Standards in practice: GRAP 17 and GRAP 19
Landfill assets and rehabilitation provisions: what to do when the estimate changes
The rehabilitation provision is the estimate that moves every year, and IGRAP 2 says exactly what to do with the movement. Yet the same landfill note attracts the same findings year after year. A critical look at the rule, the judgement it leaves open, and what happens when the change is bigger than the asset.
The landfill rehabilitation provision is the estimate that moves every year, and the accounting for the movement is where most of the errors sit. The rule itself is short. IGRAP 2 says that under the cost model a change in the provision is added to or deducted from the cost of the related asset, that a deduction may not take the asset below zero, that anything beyond that goes to surplus or deficit, and that an increase calls for a look at whether the asset is still recoverable. Four ideas, and the fourth is the one that gets forgotten. Year after year the same landfill note attracts the same audit findings: the whole movement is taken through the statement of financial performance, the asset is pushed below zero, the unwinding is mixed in with the remeasurement, and few preparers ask whether the larger asset is still recoverable.
This article works through the rule, tests where it holds and where it strains, and gives a direct answer to the question that comes up most often at year end: what happens when the decrease in the provision is bigger than the asset it is supposed to reduce, and is the excess income or an expense.
What the landfill asset is, and why the provision sits inside it
A landfill is two things on the statement of financial position, and they move together. The first is the landfill site asset under GRAP 17: the cells, liners, leachate and gas systems, roads, fencing and weighbridge. The land is a separate asset next to it and is accounted for on its own (Guideline paragraph 2.3). The second is the landfill rehabilitation provision under GRAP 19: the present obligation to cap, close, rehabilitate and monitor the site once it stops taking waste.
The join is made by GRAP 17 paragraph .21(c). The cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. The ASB's Guideline on Accounting for Landfill Sites, which entities have been required to apply since periods beginning on or after 1 April 2023, makes the same point in paragraph 3.22: the estimate of the costs to rehabilitate and restore the site is part of the cost of the landfill site asset. So the day a municipality recognises a rehabilitation provision, it also recognises an asset of the same amount. The provision is the credit; the asset is the debit. Nothing goes through surplus or deficit at that point, provided the provision is recognised when the obligation first arises, which under Guideline paragraph 4.5 is when construction starts or waste disposal begins. A municipality that recognises a landfill provision for the first time years after the site opened is correcting a prior period error under GRAP 3, and that is a different exercise.
The logic is sound. The obligation to rehabilitate is a cost of getting the site into use, in the same way that the liner is. The municipality consumes that cost over the period the site provides service, which is why the capitalised amount is depreciated. Under the Guideline the useful life is the period the site is available for use, which runs through the operating years and then through the post-closure period while the site is storing waste (paragraph 3.38). In practice the capitalised rehabilitation cost is usually carried as a separate part of the landfill site asset, because its useful life differs from that of the cells and infrastructure, which is what GRAP 17 paragraph .48 requires where the cost of a part is significant. The land, which is not depreciated (paragraph 2.22), sits outside all of this.
Two features of the provision follow from GRAP 19 and matter later. It is a best estimate (paragraphs .43 and .44), so it changes every time the inputs change. And it is discounted (paragraph .52) at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability (paragraph .54), so it changes every year even when nothing else does, simply because the settlement date is a year closer.
Three things move the provision, and only two of them touch the asset
GRAP 19 paragraph .66 requires the provision to be reviewed at each reporting date and adjusted to the current best estimate. IGRAP 2 paragraph .03 then separates the movement into three causes, and the separation is the whole point of the interpretation.
The first is a change in the estimated outflow: the engineer's revised closure cost, a change in the capping design, a longer or shorter monitoring period, a revised closure date. The second is a change in the discount rate, which includes changes in the time value of money and in the risks specific to the liability. The third is the passage of time. A provision measured at present value grows every year as the settlement date comes closer, and that growth is the unwinding of the discount.
