NFP income recognition rules closer

New income-recognition requirements for NFPs have been released for comment as ‘fatal flaw’ draft standard Income for Not-for-Profit Entities.  It will replace AASB 1004 Contributions.

Reporting income will more closely reflect economic realities by providing for greater deferral.  Income recognition will depend on whether there is a liability or other performance obligation (a promise to transfer a good or service) related to the cash or grant received.

Another major change is to measurement requirements for assets.  Currently, only assets acquired by NFPs at nil or nominal consideration must be fair-valued.  The new standard broadens this to require fair-value measurement of assets for which consideration is significantly below the asset’s fair value (including peppercorn leases).

It will apply to transactions where the difference between fair value and the consideration is principally to enable an NFP entity to further its objectives (that is, it doesn’t include trade discounts and distress sales).

New NFP-specific guidance for AASB 15 Revenue from Contracts with Customers will assist with identifying a contract with a customer in an NFP context.  It helps entities identify enforceable agreements, how to identify whether a performance obligation exists, and how to allocate transaction prices to performance obligations.

Extensive guidance and a wide range of examples have been developed to illustrate how the new requirements would work.  Significant transitional relief has also been provided, as well as a one-year extension of the effective date.

The draft is available for ‘fatal flaw’ comment until 21 October, and the final standard will be released in December.  It will be effective from 1 January 2019, early application permitted.


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