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| AASB Standard | AASB 1058 December 2016 |
Income of Not-for-Profit Entities
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ISSN 1036-4803
Contents
PREFACE
ACCOUNTING STANDARD
AASB 1058 INCOME OF NOT-FOR-PROFIT ENTITIES
from paragraph
OBJECTIVE 1
Meeting the objective 3
SCOPE 7
RECOGNITION AND MEASUREMENT
Recognition and measurement of an asset 8
Recognition and measurement of income and related amounts 9
Transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity 15
Volunteer services 18
DISCLOSURE 23
Non-contractual income arising from statutory requirements 28
Transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity 31
Restrictions 37
Compliance with parliamentary appropriations and other related authorities for expenditure 38
COMMENCEMENT OF THE LEGISLATIVE INSTRUMENT 42
APPENDICES
A Defined terms
B Application guidance
C Effective date and transition
D Amendments to other Standards
ILLUSTRATIVE EXAMPLES
BASIS FOR CONCLUSIONS
Australian Accounting Standard AASB 1058 Income of Not-for-Profit Entities is set out in paragraphs 1 – 42 and Appendices A – D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. AASB 1058 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
Preface
Introduction
The Australian Accounting Standards Board (AASB) develops, issues and maintains Australian Accounting Standards, including Interpretations. The AASB is a Commonwealth entity under the Australian Securities and Investments Commission Act 2001.
AASB 1057 Application of Australian Accounting Standards identifies the application of Standards to entities and financial statements. AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements.
What this Standard requires
This Standard clarifies and simplifies the income recognition requirements that apply to not-for-profit (NFP) entities, in conjunction with AASB 15 Revenue from Contracts with Customers. These Standards supersede all the income recognition requirements relating to private sector NFP entities, and the majority of income recognition requirements relating to public sector NFP entities, previously in AASB 1004 Contributions. The requirements of this Standard more closely reflect the economic reality of NFP entity transactions that are not contracts with customers. The timing of income recognition depends on whether such a transaction gives rise to a liability or other performance obligation (a promise to transfer a good or service), or a contribution by owners, related to an asset (such as cash or another asset) received by an entity.
This Standard applies when a NFP entity receives volunteer services or enters into other transactions where the consideration to acquire an asset is significantly less than the fair value of the asset principally to enable the entity to further its objectives. In the latter case, the entity recognises and measures the asset at fair value in accordance with the applicable Australian Accounting Standard (eg AASB 116 Property, Plant and Equipment).
Upon initial recognition of the asset, this Standard requires the entity to consider whether any other financial statement elements (called ‘related amounts’) should be recognised, such as:
(a) contributions by owners;
(b) revenue, or a contract liability arising from a contract with a customer;
(c) a lease liability;
(d) a financial instrument; or
(e) a provision.
These related amounts are accounted for in accordance with the applicable Australian Accounting Standard.
If the transaction is a transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity (ie an in-substance acquisition of a non-financial asset), the entity recognises a liability for the excess of the fair value of the transfer over any related amounts recognised. The entity recognises income as it satisfies its obligations under the transfer similarly to income recognition in relation to performance obligations under AASB 15.
If the transaction does not enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity, then any excess of the initial carrying amount of the recognised asset over the related amounts is recognised as income.
When an entity receives volunteer services and can reliably measure the fair value of those services, the entity may elect to recognise the services as an asset (provided the relevant asset recognition criteria are met) or an expense. Local governments, government departments, general government sectors (GGSs) and whole of governments are required to recognise volunteer services if they would have been purchased if not provided voluntarily and the fair value of those services can be measured reliably.
Application date
This Standard applies to annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted, provided entities also apply AASB 15 Revenue from Contracts with Customers to the same period.
Accounting Standard AASB 1058
The Australian Accounting Standards Board makes Accounting Standard AASB 1058 Income of Not-for-Profit Entities under section 334 of the Corporations Act 2001.
| Kris Peach | |
| Dated 9 December 2016 | Chair – AASB |
Accounting Standard AASB 1058
Income of Not-for-Profit Entities
Objective
This Standard establishes principles for not-for-profit entities that apply to:
(a)transactions where the consideration to acquire an asset is significantly less than fair value principally to enable a not-for-profit entity to further its objectives; and
(b)the receipt of volunteer services.
If the consideration provided to acquire an asset, including cash, is significantly less than the fair value of that asset, or if no consideration was provided, and the difference is principally to enable the entity to further its objectives, such a transaction is within the scope of this Standard. For example, an entity that receives a cash grant to be used to further its objectives might not have provided any consideration in exchange for that cash. As another example, governments are entitled to non-contractual receivables arising from statutory requirements such as taxes and rates without providing consideration to the other party – those receivables provide income to the government to further its objectives. This Standard addresses the accounting for the income arising from such transactions.
Meeting the objective
To meet the objective in paragraph 1(a), an entity shall initially recognise:
(a)an asset in accordance with the applicable Australian Accounting Standard;
(b)any related contributions by owners, contract liabilities, financial liabilities, lease liabilities and other liabilities and revenue, measured in accordance with the applicable Australian Accounting Standard;
(c)any liabilities for obligations arising from transfers to enable the entity to acquire or construct non-financial assets to be controlled by the entity; and
(d)related income, representing the residual amount of resources received.