The first two are remeasurements and are accounted for through the asset under paragraphs .05 to .07. The third is not. IGRAP 2 paragraph .08 is explicit that the periodic unwinding of the discount is recognised in surplus or deficit as a finance cost as it occurs, and that capitalising it under the Standard on borrowing costs is not permitted. GRAP 19 paragraph .67 says the same thing from the other side: where discounting is used, the carrying amount of the provision increases each period to reflect the passage of time, and that increase is recognised as an interest expense.
This is the first place where practice goes wrong. The typical year-end working paper compares last year's closing provision to this year's engineer's figure and books the difference in one entry. That entry buries a finance cost inside an asset adjustment, or buries an asset adjustment inside finance costs, depending on which way the numbers fall. The correct sequence is to unwind first, at the rate used at the previous reporting date on the opening balance, adjusted for any payments made during the year, and only then compare the unwound balance to the new best estimate. The difference between those two figures is the remeasurement, and it is the only part that goes to the asset. The illustrative examples in both IGRAP 2 and the Guideline follow this sequence.
A fourth movement is easy to forget. When the municipality actually spends money on rehabilitation, whether capping a completed cell or running the monitoring programme, that spending is applied against the provision, not expensed and not capitalised. GRAP 19 paragraph .68 permits a provision to be used only for the expenditure it was recognised for, and paragraph .98 requires the amounts used to be shown separately in the reconciliation of the provision.
When the provision goes up
Under the cost model, IGRAP 2 paragraph .05(a) is direct: changes in the liability are added to the cost of the related asset in the current period. The Guideline repeats it at paragraph 4.44. An increase in the provision is not an expense. The municipality is not worse off because the estimate went up; it has simply recognised that the site will cost more to close than it thought, and that cost is consumed over the remaining service life, as the original estimate was. Paragraph .07 of IGRAP 2 and paragraph 4.46 of the Guideline then require the revised depreciable amount to be depreciated over the remaining useful life, prospectively. There is no catch-up depreciation for prior years and no restatement, because this is a change in estimate under GRAP 3, not an error.
The entry is Dr Landfill site asset (rehabilitation part), Cr Landfill rehabilitation provision, for the remeasurement only. The unwinding has already been booked as a finance cost.
That is the easy half. The half that gets skipped is paragraph .05(c). If the adjustment results in an addition to the cost of an asset, the entity must consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. This is not a formality. A landfill that has been operating for twenty years and has a few years of airspace left can end up with a carrying amount that has grown with every remeasurement while its remaining service potential has shrunk with every tonne accepted. Under GRAP 21 the recoverable service amount of a non-cash-generating asset is the higher of its fair value less costs to sell and its value in use, which for a landfill is usually measured on a depreciated replacement cost or restoration cost basis (GRAP 21 also allows a service units approach). When capitalised rehabilitation cost is a large share of the asset and the site is near the end of its operating life, the carrying amount can exceed the recoverable service amount.
In our experience a large upward remeasurement in the last third of a site's operating life should be treated as a reason to perform the assessment and to document it, even where the conclusion is that no impairment loss arises. An auditor who sees a R20 million increase in the asset and no impairment assessment will ask for one. It is far easier to have the assessment in the file than to prepare it in October.
When the provision goes down
A decrease follows the same road in the opposite direction, with one limit. IGRAP 2 paragraph .05(a) deducts the decrease from the cost of the related asset, and paragraph .05(b) sets the limit: the amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in surplus or deficit.
The reason for the limit is that an asset cannot carry a negative amount. The rehabilitation part of the landfill asset started life as the capitalised estimate and has been depreciated since. If the estimate falls by more than what is left of that part, there is nothing further to deduct from. On our preferred reading the deduction is confined to the rehabilitation part rather than written off against the liner or the cells; the Interpretation does not settle the point, and we return to it below. What the Interpretation does settle is that a negative asset cannot be carried forward to absorb future increases.
The entry is Dr Landfill rehabilitation provision, Cr Landfill site asset (rehabilitation part), for the decrease up to the carrying amount of that part. Where the decrease is larger, the balance is credited to surplus or deficit. Depreciation is then recalculated on the reduced carrying amount over the remaining useful life, exactly as for an increase.
