AASB 1058 Income of Not for Profit Entities issued

Under the new AASB 1058 Income of Not-for-Profit Entities, 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 currently occurs.

More assets will be recognised in the financial-position statement under the new requirements, including leases with significantly below-market terms and conditions.

In addition to AASB 1058, two related amending standards are AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASE 15 for Not-for-Profit Entities, and AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not­-for-Profit Entities.

AASB 1058 establishes principles for NFPs that apply to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable an NFP to further its objectives, and the receipt of volunteer services.

AASB 1058 applies for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted provided that entities apply AASB 15 Revenue from Contracts with Customers in the same period.

AASB 1058 clarifies and simplifies income-recognition requirements that apply to NFPs in conjunction with AASB 15. The standards supersede income-recognition requirements private-sector

NFPs and most of the income-recognition requirements for public-sector NFPs previously in AASB 1004 Contributions.

The requirements of AASB 1058 address transactions that are not contracts with customers. The timing of income recognition depends on whether such a transaction gives rise to a liability or other performance obligation (a promise to transfer a good or service), or a contribution by owners, related to an asset (such as cash or another asset).

AASB 1058 applies when an NFP receives volunteer services or enters into other transactions where the consideration to acquire an asset is significantly less than the fair value of the asset, principally to enable the entity to further its objectives. In the latter case, the entity recognises and measures the asset at fair value in accordance with an applicable Australian accounting standard, for instance, AASB 116 Property, Plant and Equipment.

Upon initial recognition of the asset, AASB 1058 requires NFPs to consider whether any other financial-statement elements (called ‘related amounts’) should be recognised, such as contributions by owners, revenue, or a contract liability arising from a contract with a customer, a lease liability, a financial instrument, or a provision. Related amounts are accounted for in line with applicable standards.

If a transaction is a transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity (that is, an in-substance acquisition of a non-financial asset), the entity recognises a liability for the excess of the fair value of the transfer over any related amounts recognised.

The entity recognises income as it satisfies its obligations under the transfer similarly to income recognition on performance obligations under AASB 15. If the transaction does not enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity, then any excess of the initial carrying amount of the recognised asset over the related amounts is recognised as income.

When an entity receives volunteer services and can reliably measure the fair value of those services, it may elect to recognise the services as an asset (provided the relevant asset-recognition criteria are met) or an expense. Local governments, government departments, general government sectors (GGSs) and the whole of governments are required to recognise volunteer services if they would have been purchased if not provided voluntarily and the fair value of those services can be measured reliably.

Significant transitional relief has been provided as well as numerous illustrative examples.

AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASE 15 for Not-for­ Profit Entities amends the mandatory effective date (application date) of AASB 15 Revenue from Contracts with Customers for NFPs so that AASB 15 is required to be applied by such entities for annual reporting periods beginning on or after 1 January 2019 instead of 1 January 2018.

Earlier application of AASB 15 is permitted by NFPs for annual reporting periods beginning before 1 January 2019 provided AASB 1058 is also applied.

AASB 2016-8 Amendments to Australian Accounting Standards -Australian Implementation Guidance for Not-for-Profit Entities inserts Australian requirements and authoritative implementation guidance for not-for-profit entities into AASB 9 Financial Instruments and AASB 15.

The amendments Appendix C Australian implementation guidance for not-for-profit entities, to AASB 9 address the initial measurement and recognition of non-contractual receivables arising from statutory requirements. They include taxes, rates and fines.

The amendments Appendix F Australian implementation guidance for not-for-profit entities, to AASB 15 address identifying a contract with a customer, identifying performance obligations, and allocating a transaction price to performance obligations.
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