AASB 1058 Income of Not-for-Profits became applicable for not-for-profit entities on 1 January 2019.
Our previous article provided insights into the application of the new standard.
In this article, we consider common challenges – and how to address them – when identifying the appropriate standard to apply to recognise income from grants.
How specific is "sufficiently specific?"
RSM's technical accounting consulting team explains applying AASB 1058 Income of Not-for-Profits and AASB 15 Revenue from contracts with customers.
How to determine which standard applies to an income source?
A not-for-profit entity must assess whether every funding source received meets the criteria to be recognised under AASB 15 Revenue from Contracts with Customers (“AASB 15”) or whether it is captured by AASB 1058 Income of Not-for-Profits (“AASB 1058”).
Usually, it is easier to consider first whether AASB 15 applies to the entire funding source, noting the specific guidance applicable for Not-for-Profit entities in AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities (“AASB 2016-8”). If AASB 15 does not apply, then the applicable standard will usually be AASB 1058.
For every source of funding received, not-for-profits must contemplate the following question:
Is there a contract with a customer to transfer specific goods or services to the funder (or to a third-party beneficiary as directed by the customer)?
If an entity does not have to deliver sufficiently specific goods or services to the funder (or to a third-party beneficiary if it is specified within the contract), in order to be entitled to the income, then the entity is not providing consideration worth ‘the fair value’ of the cash received, which means that AASB 15 does not apply and the relevant standard to apply is AASB 1058. (AASB 1058.B5)
This is important, because the default position of AASB 1058 is that income is recognised immediately regardless of when the related expenses are incurred.
This highlights an issue of significant judgment: what is a sufficiently specific performance obligation in the context of AASB 15?
If you have any questions regarding the transition to AASB 1058, please contact your local RSM office today.