Decreases are more common than preparers expect. A rise in the discount rate reduces the present value of every future cash flow. A revised engineer's report that adopts a cheaper capping specification reduces the outflow. A decision to extend the site's life pushes the settlement date out and usually reduces the present value, though the revised design often adds cost on the other side, and the asset's useful life changes with it. None of these events puts cash in the municipality's hands, and the accounting should not make it look as though they did.
One distinction has to be drawn before any decrease is booked. A remeasurement under IGRAP 2 is a change in the estimate of an obligation that still exists. A reversal under GRAP 19 paragraph .66, which Guideline paragraph 4.40 also describes, is different: it applies when all or part of the provision is no longer needed because the outflow is no longer probable, and its effect is recognised in the statement of financial performance. The two look alike in the ledger and are not alike in substance. A site that will still be rehabilitated, but more cheaply, is remeasured through the asset. An obligation that has fallen away, for example because a cell was never opened and the licence condition was withdrawn, is reversed through surplus or deficit. The working paper should say which one has happened, because the auditor will ask.
Special note: when the change is bigger than the asset
The question we are asked most often is what to do when the decrease in the provision exceeds the carrying amount of the related asset, and whether the excess is revenue or an expense. The answer has three parts.
First, the excess is credited to surplus or deficit; that much the Interpretation settles. It is not an expense. A liability has been reduced and there is no asset left to reduce with it, so net assets increase and that increase is recognised in the period. IGRAP 2 paragraph .05(b) says only that the excess is "recognised immediately in surplus or deficit"; it does not call it revenue and it does not say where to present it. What can be said with confidence is what it is not. It is not revenue from exchange transactions under GRAP 9, because nothing was sold or supplied. It is not revenue from non-exchange transactions under GRAP 23, because nothing was received. It is not finance income, because it did not arise from the passage of time. It is a gain from remeasuring a liability. A defensible presentation is a separately disclosed gain, labelled for what it is, for example "gain on remeasurement of landfill rehabilitation provision", which satisfies the GRAP 1 paragraph .101 requirement to disclose material items of revenue and expense separately by nature. In the provision reconciliation required by GRAP 19 paragraph .98, the part of the change that came from revised cash flows sits on the remeasurement line and the part that came from a change in the discount rate sits on the same line as the unwinding, since paragraph .98(f) groups the passage of time and the effect of a change in the discount rate together. In mSCOA the gain belongs in a gains item, not in an other income or service charge revenue item, and the default posting of the whole movement to a contribution to provisions item is the mechanical source of the single-line error described later in this article.
Second, the gain is not cash and should not be read as performance. It appears in the surplus for the year, it is eliminated in the reconciliation of the surplus to cash generated from operations, and it should be explained in the notes so that a reader does not mistake a change in the discount rate for an improvement in the municipality's finances. Where the amount is material, the disclosure of major assumptions under GRAP 19 paragraph .99 should say what changed and why.
Third, and this is the part that catches people, the gain does not come back. If the provision increases again next year, IGRAP 2 sends the increase to the cost of the asset, not to surplus or deficit, because paragraph .05(a) routes increases to the asset for as long as the asset has useful life left; the cap in paragraph .05(b) only ever applies to decreases. There is no mechanism to reverse the earlier gain through the statement of financial performance. The result is that a provision which falls sharply one year and recovers the next leaves the municipality with a gain in year one and a larger asset in year two, and the two are never matched. That is not an error. It is what the Interpretation requires. But it is a reason to be careful about the inputs, because a volatile discount rate or an engineer's estimate that swings between reports will produce accounting that looks unstable even when the underlying obligation has barely changed.
The mirror case needs a mention. When the provision increases and the asset has already reached the end of its useful life, IGRAP 2 paragraph .07 requires all subsequent changes in the liability to be recognised in surplus or deficit as they occur. There the increase is an expense, and a decrease is a gain, with no asset involved at all. Under the Guideline the useful life of a landfill runs through the post-closure monitoring period (paragraph 3.38), and changes after derecognition go to surplus or deficit (paragraph 4.48), so this case is reached later than many preparers assume. A closed site that is still being monitored has not reached the end of its useful life, and its provision changes still go through the asset.