To meet the objective in paragraph 1(b), certain types of public sector entities shall recognise assets or expenses for volunteer services received if the fair value of those services can be measured reliably and the entity would have purchased those services if they had not been donated. Any not-for-profit entity may elect to recognise volunteer services received if their fair value can be measured reliably irrespective of whether that entity would have purchased those services if not donated.
AASB 15 Revenue from Contracts with Customers defines income as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions by equity participants (that is, owners). This Standard addresses income arising from the acquisition of assets for consideration that is significantly less than the fair value of the asset when that difference is principally to enable the not-for-profit entity to further its objectives. This Standard applies to those differences that result in increases in equity, other than those relating to contributions by owners or those accounted for under another Standard (eg AASB 15). Other Australian Accounting Standards (eg AASB 1004 Contributions) address income arising from decreases of liabilities and the accounting for contributions by owners.
An entity shall apply the requirements of this Standard to each transaction based on the substance of the transaction, rather than its legal form or the description given to it (eg grants or donations), so as to provide a faithful representation of the economic substance of the transaction.
Scope (paragraphs B2–B11)
An entity shall apply this Standard to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable the entity to further its objectives, and the receipt of volunteer services, except for:
(a)share-based payment transactions within the scope of AASB 2 Share-based Payment;
(b)business combinations within the scope of AASB 3 Business Combinations;
(c)insurance contracts within the scope of AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts or AASB 1038 Life Insurance Contracts;
(d)licences outside the scope of AASB 15;
(e)income taxes within the scope of AASB 112 Income Taxes; and
(f)restructures of administrative arrangements within the scope of AASB 1004.
Recognition and measurement
Recognition and measurement of an asset
Except as set out in paragraphs 18–22, an entity shall apply the requirements of other Australian Accounting Standards (as relevant) to an asset arising from a transaction within the scope of this Standard. Examples include:
(a)AASB 9 Financial Instruments (eg cash received);
(b)AASB 16 Leases;
(c)AASB 116 Property, Plant and Equipment; and
(d)AASB 138 Intangible Assets.
Recognition and measurement of income and related amounts (paragraphs B12–B31)
On initial recognition of an asset, an entity shall recognise any related contributions by owners, increases in liabilities, decreases in assets, and revenue (‘related amounts’) in accordance with other Australian Accounting Standards. For example, related amounts may take the form of:
(a)contributions by owners, in accordance with AASB 1004;
(b)revenue or a contract liability arising from a contract with a customer, in accordance with AASB 15;
(c)a lease liability in accordance with AASB 16;
(d)a financial instrument, in accordance with AASB 9; or
(e)a provision, in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
Except as set out in paragraphs 15–17, an entity shall recognise income immediately in profit or loss for the excess of the initial carrying amount of an asset over the related amounts recognised in accordance with paragraph 9.
Appendix F Australian Implementation Guidance for Not-for-Profit Entities of AASB 15 provides guidance on the identification of a contract with a customer in a not-for-profit entity context. The Appendix also clarifies the measurement of revenue and contract liabilities where the transaction price includes an amount that would otherwise be separately recognised and accounted for as income immediately in accordance with this Standard.
For the purposes of this Standard, income is determined as the difference between the consideration for an asset and the asset’s fair value, after recognising any other related amounts. An entity applies judgement in determining the extent to which the acquisition of an asset gives rise to income as specified by this Standard or to revenue, a liability or a contribution by owners recognised in accordance with another Australian Accounting Standard.
An entity might acquire an asset and also recognise related amounts that in total exceed the initial measurement of the asset. In such cases, the entity shall reassess whether it has appropriately identified and measured all the related amounts. If an excess remains after restating any related amounts, the entity shall recognise an expense immediately in profit or loss for the excess of the related amounts over the carrying amount of the asset acquired. An entity does not adjust the excess against the recognised related amounts.
An entity shall subsequently apply the requirements of other Australian Accounting Standards applicable to the related amounts referred to in paragraph 9.
Transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity
A transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity is one that:
(a)requires the entity to use that financial asset to acquire or construct a recognisable non-financial asset to identified specifications;
(b)does not require the entity to transfer the non-financial asset to the transferor or other parties; and
(c)occurs under an enforceable agreement.
An entity shall recognise a liability for the excess of the initial carrying amount of a financial asset received in a transfer to enable the entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity over any related amounts recognised in accordance with paragraph 9. The entity shall recognise income in profit or loss when (or as) the entity satisfies its obligations under the transfer.
In such circumstances, the transferor has in substance transferred a recognisable non-financial asset to the entity. The entity recognises the financial asset received in accordance with AASB 9 and subsequently recognises the acquired or constructed non-financial asset in accordance with the applicable Australian Accounting Standard (eg AASB 116 for property, plant and equipment). This Standard requires the entity to initially recognise a liability representing the entity’s obligation to acquire or construct the non-financial asset and, if applicable, other performance obligations under AASB 15, which involve the transfer of goods or services to other parties. The liability in relation to acquiring or constructing the non-financial asset is initially measured at the carrying amount of the financial asset received from the transferor that is not attributable to related amounts for performance obligations under AASB 15, contributions by owners, etc. The liability is recognised until such time when (or as) the entity satisfies its obligations under the transfer.
