HSRC Integrated Annual Report 2018/2019

HSRC INTEGRATED ANNUAL REPORT 2018/19 / 95 ACCOUNTING POLICIES for the period ended 31 March 2019 1 Policies Applied During the Financial Period Under Review 1.1 Basis of Preparation The Annual Financial Statements have been prepared using the accrual basis of accounting, in terms of which items are recognised as assets, liabilities, net assets (reserves), revenue and expenses when they satisfy the definitions and recognition criteria for those elements, which in all material aspects are consistent with those applied in the previous years, except where a change in accounting policy has been recorded. The Financial Statements are prepared in South African Rand (R) and all values are rounded to the nearest thousand (R’000) except where otherwise indicated. The South African Rand is also the organisation’s functional currency. The Annual Financial Statements have been prepared in accordance with the effective Standards of Generally Recognised Accounting Practice (GRAP), including any interpretations and directives issued by the Accounting Standards Board (ASB). 1.2 Going Concern Assumption The Annual Financial Statements have been prepared on a going concern basis. 1.3 Offsetting Assets, liabilities, revenues and expenses have not been offset except when offsetting is required or permitted by a Standard of GRAP. 1.4 Budget Information The Financial Statements and the budget are prepared on the same basis of accounting, which is the accrual basis. Comparative information is not required for this report. 1.5 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the HSRC and revenue can be reliably measured. Revenue is measured at fair value of the consideration receivable on an accrual basis. 1.5.1 Revenue from Exchange Transactions Revenue from exchange transactions refers to revenue that accrues to the entity directly in return for services rendered or goods sold, the value of which approximates the consideration received or receivable, excluding indirect taxes, rebates and discounts. The following specific recognition criteria must also be met before revenue is recognised: 1.5.1.1 Research Revenue Revenue that resulted from the rendering of research and related services is recognised using the stage of completion, determined according to the percentage of costs incurred to date in relation to the total estimated cost of the project. The HSRC is not a profit making organisation and as such, all projects are budgeted with no surplus anticipated to be earned at the end of each project. In instances where possible deficits are anticipated (due to project execution challenges), negotiations are promptly held with the funder where additional funding is requested. Revenue is recognised as work in progress where the probability of additional funding has been assessed as highly probable by the Executive Director and researchers of the research programme in which the project is being executed. The HSRC has several funders that normally process payments for research related activities prior to the actual research commencing. Upon receipt, a liability is raised (Income received in advance), and reduced as and when costs are incurred on the respective project. 1.5.1.2 Other Operating Revenue Revenue fromthe sale of goods is recognisedwhen significant risks and rewards of ownership of goods are transferred to the buyer. Sale of goods incorporates sale of publications, sale of food in the canteen located in Pretoria and letting of office and parking space in the HSRC-owned building situated in Pretoria. Revenue from royalties is recognised on an accrual basis in accordance with the substance of the relevant agreement. Rental income is recognised as revenue on a straight-line basis over the lease term. 1.5.1.3 Interest Income Revenue is recognised as interest accrued using the effective interest rate, and is included in other revenue in the statement of financial performance. Interest is predominantly earned from funds received in advance prior to the commencement or execution of projects and invested in call accounts. 1.5.1.4 Key Judgements and Estimates Applied by Management on Research Revenue In determining the stage of completion of a research project, management estimates the stage of completion based on work completed for as assessed by project leaders. This is then compared to costs incurred to date with appropriate revenue recognition processed in the statement of financial performance. Consideration is given to any arrangements with funders to offset any costs incurred in excess of budgeted amounts. 1.5.2 Revenue from Non-exchange Transactions Revenue from non-exchange transaction arises when the entity receives value from another entity or government department without directly giving approximately equal value in exchange.