The Accounting Officer is required by the Municipal Finance Management Act (Act 56 of 2003) to keep adequate records and is responsible for the content and integrity of the annual accounts and related financial information included in this report. It is the responsibility of the Accounting Officer to ensure that the financial statements present fairly the state of affairs of the Municipality at the end of the financial year and the results of its activities and cash flows for the period then ended. The Accounting Officer recognizes that he is ultimately responsible for the system of internal control set up by the municipality and attaches great importance to maintaining a strong control environment.
The Accounting Officer is of the opinion, based on the information and disclosures provided by management, that the system of internal control provides reasonable assurance that the financial records can be relied upon in the preparation of the financial statements. The Accounting Officer has reviewed the City's cash flow forecast for the year ended June 30, 2017 and, in light of this review and its current financial position, is satisfied that the City has or has sufficient resources to continue its operational existence for the foreseeable future. The municipality is dependent on grant awards through the Division of Revenue Act (2015) for continued funding of operations.
The annual accounts are prepared on the basis that the municipality is a going concern and that Impendle Local Municipality has neither the intention nor the need to liquidate or significantly reduce the scope of the municipality. Although the Accountant is primarily responsible for the municipality's financial affairs, he is supported by the municipality's financial manager.
Accounting Policies
Presentation of Annual Financial Statements
- Presentation currency
- Going concern assumption
- Significant judgements and sources of estimation uncertainty
- Significant judgements and sources of estimation uncertainty (continued) Useful lives of property, plant and equipment and intangible assets
- Investment property
- Investment property (continued) Fair value
- Property, plant and equipment
- Property, plant and equipment (continued)
- Site restoration and dismantling cost
- Site restoration and dismantling cost (continued) If the related asset is measured using the cost model
- Intangible assets
- Intangible assets (continued)
- Financial instruments
- Financial instruments (continued)
- Leases
- Leases (continued) Operating leases - lessee
- Impairment of cash-generating assets
- Impairment of cash-generating assets (continued) Recognition and measurement (individual asset)
- Impairment of non-cash-generating assets
- Impairment of non-cash-generating assets (continued)
- Impairment of non-cash-generating assets (continued) Value in use
- Impairment of non-cash-generating assets (continued) Redesignation
- Employee benefits
- Employee benefits (continued) Short-term employee benefits
- Employee benefits (continued)
- Provisions and contingencies Provisions are recognised when
- Provisions and contingencies (continued)
- Commitments
- Revenue from exchange transactions
- Revenue from exchange transactions (continued) Rendering of services
- Revenue from non-exchange transactions
- Revenue from non-exchange transactions (continued)
- Revenue from non-exchange transactions (continued) Transfers
- Commitments
- Investment income
- Borrowing costs
- Comparative figures
- Unauthorised expenditure Unauthorised expenditure means
- Fruitless and wasteful expenditure
- Irregular expenditure
- Irregular expenditure (continued)
- Revaluation reserve
- Conditional grants and receipts
- Segment information A segment is an activity of an entity
- Budget information
- Related parties
- Related parties (continued)
- Value Added Taxation
- Events after the Reporting Period
If a replacement part is recognized in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised. The municipality applies the cost model (as per the accounting policy on Property, plant and equipment) to the sale of the investment property. If the acquired item's fair value was not determinable, the deemed cost is the carrying amount of the asset(s) given up.
If a replacement cost is included in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is no longer recognised. Depreciation (amortization) is the systematic allocation of the depreciable amount of an asset over its useful life. If the recoverable amount of a cash-generating asset is less than its carrying amount, the asset's carrying amount is reduced to its recoverable amount.
When the amount estimated for an impairment loss is greater than the book value of the cash-generating asset to which it relates, the municipality recognizes a liability only to the extent that it is a requirement in the GRAP Standard. A reversal of an impairment loss for a cash-generating unit is allocated to the unit's cash-generating assets in proportion to the carrying amounts of those assets. If there is any such indicator, the municipality estimates the recoverable amount of the service of the asset.
The value in use of non-cash-generating assets is the present value of the non-cash-generating assets' remaining service potential. The present value of the remaining service potential of a non-cash-generating asset is calculated as the asset's depreciated replacement cost. If the recoverable amount of a non-cash-generating asset is less than its carrying amount, the asset's carrying amount is reduced to its recoverable amount.
When the estimated amount for an impairment loss is greater than the carrying amount of the non-cash-generating asset to which it relates, the municipality recognizes a liability only to the extent that is a requirement in the Standards of GRAP. The amount of a provision is the best estimate of the expenditure expected to settle the present obligation at the reporting date. Service income is recognized with reference to the stage of completion of the transaction at the reporting date.
Income from the exchange business is measured in the amount of the increase in net assets recognized by the municipality. Assets from fines are measured according to the best estimate of the inflow of funds to the municipality.
New standards and interpretations
- Standards and interpretations effective and adopted in the current year
Segment Reporting
- New standards and interpretations (continued)
Additional comments have been added to clarify that the restoration of an asset's service potential as a result of physical impairment is an indication that an impairment loss recognized in prior periods may no longer exist or may have decreased. The requirement to disclose the criteria developed to distinguish non-cash-generating assets from cash-generating assets has been amended to be consistent with changes made to clarify the objective of non-cash-generating assets and cash-generating assets. The municipality has adopted the standard for the first time in the 2016 annual financial statements.
- GRAP 18: Segment Reporting
Related parties
This standard requires disclosure of related party relationships, transactions and outstanding balances, including liabilities, in the consolidated and separate financial statements of the reporting entity in accordance with the GRAP standard on consolidated and separate financial statements. Disclosure of related party transactions, outstanding balances, including liabilities, and related party relationships may affect users' assessments of the reporting entity's financial position and performance and its ability to provide agreed services, including assessments of the risks and opportunities facing the entity. This disclosure also ensures that the reporting entity is transparent about its dealings with related parties.