Volunteer services
Local governments, government departments, general government sectors (GGSs) and whole of governments shall recognise an inflow of resources in the form of volunteer services as an asset (or an expense, when the definition of an asset is not met) if:
(a)the fair value of those services can be measured reliably; and
(b)the services would have been purchased if they had not been donated.
Any not-for-profit entity (including those listed in the preceding paragraph) may, as an accounting policy choice, elect to recognise volunteer services, or a class of volunteer services, if the fair value of those services can be measured reliably, whether or not the services would have been purchased if they had not been donated.
Some volunteer services, such as professional services, might have readily observable market prices. In such circumstances, obtaining a reliable measure of fair value would be relatively straightforward. An entity is not required to perform an exhaustive search for volunteer services that might meet the recognition criteria in this Standard. Volunteer services that would have been purchased if they were not donated should be readily identifiable from the entity’s operational requirements.
Recognised volunteer services shall be measured at fair value.
On the initial recognition of volunteer services as an asset or an expense, an entity shall recognise any related amounts in accordance with paragraph 9 (such as contributions by owners or revenue) and the applicable Australian Accounting Standards. The entity shall recognise the excess of the fair value of the volunteer services over the recognised related amounts as income immediately in profit or loss.
Disclosure
The objective of the disclosure requirements is for an entity to disclose sufficient information to enable users of financial statements to understand the effects of volunteer services and other transactions where an entity acquires an asset for consideration that is significantly less than fair value principally to enable the entity to further its objectives on the financial position, financial performance and cash flows of the entity. Paragraphs 24–41 specify requirements relating to this objective.
An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. An entity shall 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.
An entity need not disclose information in accordance with this Standard if it has provided the information in accordance with another Standard.
An entity shall disclose income recognised during the period, disaggregated into categories that reflect how the nature and amount of income (and the resultant cash flows) are affected by economic factors. An entity considers disclosing separately the following categories of income:
(a)grants, bequests and donations of cash, other financial assets and goods;
(b)recognised volunteer services; and
(c)for government departments and other public sector entities, appropriation amounts recognised as income, by class of appropriation.
To assist users to make informed judgements about the contribution of volunteer services and inventories to the achievement of the entity’s objectives during the reporting period, and the entity’s dependence on such contributions for the achievement of its objectives in the future, an entity is encouraged to disclose qualitative information, by major class of transaction, about the nature of the entity’s dependence arising from:
(a)volunteer services it receives, including those not recognised; and
(b)inventories held but not recognised as assets during the period.
Non-contractual income arising from statutory requirements
An entity shall disclose income arising from statutory requirements (such as taxes, rates and fines) recognised during the period, disaggregated into categories that reflect how the nature and amount of income (and the resultant cash flows) are affected by economic factors.
To meet the objective in paragraph 23, an entity shall consider disclosing information about assets and liabilities recognised at the reporting date in accordance with this Standard, including the amounts of:
(a)receivables that are not a financial asset as defined in AASB 132 Financial Instruments: Presentation (eg income tax receivable from a taxpayer), and:
(i)interest income recognised in relation to such receivables during the period; and
(ii)impairment losses recognised in relation to such receivables during the period; and
(b)financial liabilities relating to prepaid taxes or rates for which the taxable event has yet to occur, and the future period(s) to which those taxes or rates relate.
Other information that may be appropriate for an entity to disclose includes, for each class of taxation income that the entity cannot measure reliably during the period in which the taxable event occurs (see paragraphs B28–B31):
(a)information about the nature of the tax;
(b)the reason(s) why that income cannot be measured reliably; and
(c)when that uncertainty might be resolved.
Transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity
An entity shall disclose the opening and closing balances of financial assets arising from transfers to enable an entity to acquire or construct recognisable non-financial assets to be controlled by the entity and the associated liabilities arising from such transfers, if not otherwise separately presented or disclosed. An entity shall also disclose income recognised in the reporting period arising from the reduction of an associated liability.
An entity shall disclose information about its obligations under such transfers, including a description of when the entity typically satisfies its obligations (for example, as the asset is constructed, upon completion of construction or when the asset is acquired).
An entity shall disclose an explanation of when it expects to recognise as income any liability for unsatisfied obligations as at the end of the reporting period. An entity may disclose this information in either of the following ways:
(a)on a quantitative basis using the time bands that would be most appropriate for the duration of the remaining obligations; or
(b)through qualitative information.
An entity shall disclose the judgements, and changes in the judgements, made in applying this Standard that significantly affect the determination of the amount and timing of income arising from transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity. In particular, an entity shall explain the judgements, and changes in the judgements, made in determining the timing of satisfaction of obligations (see paragraphs 35 and 36).
For obligations that an entity satisfies over time, an entity shall disclose both of the following:
(a)the methods used to recognise income (for example, a description of the output methods or input methods used and how those methods are applied); and
(b)an explanation of why the methods used provide a faithful depiction of the entity’s progress toward satisfying its obligations.
For obligations satisfied at a point in time, an entity shall disclose the significant judgements made in evaluating when it has satisfied its obligations.
