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.
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”.
KPMG Australia’s Department of Professional Practice
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.
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.
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:
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.
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.
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).