The AASB has issued ED 286 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities which proposes temporary optional relief for not-for-profit entities to fair value a right-of-use asset arising from the application of the new leases standard. Instead the right-of-use asset may be measured at cost. The proposed effective date is 1 January 2019, the same application date as AASB 16 Leases.
When AASB 1058 Income of Not-for-profit Entities was issued in December 2016, Australian-specific paragraphs were inserted to AASB 16 Leases. These paragraphs require a not-for-profit (NFP) lessee to measure a right-of-use asset at fair value (in accordance with AASB 13 Fair Value Measurement) where the lease is at significantly below-market terms and principally for the NFP to further its objectives (a ‘peppercorn’ lease).
The AASB has received feedback from stakeholders of the challenges in the practical application of fair valuing such right-of-use assets. Given the challenges experienced and the likelihood of changes to the financial reporting thresholds for NFP private sector entities as a result of the ACNC Legislative Review recommendations, the AASB has issued ED 286 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entitiee (ED 286) (PDF 555KB).
The temporary relief will reassessed at this time.
The temporary optional relief is expected to apply for financial years beginning on or after 1 January 2019 (with earlier application permitted, provided that AASB 1058 is also applied at the same time) – the same application date of AASB 1058 and AASB 16.
Submissions to the AASB on ED 286 close on 7 December 2018.