Restrictions
An entity is encouraged to disclose information about externally imposed restrictions that limit or direct the purpose for which resources controlled by the entity may be used. For example, an entity may elect to disclose an explanation of the judgements used in determining whether funds are restricted and any of, or any combination of, the following:
(a)assets to be used for specified purposes;
(b)components of equity divided into restricted and unrestricted amounts; and
(c)total comprehensive income divided into restricted and unrestricted amounts – either on the face of the statement of profit or loss and other comprehensive income or in the notes.
Compliance with parliamentary appropriations and other related authorities for expenditure
Paragraphs 39–41 apply only to government departments and other public sector entities that obtain part or all of their spending authority for the period from a parliamentary appropriation. The amounts disclosed in accordance with paragraphs 39–41 include any amounts appropriated in respect of which the entity recognises revenue or other income in accordance with another Australian Accounting Standard.
An entity shall disclose:
(a)a summary of the recurrent, capital or other major categories of amounts authorised for expenditure (including parliamentary appropriations), disclosing separately:
(i)the original amounts appropriated; and
(ii)the total of any supplementary amounts appropriated and amounts authorised other than by way of appropriation (eg by the Treasurer, other Minister or other legislative authority);
(b)the expenditures in respect of each of the items disclosed in (a) above; and
(c)the reasons for any material variances between the amounts appropriated or otherwise authorised and the resulting associated expenditures, and any financial consequences for the entity of unauthorised expenditure.
For the purposes of resource allocation decisions, including assessments of accountability, this Standard requires that users of financial statements of government departments and other public sector entities that obtain part or all of their spending authority for the period from a parliamentary appropriation be provided with information about the amounts appropriated or otherwise authorised for the entity’s use, and whether the entity’s expenditures were as authorised. This information may be based on acquittal processes applied by an entity. When spending limits imposed by parliamentary appropriation or other authorisation have not been complied with, information regarding the amount of, and reasons for, the non-compliance is relevant for assessing the performance of management, the likely consequences of non-compliance, and the ability of the entity to continue to provide services at a similar or different level in the future.
Broad summaries of the major categories of appropriations and associated expenditures, rather than detailed reporting of appropriations for each activity or output, is sufficient for most users of such an entity’s financial statements. Determining the level of detail and the structure of the summarised information is a matter of judgement. To develop effective disclosures, entities also subject to AASB 1055 Budgetary Reporting might consider the variance disclosure requirements in that Standard at the same time.
Commencement of the legislative instrument
For legal purposes, this legislative instrument commences on 31 December 2018.
Appendix A
Defined terms
This appendix is an integral part of the Standard.
| contributions by owners | Future economic benefits that have been contributed to the entity by parties external to the entity, other than those which result in liabilities of the entity, that give rise to a financial interest in the net assets of the entity which: (a) conveys entitlement both to distributions of future economic benefits by the entity during its life, such distributions being at the discretion of the ownership group or its representatives, and to distributions of any excess of assets over liabilities in the event of the entity being wound up; and/or (b) can be sold, transferred or redeemed. |
| fines | Economic benefits received or receivable by an entity, as determined by a court or other law enforcement body, as a consequence of a breach of a law or regulation. |
| payable tax credits | Tax credits that are not limited to the amount of a taxpayer’s tax liability for the period, because they are available to beneficiaries regardless of whether they pay taxes. |
| tax relief | Preferential provisions of the tax law that provide particular taxpayers with concessions that are not available to others. Tax relief excludes payable tax credits. |
| taxable event | The event that the government, legislature or other authority has determined will be subject to taxation. |
| taxes | Economic benefits compulsorily paid or payable to public sector entities in accordance with laws and/or regulations established to provide income to the government. Taxes exclude fines. |
Appendix B
Application guidance
This appendix is an integral part of the Standard. It describes the application of paragraphs 1–41.
Application of this Standard
B1The following flowcharts summarise the main requirements of this Standard to assist in its application.
Chart 1 – Transactions other than Volunteer Services
Chart 2 – Volunteer Services
Scope (paragraph 7)
B2This Standard provides guidance for transactions where on initial recognition of an asset the consideration for that asset was significantly less than fair value principally to enable the entity to further its objectives, and for volunteer services. Examples include:
(a)cash and other assets received from grants, bequests or donations;
(b)receipts of appropriations by government departments and other public sector entities;
(c)receipts of taxes, rates or fines; and
(d)assets acquired for nominal or low amounts.
B3Where an asset is acquired for consideration that is significantly less than fair value but that difference is not principally related to furthering the entity’s objectives, the transaction is not within the scope of this Standard. Examples of such transactions include:
(a)distress sales; and
(b)trade discounts.
B4When assessing whether the consideration for an asset is less than fair value principally to enable the entity to further its objectives, the entity may consider whether another entity could have obtained the asset under the same terms and conditions. If those terms and conditions are generally not available to other entities of the same class/nature, it is more likely that the difference between the consideration for the asset and the fair value of the asset acquired is principally for enabling the entity to further its objectives. For example, trade discounts available to all not-for-profit entities, but not to for-profit entities, are not considered principally to further the specific not-for-profit entity’s objectives.
