Social Benefits – what are they? (Part 2)

In a previous article, we looked at the work done by the International Public Sector Accounting Standards Board (IPSASB) on social benefits and how they are defined in IPSAS 42 on Social Benefits [https://www.asb.co.za/social-benefits-what-are-they-part-1/]. In this article, we will consider what is a social benefit in the South African environment.

Is IPSAS 42 relevant in South Africa?

The Accounting Standards Board (Board) develops Standards of GRAP based on IPSAS while considering the Board’s strategy, mandate and other relevant factors. We asked local stakeholders what they thought of IPSAS 42, and based on this feedback, the Board decided to use IPSAS 42 as a starting point. However, there are key areas where the Board will depart, including the definition, recognition and measurement requirements.

What could be considered a social benefit in the local environment?

Standards of GRAP currently have a broad description of social benefits. Therefore, local entities are familiar with social benefits, including financial assistance, goods and services provided by government to meet its social policy objectives. They raised questions about the narrower scope and definition of social benefits in IPSAS 42.

The Board decided to broaden the IPSAS 42 definition to include cash and in-kind benefits provided to specific individuals and/or households who meet eligibility criteria to mitigate the effect of social risks and address the needs of society as a whole. The scope of the Standard of GRAP will remain aligned with IPSAS 42 to deal with cash benefits only. This is because the accounting considerations are different for cash and in-kind benefits. The Board will consider guidance on in-kind benefits at a later stage.

As part of understanding the South African social benefit environment, we are debating the benefits that could potentially meet the definition. There is uncertainty regarding how the definitions of social benefits and social risk in IPSAS 42 should be interpreted and applied. As IPSAS 42 is not yet effective, practice must still develop. The areas of “mitigating social risk” and “addressing the needs of society as a whole” are difficult to interpret. These are areas where guidance would need to be developed for a Standard of GRAP to help our stakeholders.

The current thinking is as follows:

Mitigating social risk

The events or circumstances that give rise to the benefit are only those  directly relating to the individual or household’s characteristics. The idea of mitigating social risk should also be linked to addressing the needs of society as a whole. 

For example:

• A benefit that covers prescribed actual medical costs of a person injured on duty relates to the characteristics of the individual (ill health), which adversely affect the person’s or household’s welfare. It, meets the definition of social risk.
• A benefit that covers funeral costs of a person who died due to injury on duty does not meet the definition of social risk. This is because the costs are largely avoidable, are ceremonial and linked to different religions.

Addressing the needs of society as a whole

To distinguish social benefits from insurance or other types of benefits (e.g. employee benefits), schemes are social benefits when they address the needs of society as a whole, rather than an individual. This implies that contributions and benefits are determined for society as a whole , not for each beneficiary. As noted in IPSAS 42, “society as a whole” could still mean specific sectors of society.

For example:

• Benefits calculated based on set formulas or factors with maximum benefit thresholds address the needs of society as a whole rather than an individual.
• Benefits determined based on an individual’s circumstances, e.g. through a court procedure, address the needs of an individual rather than society as a whole.

Remaining uncertainties

There are certain types of benefits where it remains unclear whether they meet the definition of a social benefit. Government may need to  decide how it sees these benefits for financial reporting purposes. For example, assistance to specified individuals who meet eligibility criteria to obtain higher education could qualify as addressing a social risk (protection of household livelihood) to address the needs of society as a whole. This is distinguished from a society where free education is made available to the society as a whole as an individual service.

When will a Standard of GRAP on social benefits be available?

The Board has started a project to develop a Standard of GRAP on social benefits. However, there are many milestones to reach and decisions to be taken along the way. The next step is for the Board to consider local issues and take decisions that will steer the development of an Exposure Draft. The projected timeline is for an Exposure Draft to be issued in October 2022.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.