nature of the change, a description of those provisions, and the amount of the adjustment for each line item affected in the current period and for the periods before those presented. Most municipal templates carry this in the changes in accounting policy note rather than the financial instruments note, and the two must agree.
What you do not have to show. The Directives are explicit that you are not required to present what the prior periods would have looked like under the new Standard, or what the current period would have looked like under the old one. That relief is worth taking; a parallel run of both bases for the whole year adds work and confuses readers. The relief covers line item amounts. It does not say in terms whether comparatives are needed for the new credit risk and loss allowance disclosures, and GRAP 1 asks for comparatives on narrative information unless a Standard says otherwise. Our view is that the new disclosures are presented for the current year, that the comparative column carries what was disclosed under the old Standard with a note saying it was prepared on that basis, and that the treatment is agreed with the auditor early rather than argued at the end.
On top of the transition disclosures, the new Standard's own credit risk disclosures start in the same year: the gross carrying amounts by credit risk grade under paragraph 8.54, which for receivables may be presented on the basis of the provision matrix under paragraph 8.55, together with the loss allowance reconciliation for the year and the inputs, assumptions and techniques behind it. Where the National Treasury AFS template for 2025/26 carries a transition note, build the working paper to that layout rather than to a bespoke one.
The practical consequence is that the transition needs its own working paper: the two allowances at 1 July 2025 by segment, the journal, the category table, the allowance reconciliation and the GRAP 3 note, all agreeing to the rand with the age analysis and the ledger. Leaving the transition note out is a disclosure omission that is likely to be raised before anyone looks at the numbers.
If the audit is already under way
Most readers of this article submitted their 2025/26 statements to the Auditor-General by 31 August and are now in the audit. If the transition was not done, or was done wrongly, that is not the end of the matter. Corrections identified during the audit go through the audit adjustment process before the audit report is signed, and a transition adjustment corrected that way is a far better outcome than a qualification on the receivables balance. Prepare the transition working paper and the note now, keep the transition adjustment separate from any prior period error corrections raised in the same audit, and give the auditors a reconciliation from the submitted statements to the corrected ones.
A change in accounting policy of this size deserves attention above the finance department as well. The adjustment to opening accumulated surplus sits outside the budget, and the chief financial officer should be able to explain it to the audit committee, to council and to the municipal public accounts committee. The audit committee should have reviewed the model, the register of judgements behind it and the transition note before management signed the statements, and should see any revised note before it goes back to the auditors. Where that review has not happened yet, it is worth arranging now rather than after the audit report.
What 360DebtorsPro produces for the transition
We built 360DebtorsPro for our own GRAP 104 engagements. The steps above are not difficult individually. What makes the transition hard is doing all of them on the same reconciled data, in the same model, with every figure traceable, while the rest of year end is going on. That is the part the system carries.
One model, two dates. The 30 June 2025 and 30 June 2026 age analyses are loaded once, reconciled to the control account and segmented the same way. The lifetime expected credit loss model runs on both, so the opening allowance at 1 July 2025 and the closing allowance at 30 June 2026 are drawn from the same segments, the same loss rates and the same forward looking approach.
The old basis alongside the new. The 30 June 2025 allowance on the old basis is captured against the same segments, so the system produces the comparison the Directives ask for: old allowance to new opening allowance, by category, with the effect of any category change shown separately.
The opening journal, written out. The adjustment to opening accumulated surplus or deficit is produced as a journal with its supporting schedule, rather than a figure someone has to derive from two spreadsheets.
The transition note and the year's notes from the same figures. The measurement category table, the allowance reconciliation on adoption, the movement in the loss allowance for the year (opening balance, charge, write-offs, recoveries, closing balance) and the credit risk disclosure by provision matrix are produced from the model, so the note is built from the same figures as the working paper.
VAT handled as part of the receivable. The model runs on VAT inclusive balances and produces the VAT accrual schedule alongside the allowance, so the two are consistent.
An audit trail behind each figure. Each rate, adjustment and total can be followed back to the age analysis and the collection history it came from, which is what re-performance by the auditor requires.
The municipality still owns the judgements. The segments, the forward looking view, the discounting decision and the write-off decisions are theirs, and they are recorded in the system with who approved them and when. What the system is meant to remove is the rework and version confusion that come from building the opening and closing figures in separate spreadsheets.
Checklist: the GRAP 104 transition on consumer debtors
- Confirm the date of initial adoption (1 July 2025) and the Directive and paragraphs that apply to your entity.
- Reconcile the 30 June 2025 age analysis, VAT inclusive, to the debtors control account; separate statutory receivables for GRAP 108 and apply the same contractual and statutory split to the old and the new allowance.
- Record the 30 June 2025 allowance on the old basis by segment; leave the 2024/25 comparatives as reported unless a prior period error is being corrected, and keep that correction separate.
- Run the lifetime expected credit loss model on the 30 June 2025 book, with the discounting decision documented, to get the opening allowance under the new Standard.
- Recognise the difference in opening accumulated surplus or deficit, with a journal and a supporting schedule, shown as its own line in the statement of changes in net assets.
- Run the same model at 30 June 2026; the impairment loss for the year is the movement in the allowance adjusted for write-offs against the allowance and recoveries.
- Prepare the transition note (measurement category table, allowance reconciliation on adoption, qualitative explanation), the GRAP 3 change in policy note, and the new credit risk and loss allowance disclosures for the year.
- Have the transition working paper reviewed by someone who did not build it, and take the model, the judgements and the note to the audit committee.
Where we help. Ambition Partners Advisory prepares and reviews the GRAP 104 transition for municipalities and municipal entities, including the opening adjustment, the transition note and the year one expected credit loss model, and 360DebtorsPro produces the model, the journal and the notes from the municipality's own age analysis. If your 2025/26 file is under audit and the transition has been questioned, we can review it at short notice. Read about our GRAP 104 and 108 service or message us on WhatsApp.
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