B5Where the consideration provided under a transaction solely involves performance obligations recognised in accordance with AASB 15, the asset is not acquired for consideration that is significantly less than fair value. Therefore, the transaction is not within the scope of this Standard.
B6Transfers with consideration significantly less than fair value primarily to enable a not-for-profit entity to further its objectives may be called grants, bequests, donations or appropriations and are usually made voluntarily. Such transfers could be in the form of cash or another financial asset, goods, or volunteer services, and may or may not be made with restrictions or conditions on their use. Transactions may include elements with consideration that is significantly less than fair value primarily to enable the not-for-profit entity to further its objectives and other elements with consideration at fair value. For example, a donation by a customer may be present in a contract in which a customer promises consideration in exchange for goods or services (eg a fundraising dinner).
B7Volunteer services are services transferred by individuals or other entities without charge or for consideration significantly less than the fair value of those services. Whether such services (when recognised in accordance with paragraphs 18 and 19) are recognised as an asset or an expense depends on the entity’s determination whether it is probable that economic benefits will flow to the entity beyond the current accounting period. In many instances, the economic benefits of volunteer services will be consumed as the services are acquired. In some cases, the volunteer services will contribute to the development of an asset and be included in the carrying amount of that asset.
B8Entities may be recipients of volunteer services under voluntary or compulsory schemes operated in the public interest, for example:
(a)technical assistance from other governments or international organisations;
(b)persons convicted of offences who are required to perform community service for the entity;
(c)hospitals receiving the services of volunteers;
(d)schools receiving voluntary services from parents as teachers’ aides or as board members; and
(e)local governments receiving the services of volunteer firefighters.
B9Entities may also be recipients of volunteer professional services that support their broader activities. For example, charities and religious organisations may receive free professional accounting or legal services.
B10Government appropriations, which establish the authority to spend money for particular purposes, are a form of a transfer made voluntarily as the government is not compelled to make particular payments of amounts appropriated.
B11Taxes, rates and fines are forms of transfers made compulsorily.
Recognition and measurement of income and related amounts (paragraphs 9–17)
B12An entity recognises related contributions by owners, liabilities and revenue (‘related amounts’) on initial recognition of an asset in accordance with another Australian Accounting Standard where the consideration for that asset is significantly less than fair value principally to further the entity’s objectives.
B13Any income recognised in accordance with paragraph 10 is strictly the residual of the difference between the fair value of the asset recognised and the consideration for that asset, after deducting any other related amounts described in paragraph 9. However, income is not recognised under paragraph 10 where another Standard addresses the accounting for the difference, such as the “day one gain/loss” requirements in AASB 9.
Refund obligations
B14An entity typically has the ability, through its own actions, to avoid the circumstances that would give rise to a breach of conditions or requirements in an agreement necessitating a return of funds received. In such cases, liabilities recognised in accordance with other Standards do not include refund obligations that apply in the event of a breach, unless the breach has occurred or is expected to occur. For example, a grant agreement may require the funds provided to an entity to be spent only in a particular period, failing which repayment to the grantor will be required. As the entity has the discretion whether to spend funds received in advance of the specified period, a refund liability is not recognised unless the entity breaches the condition or a breach is expected.
Transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity
B15An entity that receives a financial asset, such as cash, in a transfer to enable the entity to acquire or construct a recognisable non-financial asset to be controlled by the entity shall apply the requirements of AASB 9 to that financial asset. The acquisition or construction of the non-financial asset is accounted for separately to the transfer of the financial asset, in accordance with other Standards. If the non-financial asset is not permitted to be recognised by another Standard (eg knowledge or intellectual property developed through research, which cannot be recognised as an asset in accordance with AASB 138), paragraphs 15–17 do not apply. The key criterion is that the recognisable non-financial asset will be under the control of the entity (ie for its own use) – it will not be transferred to the transferor or other parties. Therefore, the transfer of the financial asset (or the relevant part) to the entity does not occur under a contract with a customer and is not subject to AASB 15. However, the recognisable non-financial asset could increase the entity’s ability or capacity to provide goods or services to other parties pursuant to other transactions, which are separate to the transfer that enabled the entity to acquire or construct the non-financial asset for its own use.
B16On initial recognition of the financial asset, the entity recognises the requirement to acquire or construct the recognisable non-financial asset as an obligation and considers whether there are other conditions that give rise to performance obligations that require the entity to transfer goods or services to other entities (which are accounted for under AASB 15). The obligation to acquire or construct the non-financial asset is accounted for similarly to a performance obligation under AASB 15. For each obligation, the entity shall determine whether the obligation would be satisfied over time or at a point in time. If an entity does not satisfy an obligation over time, the obligation would be satisfied at a point in time.
B17An entity shall apply a single method of measuring progress for each obligation satisfied over time and the entity shall apply that method consistently to similar obligations and in similar circumstances. At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of each obligation that is satisfied over time, and shall recognise income over time on that basis.
Endowments
B18An endowment is a transfer of an asset to an entity for the ongoing support of the entity’s objectives, and may (but not necessarily) be made as part of a bequest. An endowment may be made for the perpetual benefit of the entity in that the transfer is made with a requirement for the principal to be preserved, and only income earned on investment activity to be available for use in furthering the entity’s objectives.
