Income and revenue recognition for NFPs – are changes on the horizon?

The new accounting requirements for income and revenue of not-for-profit entities (NFPs) are in some cases extremely difficult to apply in practice, and can result in the balance sheets and income statements of some NFPs looking vastly different.

Several implementation issues have been raised by NFP stakeholders with the Australian Accounting Standards Board (AASB). At its June 2021 meeting, the AASB therefore decided to add a narrow-scope project to its work program to consider implementation issues raised by NFP stakeholders during targeted outreach regarding AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities.

While the issues to be addressed in the project will be considered further at a future meeting, the agenda paper for the June 2021 AASB meeting gives a flavour of what we can expect the AASB to consider as part of its post-implementation review of these two standards for NFPs. Some of the issues outlined include:

• Confusion as to how ‘sufficiently specific’ is applied in practice
• Peppercorn/concessionary lease cost exemption
• Non-refundable upfront payments
• Capital grants
• Grants received in arrears
• Enforceability of contracts
• The existence of other documents when assessing ‘sufficiently specific’ criteria
• Principal vs agent (including appropriate recognition of financial liabilities)
• Termination for convenience clauses.

We will endeavour to update you in future editions of Accounting News as this project progresses.