Under AASB 15 Revenue from Contracts with Customers, revenue is recognised so that promised goods and services are transferred in an amount that reflects the consideration to which their provider expects to be entitled.
AASB 15 requires the application of a five-step model:
- Identify the contract(s) with a customer
- Identify the performance obligations under the contract(s)
- Determine the transaction price
- Allocate the transaction price to the performance obligations under the contract(s), and
- Recognise revenue when (or as) the entity satisfies the performance obligations.
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 15 and AASB 9 Financial Instruments. The guidance assists NFPs in applying those standards to particular transactions and other events.
The amendments to AASB 15 address the identification of a contract with a customer and its performance obligations. It also examines the allocation of transaction price to performance obligations.
Amendments to AASB 9 address the initial measurement and recognition of non-contractual receivables arising from statutory requirements, including taxes, rates and fines.
AASB 1058 Income of Not-for-Profit Entities is likely to have a significant impact on NFPs’ income recognition.
They should consider how assets received below fair value, transfers received to acquire or construct non-financial assets, grants received, prepaid rates, and volunteer services and leases entered into at below market rates are likely to affect them.
AASB 2018-4 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Public Sector Licensors amends AASB 15 to add requirements and authoritative implementation guidance for application by NFP public-sector licensors to transactions involving the issue of licences.
The amendments include:
- Expanding the scope of AASB 15 to include non-contractual licences
- Guidance distinguishing a licence from a tax
- Guidance clarifying the types of licences issued by not-for-profit public-sector licensors
- Guidance clarifying the application of the principles in AASB 15 to licences that are not within the scope of other Australian accounting standards, and
- Providing recognition exemptions for short-term licences and licences issued for a low transaction price.
The amendments to AASB 16 clarify that licences that are in substance leases or contain leases, except licences of intellectual property, fall within the scope of AASB 16.
AASB 16 Leases introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for leases with a term of more than 12 months unless the underlying asset is of low value.
A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset, and a lease liability representing its obligation to make lease payments.
A lessee recognises depreciation of the right-of-use asset and interest on the lease liability. In the statement of cash flows, a lessee separates the total amount of cash paid into principal (presented within financing activities) and interest (presented within either operating or financing activities).
Assets and liabilities arising from a lease are initially measured on a present-value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease.
Right-of-use asset falls within the scope of AASB 136 Impairment of Assets.
AASB 2018-8 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities amends five standards to provide a temporary option for NFPs not to apply the fair-value initial-measurement requirements for right-of-use assets arising under leases with significantly below-market terms and conditions principally to enable the entity to further its objectives.
The standard requires an NFP that elects to apply the option (that is, measures a class or classes of such right-of-use assets at cost rather than fair value) to include additional disclosures in the financial statements to ensure that users understand the effects on the financial position, financial performance and cash flows of the entity arising from these leases.
AASB 2019-8 Amendments to Australian Accounting Standards – Class of Right-of-Use Assets arising under Concessionary Leases amended AASB 16 to specify for NFPs that right-of-use assets arising under concessionary leases can be treated as a separate class of right-of-use assets from those arising under other leases for the purposes of AASB 16.
These accounting standards are complex and necessitate changes to reporting systems and related internal controls. Detailed accounting policy papers will need to be prepared by management and approved by governance. Financial statements will require significant revisions.