B19An endowment may include conditions pertaining to investment of the principal and the purpose to which investment income must be applied. For example, an endowment made to a university may be made on condition that the principal is invested and the investment income used for annual scholarships. An entity shall consider whether the conditions of the transfer give rise to any related contribution by owners, liabilities or revenue that is recognised at the same time as the entity recognises an asset. For example, an entity may determine the conditions give rise to a financial liability within the scope of AASB 9 for the obligation to provide a financial asset into the future, or a contract liability within the scope of AASB 15 for unperformed performance obligations relating to the transfer of goods or services under the terms of the endowment.
Bequests
B20A bequest is a transfer made according to the provisions of a deceased person’s will. Whether the initial recognition of bequeathed items as assets in accordance with another Standard simultaneously gives rise to the recognition of income will depend on whether the entity recognises a liability, or other related amounts, as a result of the bequest. For example, the terms of a bequest may establish a contract between an entity and the estate that is within the scope of AASB 15 and give rise to a contract liability.
Provisions
Constructive obligations
B21When an entity recognises an asset in accordance with another Australian Accounting Standard for consideration that is significantly less than fair value principally to enable the entity to further its objectives, the entity applies paragraph 9 to recognise any related amounts. When applying that paragraph, an entity considers whether a provision should be recognised in accordance with AASB 137 for a constructive obligation.
B22Critical to recognising a provision for a constructive obligation, an entity must demonstrate that its published policies, past practices or current statements are sufficiently specific to raise a valid expectation on the part of other parties that the entity will discharge its responsibilities under those policies, practices or statements. Determining whether an entity’s policies, practices or statements are sufficiently specific to create such an expectation among other parties is a matter of judgement. However, it is unlikely that an entity’s charter or stated objectives would satisfy the definition of a constructive obligation.
B23An established pattern of past practices might also create a valid expectation among other parties that the entity will continue to adhere to those practices in the future. While entities might establish a general pattern for utilising assets received, they often do not adhere to those patterns to such a degree as to create a valid expectation among other parties.
Legal obligations
B24Contractual terms (implicit or explicit), legislation or another operation of the law might create a legal non-financial obligation for an entity. In these circumstances an entity applies AASB 137 to recognise a provision, if any, arising from those legal obligations.
B25Provisions might arise from terms included in a lease, such as an obligation to return or restore the leased asset in its original condition. Paragraphs 24 and 25 of AASB 16 provide guidance on accounting for an obligation to maintain, or restore, assets to conditions specified in a lease. Where such an obligation exists, the obligation is also accounted for in accordance with AASB 137.
Parliamentary appropriations as income
B26The nature of parliamentary appropriations, and the circumstances that give rise to a government department’s recognition of such appropriations, can vary across different jurisdictions in Australia, and may vary for different types of appropriations within a particular jurisdiction. Similarly, the nature and content of appropriation legislation, the manner in which government departments’ activities are funded, and the mechanisms by which parliament and the government ensure that the government departments’ use of public funds is appropriate and consistent with government priorities as sanctioned by parliament, can change over time. Accordingly, the extent to which amounts appropriated for a government department’s use are recognised as income of a particular reporting period is determined by reference to the characteristics of the appropriation process and the circumstances in which the government department recognises appropriated amounts.
B27For example, the parliamentary appropriation process currently adopted in some jurisdictions in Australia is such that the government departments do not gain control of funds appropriated for their use until obligations are incurred or expenditures are made by the government department. In these jurisdictions, appropriations recognised as income are in the nature of a recovery of costs incurred for the acquisition of goods and services or for amounts otherwise expended.
Non-contractual income arising from statutory requirements
B28Taxes, rates and fines do not give rise to a contract liability or revenue recognised in accordance with AASB 15, even when they are raised in respect of specific goods or services. This is because the entity does not promise to provide goods or services in an agreement that creates obligations enforceable against the entity by legal or equivalent means.
B29Taxes, rates and fines are not contributions by owners acting in their capacity as owners.
Payable tax credits and other tax relief
B30Amounts of tax relief that enter directly into the calculation of a taxpayer’s tax liability (including tax allowances, exemptions and deductions, and ‘non-payable tax credits’) are treated as reductions in income (ie foregone income), rather than expenses. A ‘non-payable tax credit’ is a tax credit limited to the amount of the taxpayer’s tax liability for the period. An example of tax relief that enters directly into the calculation of a taxpayer’s tax liability is where taxpayers are permitted tax deductions for self-education expenses. These types of concessions are available only to taxpayers. If an entity (including a natural person) does not pay tax, it cannot access the concession.
B31In contrast, a payable tax credit is a tax credit that is not limited to the amount of the taxpayer’s tax liability for the period; that is, any excess of the tax credit over the tax liability for the period would be payable to the taxpayer. Such tax credits might be payable to taxpayers as part of a programme in which the same amount of benefit is paid to taxpayers and non-taxpayers alike (the latter being payable exclusively in the form of a cash benefit). For example, a government may use the tax system as a convenient method of paying benefits to taxpayers, which would otherwise be paid using another payment method, such as writing a cheque, directly depositing the amount in a taxpayer’s bank account, or settling another account on behalf of the taxpayer. For example, a government may pay part of an individual’s health insurance premiums, to encourage the uptake of such insurance, either by reducing the individual’s tax liability (by providing payable tax credits), making a payment by cheque or by paying an amount directly to the insurer. In these cases, the amount is payable irrespective of whether the individual pays taxes. Consequently, this amount is an expense of the government and is recognised separately from its tax income. Tax income is measured gross of any expenses incurred by granting payable tax credits.
