Income of NFP entities latest AASB decisions

The draft AASB 10XX Not-for-Profit Entity Transactions provides guidance as to when control of a resource is obtained, include ‘signposts’ to accounting standards that entities should apply, and replaces the income-recognition requirements of AASB 1004 Contributions with new principles for transactions that are not within the scope of existing standards (for example, AASB 15 Revenue from Contracts with Customers).

No new principles will be developed for perpetual endowments but, rather, to include examples that illustrate the principles.  Guidance will be included about whether an entity controls an endowment.  Fair value of the rights to future income would normally be equal to the face value of the perpetual endowment.

Grants of cash that must be used to acquire or construct a non-financial asset (capital grants), and that have a return obligation if not spent appropriately, are to be accounted for under this standard.  Where there is a return obligation and clear requirements to build or construct an asset to specifications under the grant, and in substance the arrangement is a grant of a non-financial asset, there are obligations attaching to the receipt of the cash.  No revenue is recognised until the obligations are satisfied (for example, as the non-current asset is constructed).

Comparative information will be encouraged, but not required, in the year of first application.

To ensure existing grants that have been fully recognised in income need not be reconsidered (unless an entity chooses to do so), an ‘Aus’ paragraph will be included in AASB 15 that for an NFP entity on transition ‘a completed contract is a transaction for which the entity has recognised all of the revenue in accordance with AASB 1004’ and that a similar ‘Aus’ paragraph refer to AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

For existing peppercorn leases, the practical expedients in AASB 16 Leases will be replicated and the lessee has an option to measure the carrying amount of the right-of-use asset at the date of initial application of AASB 10XX at fair value.

This proposed standard will be further discussed at the board’s 30-31 August meeting.