The standard states that a related party is a person or an entity with the ability to control or jointly control the other party, or exercise significant influence over the other party, or vice versa, or an entity subject to common control or common control. If the reporting entity is itself such a plan, the sponsoring employers are related to the entity. The standard further states that a related party transaction is a transfer of resources, services or obligations between the reporting entity and a related party, regardless of whether a price is charged.
The date of implementation of the standard has not yet been determined by the Minister of Finance. The municipality expects to adopt the standard for the first time when the minister determines the date of implementation of the standard. It is unlikely that the standard will significantly affect the annual financial statements of the municipality.
Service Concession Arrangements: Grantor
It also covers: Definitions, recognition and measurement of a service concession asset, recognition and measurement of liabilities, other liabilities, contingent liabilities and contingent assets, other income, presentation and disclosure, transitional provisions and the effective date. The purpose of this standard is: to prescribe accounting requirements for the recognition, measurement, presentation and disclosure of statutory receivables. It also covers: Definitions, recognition, cessation of recognition, measurement, presentation and disclosure, transitional provisions and the effective date.
Service Concession Arrangements where a Grantor Controls a Significant Residual Interest in an Asset This Interpretation of the Standards of GRAP provides guidance to the grantor where it has entered into a service
- Standards and interpretations not yet effective or relevant
- Operating lease asset (accrual)
- Receivables from exchange transactions
- VAT receivable
- Consumer debtors Gross balances
- Consumer debtors (continued) Reconciliation of allowance for impairment
- Cash and cash equivalents (continued) The municipality had the following bank accounts
- Investment property
- Property, plant and equipment
- Property, plant and equipment (continued) Reconciliation of property, plant and equipment - 2016
- Property, plant and equipment (continued) Reconciliation of property, plant and equipment - 2015
- Property, plant and equipment (continued) Reconciliation of Work-in-Progress 2016
- Intangible assets
- Operating Lease Liability
- Payables from exchange transactions
- Provisions
- Long-Term loan Non-current
- Employee benefit obligations- Long Service Award
- Revenue
- Revenue (continued)
- Other income
- Investment revenue Interest revenue
- Property rates Rates received
- Government grants and subsidies Operating grants
- Government grants and subsidies (continued)
- Government grants and subsidies (continued) Conditions to the grant were met in full - (see note 13)
- Government grants and subsidies (continued) Thusong Grant
- Government grants and subsidies (continued) All conditions of the grant were met
- Employee related costs
- Remuneration of councillors
- Remuneration of councillors (continued) In-kind benefits
- Additional disclosure in terms of Municipal Finance Management Act Audit fees
- Depreciation and amortisation
- Impairment of assets Impairments
- Finance costs
- Bad Debts
- Contracted services
- Grants funded expenditure Other subsidies
- General expenses
- Cash generated from operations
- Commitments
- Related parties
- Change in estimate Property, plant and equipment
- Prior period errors
- Prior period errors (continued)
- Prior period errors (continued) Investment property
- Prior period errors (continued) Revaluation reserves
- Prior period errors (continued) Contracted services
- Prior period errors (continued) Purchase of property, plant and equipment
- Going concern
- Fruitless and wasteful expenditure
- Irregular expenditure
- Irregular expenditure (continued)
- Deviation from supply chain management regulations
- Budget differences
- Budget differences (continued)
- Unauthorised expenditure
- Events after the reporting date
A register containing the information required by section 63 of the Municipal Financial Management Act is available for inspection at the registered office of the municipality. A register containing the information required by section 63 of the Municipal Financial Management Act is available for inspection at the registered office of the municipality. The municipality received a total of R62,566,000 for conditional grants during the 2015/2016 financial year. The unspent conditional grant rollover for the previous year that was spent in the current year in relation to Thusong grant and LG Seta grant was R83,089.
The municipality is not sure of the amount that could be generated from the rehabilitation of the landfill. The Actuarial Valuation of the Long Service Award Report was performed by Arch Actuarial Consulting. The projected credit unit method was used to value the long service award and the effective date of this valuation is 30 June 2016. The municipality initially received R12,063,000, which was the amount originally gazetted, and then received an additional R in the third quarter of the year.
This grant will be used to transform urban and rural community library infrastructure facilities and services through a recapitalized provincial level program in support of local government and national initiatives. The grant was transferred from the Provincial Libraries Department. The focus of this grant was to assist the municipality in financing the salaries of library staff As of June 30, 2016, implementation was 100% complete and the grant was fully spent. The effect of the change in valuations on infrastructure assets in the current and future years is to reduce the depreciation charge by R276,198.
Correcting the error resulted in a decrease in repairs and maintenance and an increase in work in progress. The result of the correction of an error is a decrease in the number of contracted services and an increase in rental obligations. Expenses financed by grants were adjusted, reflecting work in progress for the Milling grant, Thuong guardhouse and main guardhouse that had not been capitalized in the previous year. The result of the error correction is a decrease in grant-financed expenditure and an increase in work in progress.
The effect of the error correction is the decrease in overhead costs and the increase in work in progress. The effect of the error is the decrease in the number of suppliers paid and the increase in purchases of property, plant and equipment. The effect of the error is to increase the purchase of property, plant and equipment and decrease the payment of suppliers.
Donations received - This relates to donated assets which were received at the last stage of the financial year. Interest income - Grants received were expected to be completed in the earlier half of the reporting period.