Volunteer services (paragraphs 18–22)
B32A not-for-profit entity that makes an accounting policy choice to recognise volunteer services under paragraph 19 shall only change its accounting policy if the change meets the criteria in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (paragraph 14). That is, an entity can change an accounting policy only if the change:
(a)is required by an Australian Accounting Standard; or
(b)results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.
Appendix C
Effective date and transition
This appendix is an integral part of the Standard.
Effective date
C1An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted provided that entities apply AASB 15 Revenue from Contracts with Customers to the same period. If an entity applies this Standard earlier, it shall disclose that fact.
Transition
C2For the purposes of the transition requirements in paragraphs C3–C12:
(a)the date of initial application is the beginning of the annual reporting period in which an entity first applies this Standard; and
(b)a completed contract is a contract or transaction for which the entity has recognised all of the income in accordance with AASB 1004 Contributions.
C3An entity shall apply this Standard either:
(a)retrospectively to each prior reporting period presented in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors; or
(b)retrospectively with the cumulative effect of initially applying this Standard recognised at the date of initial application in accordance with paragraphs C6–C11.
C4Notwithstanding the requirements of paragraph 28 of AASB 108, when this Standard is first applied, an entity need only present the quantitative information required by paragraph 28(f) of AASB 108 for the annual reporting period immediately preceding the first annual reporting period for which this Standard is applied (the ‘immediately preceding period’) and only if the entity applies this Standard retrospectively in accordance with paragraph C3(a). An entity may also present this information for the current period or for earlier comparative periods, but is not required to do so.
C5When applying this Standard retrospectively in accordance with paragraph C3(a), as a practical expedient an entity need not restate completed contracts or transactions that:
(a)begin and end within the same annual reporting period; or
(b)are completed contracts or transactions at the beginning of the earliest period presented.
If an entity applies this expedient, it shall do so consistently to all completed contracts or transactions within all reporting periods presented and shall disclose the use of this expedient.
C6If an entity elects to apply this Standard retrospectively in accordance with paragraph C3(b), the entity shall not restate comparative information. Instead, the entity shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application. Under this transition method, an entity may elect to apply this Standard retrospectively only to contracts and transactions that are not completed contracts at the date of initial application.
C7For the reporting period that includes the date of initial application, an entity shall provide both of the following additional disclosures if this Standard is applied retrospectively in accordance with paragraph C3(b):
(a)the amount by which each financial statement line item is affected in the current reporting period by the application of this Standard as compared to AASB 1004 Contributions before the change; and
(b)an explanation of the reasons for significant changes identified in paragraph C7(a).
Assets acquired for significantly less than fair value
C8Assets acquired for consideration that was significantly less than fair value principally to enable the entity to further its objectives may have been measured on initial recognition under other Australian Accounting Standards at a cost that was significantly less than fair value. As a practical expedient, such assets are not required to be remeasured at fair value, whether the entity elects to apply this Standard retrospectively in accordance with paragraph C3(a) or C3(b).
Leases with significantly below-market terms and conditions
Leases classified as operating leases
C9If an entity applies this Standard before applying AASB 16 Leases, and notwithstanding the requirements in paragraph C3, for leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were classified as operating leases in accordance with AASB 117 Leases, the entity shall not apply the requirements of this Standard to recognise any asset or income. Instead, the entity shall continue to apply its accounting policy under AASB 117 to those operating leases. On transition to AASB 16 Leases, the entity shall apply the transition requirements of that Standard to leases classified as operating leases in accordance with AASB 117.
Leases classified as finance leases
C10If an entity applies this Standard before applying AASB 16, for leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were classified as finance leases in accordance with AASB 117, and if an entity elects to apply this Standard in accordance with:
(a)paragraph C3(a) – the entity shall:
(i)measure the leased asset at fair value at the beginning of the earliest period presented;
(ii)measure the lease liability in accordance with AASB 117;
(iii)recognise any related items in accordance with paragraph 9; and
(iv)recognise any income arising as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the earliest period presented; or
(b)paragraph C3(b) – the entity shall:
(i)measure the leased asset at fair value at the date of initial application of this Standard;
(ii)measure the lease liability in accordance with AASB 117;
(iii)recognise any related items in accordance with paragraph 9; and
(iv)recognise any income arising as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application of this Standard.
C11An entity may, as a practical expedient, apply paragraph C10 to a portfolio of leases with similar characteristics if the entity reasonably expects that the effects on the financial statements of this approach would not differ materially from applying paragraph C10 to the individual leases within that portfolio. If accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio.
References to AASB 9
C12If an entity applies this Standard but does not yet apply AASB 9 Financial Instruments, any reference in this Standard to AASB 9 shall be read as a reference to AASB 139 Financial Instruments: Recognition and Measurement.
