The nature of revenue is changing. Underestimating the impact of the new revenue recognition standard may result in unforeseen issues surfacing at year-end. It is vital to assess the impact now, as waiting until you first prepare financial statements under the new standard will not leave enough time to address all the issues.
AASB 15 Revenue from Contracts with Customers came into force for periods beginning on or after 1 January 2018. This means that entities with a 31 December year-end should already be operating under the new rules, while those whose financial year finishes on 30 June will start to apply the standard from 1 July 2018. RSM’s previous article explained the requirements of the new standard, and the five-step process behind when revenue may be recognised.
It is tempting to assume that there will be no impact, or that any impact will not be material – what you sell hasn’t changed, after all, and the revenue figure in the financial statements is just the result of these sales. However, this is a dangerous assumption that often does not match reality. In helping entities implement the new standard, we have come across several common areas where the accounting treatment can be significantly different under AASB 15.
Joining or membership fees
It is common for sports or social clubs, and other membership-based organisations, to charge a joining or nomination fee to members. Such payments are often, one-off, non-refundable, and payable at the start of membership. Previously, they were usually recognised immediately, and on the basis that they were refundable, and that there was a separate annual membership fee that was recognised over time.
However, under AASB 15, revenue can only be recognised when the performance obligation to the customer is satisfied. In the case of a membership it a club, it is satisfied over time, as the customer enjoys the benefits of access to the club and its facilities. Therefore, the joining fee must be deferred, and only recognised over the term of the membership that the member has purchased.