17RU-001 Not-for-profit entities: income recognition guidance

17RU-001 Not-for-profit entities: income recognition

The concept of reciprocal and non-reciprocal transactions has been removed, and instead an assessment of enforceability and performance obligations is required. The new guidance will replace the income recognition requirements relating to private sector not-for-profit (NFP) entities, and the majority of income recognition requirements relating to public sector NFP entities previously reflected in AASB 1004 Contributions.

1000

Also on KPMG.com

New income recognition requirements for not-for-profit (NFP) entities

The Australian Accounting Standards Board has issued the new Australian accounting standard and implementation guidance on the recognition and measurement of income for NFP entities.

AASB 1058 Income for Not-for-Profit Entities is the new Australian accounting standard that establishes principles for NFP entities that apply specifically to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable a NFP entity to further its objectives; and to volunteer services received.

Where such a transaction meets the requirements of AASB 15 Revenue from Contracts with Customers, revenue will be recognised in accordance with the requirements of this standard. To assist NFPs apply AASB 15 to their circumstances, specific implementation guidance and illustrative examples have been inserted into AASB 15.

Australian specific amendments and implementation guidance has also been added to AASB 9 Financial Instruments for NFP entities to apply the initial recognition and measurement requirements of AASB 9 to non-contractual receivables arising from statutory requirements as if those receivables are financial instruments. Such non-contractual receivables would include taxes, rates and fines.

 

“The application of this new guidance for income recognition for not-for-profit entities will be a challenge for most entities. We urge early consideration of all aspects of implementing this new guidance, from analysing terms and conditions of grant and research agreements, to communicating with stakeholders on the timing of income recognition, and to systems and process changes needed to ensure all relevant information is able to be captured and assessed”.

Kim Heng
Partner
KPMG Australia’s Department of Professional Practice

 

AASB 1058 Income for Not-for-Profit entities

Where a transaction does not meet the requirements to be accounted for under AASB 15 as it is either not an enforceable contract or the performance obligations are not sufficiently specific, a NFP entity needs to assess whether the transaction should be accounted for under AASB 1058.

Examples would include cash and other assets received from grants, bequests or donations; receipts of appropriations by government departments and other public sector entities; receipts of taxes, rates or fines; and assets acquired for nominal or low amounts.

When does AASB 1058 apply?

Requirements, including an accounting policy choice, are set out in relation to volunteer services.

Read Reporting Update RU17-001 (PDF 193.2KB) for further explanation and detail on AASB 1058.

Implementation guidance for NFP entities when AASB 15 would apply

AASB 15 follows a five-step model to determine the timing and amount of revenue to recognise. AASB 15 is generally written from a for-profit perspective, however, revenue of a NFP entity will be recognised in accordance with the requirements of this standard where an arrangement meets the relevant requirements.

Australian specific guidance has been added to AASB 15. The guidance is in the form of:

  • Australian specific (‘Aus’) paragraphs – which cover the following issues specific to NFP entities and clarifies:
    • a transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity is not within the scope of AASB 15. Guidance on such transactions is included in AASB 1058
    • a contract may be partially within the scope of AASB 15 and partially within scope of AASB 1058
    • if the contract is unenforceable and/or not sufficiently specific, it is not a contract within the scope of AASB 15 and the income recognition requirements of AASB 1058 must be considered for such contracts.
  • Appendix F – Australian implementation guidance for NFP entities
  • Australian illustrative examples for NFP entities – which illustrate aspects of the Australian specific guidance in Appendix F.

Our Reporting Update RU17-001 (PDF 193.2.KB) explains how the implementation guidance relates to the five steps for the AASB 15 revenue recognition model.

More information on AASB 15 is available on our IFRS – Revenue page, including a consideration of issues in-depth and transition options.

Effective date and transition

Effective date

The requirements of AASB 15 for NFP entities and AASB 1058 and the related amendments, are applicable for financial years beginning on or after 1 January 2019. Early adoption is permitted as long as AASB 15 is applied to the same period.

Transition

There are three main ways to transition to AASB 1058 and a number of practical expedients to ease the burden of applying the standard.

Transition provisions are also specifically included for lease arrangements which at inception had significantly below-market terms and conditions principally to further the entity’s objectives.

Further discussion on transition options and practical expedients is included in Reporting Update RU17-001 (PDF 193.2KB).

Australian Reporting Updates

Reporting Updates are KPMG's way of communicating changes occurring within the Australian financial reporting environment to our clients.

 
Read more

Cutting the clutter in financial reports

Cutting the clutter in financial reports

Financial reports must be clear, relevant and easy to understand. De-clutter your reports and gain deeper insights into the health of your business.

Connect with us

 

Request for proposal

 

Submit

KPMG’s new-look website

KPMG has launched a state of the art digital platform that enhances your experience and provides improved access to our content and our people, whatever device you are on.

 
Read more