Where the standard leaves judgement, and where practice goes wrong
IGRAP 2 is clear on the mechanics but silent on three questions that decide the numbers.
Which asset is the related asset? Paragraph .05(b) caps the deduction at the carrying amount of "the related asset". The text can be read either way. The scope paragraph of IGRAP 2 speaks of a liability recognised as part of the cost of an item of property, plant and equipment, and Guideline paragraph 4.44 speaks of the landfill site asset, which supports reading the cap against the whole asset, cells and liners included. On that reading the cap is high and the gain rarely arises, but a decrease in the provision is then written off against the cost of a liner that has nothing to do with rehabilitation. The other reading applies the cap to the rehabilitation part carried separately under GRAP 17 paragraph .48. The cap is lower and the gain arises sooner, but each part of the asset carries only its own cost. Our preference is the second reading. The capitalised estimate was recognised as a distinct part of the asset, it is depreciated as a distinct part, and it seems more faithful to confine a change in that estimate to that part. We recognise that the first reading has textual support and that a municipality may reasonably adopt it, provided the policy says so and is applied consistently. The policy should say which reading applies, because an auditor will test whichever one the municipality has used against the working papers, and a municipality that has not chosen will be found to have made the choice without knowing it.
What is the remaining useful life? The Guideline extends it through the post-closure period. That is defensible, because the site is still storing waste, but it means the rehabilitation cost is spread over a period in which the site accepts nothing and earns nothing. Where a municipality depreciates the operating parts on airspace consumed and the rehabilitation part on time, the two run out at different dates and the asset's carrying amount after closure is almost entirely rehabilitation cost. That is the point at which the impairment question in paragraph .05(c) stops being theoretical.
How reliable is the estimate? GRAP 19 asks for a best estimate that reflects risks and uncertainties (paragraph .49) and future events supported by objective evidence (paragraphs .55 and .56). In practice the estimate is often an engineer's figure from several years ago, escalated by CPI and discounted at whatever bond rate was to hand. The Guideline lists the cash flows that belong in the provision (paragraph 4.14): ongoing and final rehabilitation, pre-closure planning and approval, final closure, and post-closure monitoring and inspection. A provision that omits the monitoring period is understated by the whole of that period. A provision that uses a real discount rate on nominal cash flows, or a nominal rate on real cash flows, is wrong in a way no auditor will miss.
Against that background, the errors we see most often are these. The whole year-on-year movement is taken to surplus or deficit as a single "movement in provision" line, with no unwinding, no asset adjustment and no impairment assessment. The unwinding is capitalised along with the remeasurement, which IGRAP 2 paragraph .08 forbids. A decrease is deducted from the asset in full and the asset goes negative, or is deducted from the land, which is not depreciated and is not the related asset. Depreciation is not recalculated after the adjustment. Amounts actually spent on capping are expensed as repairs while the provision they were meant to settle continues to unwind. And the cap in paragraph .05(b) is applied but the excess is credited to revenue from exchange transactions, which overstates operating revenue and invites a finding on classification.
A worked example
A municipality operates a landfill under the cost model. At 1 July 2025 the rehabilitation part of the landfill asset has a carrying amount of R3 600 000 with six years of useful life left, and the rehabilitation provision stands at R14 000 000, discounted at 9%. At 30 June 2026 a new engineer's report brings the best estimate of the provision down to R10 500 000. The discount rate is unchanged at 9%, so the whole change is a revision of cash flows.
| Step at 30 June 2026 | Debit | Credit | Amount (R) |
|---|---|---|---|
| Depreciation for the year (3 600 000 ÷ 6) | Depreciation | Accumulated depreciation | 600 000 |
| Unwinding of discount (14 000 000 × 9%) | Finance cost | Rehabilitation provision | 1 260 000 |
| Remeasurement: 15 260 000 less 10 500 000, deducted from the asset up to its carrying amount | Rehabilitation provision | Landfill asset (rehabilitation part) | 3 000 000 |
| Remeasurement: the excess over the carrying amount | Rehabilitation provision | Gain on remeasurement of provision | 1 760 000 |
Swipe sideways to see the whole table.
