Financial changes this year and beyond

At each reporting period, NFP directors and management committees need to be aware of changes that might affect their financial statements.  Here, we look at standards effective for 30 June this year and future relevant changes.

It’s great news that there are, in fact, no new accounting standards that are effective for the first time for 30 June year-ends this year.

We need to consider future standards, however, and ensure that implementation plans are developed where necessary.  Some of the changes will cause significant impact on the reported financial position and performance of not-for-profits.

AASB 15 Revenue from Contracts with Customers is effective for annual reporting periods beginning on or after 1 January 2018, however the AASB are still deliberating about the scope of this standard for NFPs.

There will continue to be two revenue-accounting standards for NFPs:

  • AASB 15, which will be used for revenue under a contract that has sufficiently specific performance obligations and is enforceable – the AASB are finalising the guidance around these terms in an Australian-specific appendix, and
  • AASB 10XX, which will require revenue that falls outside the scope of AASB 15 to be recognised when control is received, most likely to be on receipt of funds.

We encourage NFPs to review AASB 15 and to begin the process of determining the impact on relevant revenue streams.  Due to the timing of NFP revenue guidance, NFPs are likely to be exempt from a restatement of comparatives under AASB 15/AASB 10XX.

There is relief from certain fair-value disclosures for public-sector NFPs that have level 3 assets.  The standard is applicable for annual reporting periods commencing on or after 1 July this year but is available for early adoption.  It provides relief from disclosure of quantitative information about the significant unobservable inputs used in fair-value measurements and a description of the sensitivity of fair-value measurements to changes in unobservable inputs.

AASB 9 Financial Instruments and associated amending standards is applicable for all NFPs.  This standard is applicable for annual reporting periods beginning on or after 1 January 2018 and contains several significant changes from the current financial-instrument accounting.

For NFPs, the impact of AASB 9 should be low.  The biggest change is likely to be the treatment of available-for-sale investments (that is, shares in listed entities held on a long-term basis as part of an investment strategy).  These investments are no longer required to be tested for impairment and movements in fair value will remain in other comprehensive income as well as any gains or losses on sale.

We would not recommend early adoption of AASB 9, however NFPs should start to consider the impact of the new standard, particularly if they have financial instruments that might be more complex, such as derivatives.

The current exemption from providing related-party disclosures for NFP public-sector entities has been removed from 1 July this year.  Public sector entities will have to identify their key management personnel (KMPs), their remuneration and other transactions with them and their related entities.

Entities affected by this change should begin an implementation plan as soon as possible to ensure that current systems and processes are able to identify the required information.

AASB 16 Leases requires the majority of leases held by an NFP to be brought onto the balance sheet (statement of financial position).  The distinction between operating and finance leases will be removed.  There are limited exceptions for short-term leases and low-value assets.

The income statement will no longer show rental expense. Instead, we will see depreciation expense (relating to the right-of-use asset) and interest expense (relating to the lease liability).

Entities should begin the process of understanding leasing arrangements in place and ensure that they have the systems and personnel to be able to account for them under AASB 16.

The effective date of AASB 16 is annual reporting periods beginning on or after 1 January 2019.