This year is big for NFPs that report in compliance with accounting standards.
The following complex accounting standards apply for annual reporting commencing on or after 1 January. Year-enders on 31 December are first cabs off the rank. The standards to watch out for are:
- AASB 15 Revenue from Contracts with Customers (NFP version)
- AASB 1058 Income of Not-for-profit Entities
- AASB 16 Leases, and
- AASB 2018-8 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities.
AASB 15 Revenue from Contacts with Customer is operative for NFPs for financial years that began on 1 January 2019. Implementation guidance and illustrative examples may be consulted.
The Australian Accounting Standards Board late last year issued amending standard AASB 2018-8 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-profit Entities, which affects leases.
AASB 2018-8 provides a temporary option for NFP lessees to elect to measure a class (or classes) of right-of-use assets arising under ‘concessionary leases’ at initial recognition, either:
- At cost, in accordance with AASB 16 Leases paragraphs 23–25, which incorporates the amount of the initial measurement of the lease liability, or
- At fair value (under AASB 13 Fair Value Measurement) in accordance with AASB 16 paragraph Aus25.1 (as amended).
There are important disclosure requirements where the ‘cost’ option is chosen.
This extra information helps financial-statements users to assess:
- An entity’s dependence on leases that have significantly below-market terms and conditions principally to enable the entity to further its objectives, and
- The nature and terms of the leases, including lease payments, a description of underlying assets and restrictions on the use of underlying assets specific to the entity.
Information must be provided separately for each material lease that has significantly below-market terms and conditions principally to enable the entity to further its objectives or in aggregate for leases involving right-of-use assets of a similar nature.
You will need to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements.
Remember to aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics.
If you are looking for application of accounting standards, they are identified in AASB 1057 Application of Australian Accounting Standards. Its objective is to specify the types of entities and financial statements to which Australian Accounting Standards (including Interpretations) apply. Australian Accounting Standards Board staff have posted eight new frequently-asked questions that will help NFPs.
They concern AASB 15 Revenue from Contracts with Customers, AASB 1058 Income of Not-for-Profit Entities and AASB 16 Leases.
They cover the standards’ scopes and effective dates, performance obligations under research grants, and identifying and recognising performance obligations in NFP schools.
Are you a not-for-profit entity with December year-end that receives research grants? If so, you will now have an option to apply the AASB 15 Revenue from contracts with customers and AASB 1058 Income of Not-for-profit entities to research grants for annual reporting periods beginning on or after 1 July (instead of 1 January) last year.
AASB 2019-6 Amendments to Australian Accounting Standards – Research Grants and Not-for Profit Entities provides you with an extended implementation period for research grants only.
It also amends illustrative examples accompanying AASB 15.
Under AASB 2019-4 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements new disclosures are required – effective for annual reporting periods ending on or after 30 June.
The extra disclosures will provide clarity on compliance with the recognition and measurement requirements in Australian Accounting Standards.
Research has shown that the quality of disclosures in a significant number of special-purpose statements has not been enough to enable a user to determine what additional information they might need. For example, 44 percent of medium and large charities lodging SPFSs with the ACNC failed to clarify whether they complied with recognition and measurement demands of accounting standards.
NFPs are not required to change existing accounting policies.
|Who is affected?||Who is not affected?|
|Medium and large charities registered with the ACNC preparing SPFSs||Small charities registered with ACNC|
|NFP entities that are lodging SPFSs with ASIC under the Corporations Act 2001 (for example, companies limited by guarantee)||Medium and large charities registered with the ACNC that are not required to comply with ACNC reporting requirements due to ACNC transitional-reporting arrangements|
|NFP entities required by federal, state and territory legislations to prepare financial statements in accordance with accounting standards (for example, incorporated associations, co-operatives and charitable fundraising organisations that are preparing SPFS and not specifically required to comply with AASB 1054)|
|NFP public-sector entities|
|For-profit private and for-profit public sector entities|
You must disclose why you chose to prepare an SPFS.
Except for consolidation and equity accounting, for each material accounting policy applied and disclosed that does not comply with recognition and measurement requirements in Australian accounting standards, you must indicate where it does not comply, or disclose that an assessment of compliance has not been made, and whether or not the SPFS complies overall with the recognition and measurement requirements or state that such an assessment has not been made.
If the NFP entity has determined that its interests in other entities give rise to interests in subsidiaries, associates or joint ventures it must disclose whether or not it has consolidated or equity-accounted for those interests in accordance with the requirements in AASB 10 Consolidated Financial statements and AASB 128 Investments in Associates and Joint Ventures.
If it has not, it must say so and say why.
If the NFP entity has not made this assessment and was not required by legislation to do so, it must instead disclose that no assessment has been made.
Implementation guidance and illustrative examples to help preparers understand the new disclosures is available.