The provision closes at R10 500 000. The rehabilitation part of the asset closes at nil and attracts no further depreciation. The statement of financial performance shows depreciation of R600 000, a finance cost of R1 260 000 and a gain of R1 760 000, presented separately and not netted. The provision note reconciles the opening R14 000 000 to the closing R10 500 000 through the unwinding of R1 260 000 and a remeasurement of R4 760 000. Had part of the change come from a higher discount rate, that part would be shown with the unwinding rather than on the remeasurement line, even though the asset adjustment is the same.
Now move a year on. At 30 June 2027 the provision has unwound at 9% to R11 445 000 and a further revision takes the best estimate to R13 000 000. The increase of R1 555 000 is added to the cost of the rehabilitation part, which goes from nil back to R1 555 000, and is depreciated over the four years of useful life that remain. The test in IGRAP 2 is useful life, not carrying amount, so a part written down to nil still takes increases for as long as the site is in use. The R1 760 000 gain recognised in 2026 stays where it was. The municipality then asks whether R1 555 000 of capitalised cost on a site with four years of useful life left is recoverable, and writes down the answer.
The numbers are simplified, but the shape is what matters: unwind, remeasure, cap the deduction at the carrying amount of the part, take the excess to surplus or deficit as a gain, recalculate depreciation, and test for impairment on the way up.
What the Auditor-General will ask for
The landfill provision is an estimate, and the audit of an estimate is an audit of the evidence behind it. The file that gets through without findings has the following in it.
A current engineer's or specialist's report that sets out the closure and rehabilitation design, the cost by component, the monitoring period and the basis for the closure date, with the licence conditions it responds to. A present value calculation that the auditor can re-perform, with the inflation assumption, the discount rate and its source stated. A schedule that separates the unwinding from the remeasurement, and a journal that shows the carrying amount of the rehabilitation part before and after the adjustment and, where a decrease exceeds it, the excess taken to surplus or deficit. A revised depreciation calculation. Where the provision increased, a written impairment consideration under GRAP 21 or GRAP 26. And where the municipality spent money on rehabilitation during the year, evidence that the spending was applied against the provision and not expensed elsewhere.
The accounting policy should state which asset the cap in IGRAP 2 paragraph .05(b) is applied to, and the provision note should disclose the major assumptions, the expected timing of the outflows and the movement by category as GRAP 19 paragraphs .98 and .99 require. Most landfill findings we have seen were not disagreements about the standard. They were the absence of one of the documents above.
Where we help. Ambition Partners Advisory prepares and reviews landfill rehabilitation provisions for municipalities as part of the annual financial statements and the fixed asset register. We build the provision from the engineer's report and the licence conditions, unwind and remeasure in separate steps, apply the IGRAP 2 adjustment with the cap and the excess dealt with correctly, recalculate depreciation, document the impairment consideration, and draft the note. Every figure is supported by a working paper that the Auditor-General can re-perform. If your landfill note has attracted findings, or the provision has moved sharply and you want a second view before the audit starts, message us on WhatsApp or use the contact form.
Sources
- IGRAP 2 Changes in Existing Decommissioning, Restoration and Similar Liabilities, paragraphs .02, .03, .05 to .08 and the illustrative example
- ASB Guideline on Accounting for Landfill Sites, paragraphs 2.3, 2.22, 3.22, 3.36, 3.38, 3.43, 3.52, 4.5, 4.14, 4.29 to 4.33, 4.38 to 4.41, 4.44 to 4.48 and Examples 2 and 3
- GRAP 19 Provisions, Contingent Liabilities and Contingent Assets, paragraphs .43, .44, .49, .52, .54 to .56, .66 to .68, .98, .99
- GRAP 17 Property, Plant and Equipment, paragraphs .21(c), .48, .56
- GRAP 21 Impairment of Non-cash-generating Assets, paragraphs .10, .23, .43, .46 and .47; GRAP 1 Presentation of Financial Statements, paragraphs .05 and .101
- GRAP Reporting Framework, 1 April 2025 (IGRAP 2 and the Guideline listed as required; the Guideline first entered the required list in the 1 April 2023 framework)
- ASB FAQ on post-closure monitoring and inspection costs
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