20 Dec. 2016
Simplifying Income Recognition of Not-for-Profit Entities
Financial reporting for not-for-profit entities will now more closely reflect economic reality. Revenue from grants and donations will be recognised when any associated performance obligation to provide goods or services is satisfied, and not immediately upon receipt as usually occurs with current standards.
Kris Peach, Chair of the AASB, commented “The new requirements respond to constituent concerns and are a major step towards financial reporting that better meets the needs of NFP entities and the users of their reports. The changes provide a better platform for NFP entities to communicate their story to their stakeholders.”
More assets will also be recorded on the balance sheet under the new requirements, including leases with significantly below-market terms and conditions. This will help entities to better manage the resources they have been provided with and users to have a better understanding of the entity’s dependence on donated assets. Currently, only assets acquired by NFP entities at nil or nominal consideration must be recognised at fair value. The new requirements broaden this to assets where entities pay significantly less than fair value principally to let them further their objectives (ie not trade discounts or distress sales).
Ms Peach noted “Responding to concerns that the NFP sector has limited resources to implement new requirements, the AASB has provided extensive application guidance to help entities identify enforceable agreements, whether a performance obligation exists, and how to allocate the transaction price to performance obligations. A broad range of examples also illustrate how the new requirements will work in practice. The AASB will release a webcast covering the new requirements early in 2017, as well as further education materials later on.”
Significant transitional relief has been provided, as well as a one-year extension of the effective date of AASB 15 Revenue from Contracts with Customers for the NFP sector. The requirements will be effective from 1 January 2019, with earlier application permitted.
The new Standards are:
- AASB 1058 Income of Not-for-Profit Entities;
- AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASB 15 for Not-for-Profit Entities; and
- AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities.
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