Appendix D
Amendments to other Standards
This appendix sets out the amendments to other Australian Accounting Standards that are a consequence of the AASB issuing this Standard.
| The amendments set out in this appendix apply to entities and financial statements in accordance with the application of the Standards and Interpretations set out in AASB 1057 Application of Australian Accounting Standards (as amended). The amendments apply to annual reporting periods beginning on or after 1 January 2019, except that the amendment to AASB 117 applies to periods beginning before 1 January 2019 if AASB 1058 is applied to an earlier period. If an entity applies this Standard to an earlier period, it shall also apply these amendments to that earlier period. However, the AASB 1 and AASB 16 amendments are applied to an earlier period only if AASB 16 is also applied to that period. Amendments are made to the latest principal version of a Standard (or an Interpretation), unless otherwise indicated. The amendments also apply, as far as possible, to earlier principal versions of the amended Standards and Interpretations when this Standard is applied for earlier periods, as necessary. This appendix uses underlining, striking out and other typographical material to identify some of the amendments to a Standard or an Interpretation, in order to make the amendments more understandable. However, the amendments made by this appendix do not include that underlining, striking out or other typographical material. Amended paragraphs are shown with deleted text struck through and new text underlined. Ellipses (…) are used to help provide the context within which amendments are made and also to indicate text that is not amended. |
AASB 1 First-time Adoption of Australian Accounting Standards
(July 2015)
In Appendix D, paragraphs AusD7.1, AusD9D.1 and AusD9D.2 are added. Paragraphs D5–D7, D9 and D9B–D9D have not been amended, but are included for ease of reference.
Deemed cost
D5 An entity may elect to measure an item of property, plant and equipment at the date of transition to Australian Accounting Standards at its fair value and use that fair value as its deemed cost at that date.
D6 A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to Australian Accounting Standards as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:
(a) fair value; or
(b) cost or depreciated cost in accordance with Australian Accounting Standards, adjusted to reflect, for example, changes in a general or specific price index.
D7 The elections in paragraphs D5 and D6 are also available for:
(a) …
(aa) right-of-use assets (AASB 16 Leases); and
(b) …
AusD7.1Notwithstanding paragraphs D5–D7, where a lessee is a not-for-profit entity and the lease had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives, the entity shall measure the right-of-use asset at fair value at the beginning of the current period presented in the entity’s first Australian-Accounting-Standards financial statements or at the previous GAAP valuation if that valuation broadly reflects that fair value.
…
Leases
D9 A first-time adopter may assess whether a contract existing at the date of transition to Australian Accounting Standards contains a lease by applying paragraphs 9–11 of AASB 16 to those contracts on the basis of facts and circumstances existing at that date.
D9B When a first-time adopter that is a lessee recognises lease liabilities and right-of-use assets, it may apply the following approach to all of its leases (subject to the practical expedients described in paragraph D9D):
(a) measure a lease liability at the date of transition to Australian Accounting Standards. A lessee following this approach shall measure that liability at the present value of the remaining lease payments (see paragraph D9E), discounted using the lessee’s incremental borrowing rate (see paragraph D9E) at the date of transition to Australian Accounting Standards.
(b) measure a right-of-use asset at the date of transition to Australian Accounting Standards. The lessee shall choose, on a lease-by-lease basis, to measure that right-of-use asset at either:
(i) its carrying amount as if AASB 16 had been applied since the commencement date of the lease (see paragraph D9E), but discounted using the lessee’s incremental borrowing rate at the date of transition to Australian Accounting Standards; or
(ii) an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of transition to Australian Accounting Standards.
(c) apply AASB 136 to right-of-use assets at the date of transition to Australian Accounting Standards.
D9C Notwithstanding the requirements in paragraph D9B, a first-time adopter that is a lessee shall measure the right-of-use asset at fair value at the date of transition to Australian Accounting Standards for leases that meet the definition of investment property in AASB 140 and are measured using the fair value model in AASB 140 from the date of transition to Australian Accounting Standards.
D9D A first-time adopter that is a lessee may do one or more of the following at the date of transition to Australian Accounting Standards, applied on a lease-by-lease basis:
(a) …
AusD9D.1Notwithstanding paragraphs D9B–D9D, where a lessee is a not-for-profit entity and the lease had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives, all references in those paragraphs to the date of transition to Australian Accounting Standards shall be read as referring to the beginning of the current period presented in the entity’s first Australian-Accounting-Standards financial statements. Consequently, the entity shall measure the lease liability and the right-of-use asset at that date. The right-of-use asset shall be measured in accordance with paragraph AusD7.1.
AusD9D.2Where a lessee is a not-for-profit entity and the lease had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives, the entity shall also recognise any related items in accordance with paragraph 9 of AASB 1058 Income of Not-for-Profit Entities. Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or another component of equity, as appropriate) at the beginning of the current period presented in the entity’s first Australian-Accounting-Standards financial statements.
AASB 15 Revenue from Contracts with Customers (December 2014)
In Appendix C, paragraph AusC2.1 is added.
AusC2.1 In respect of not-for-profit entities, the reference in paragraph C2(b) to a completed contract also includes contracts for which the entity has recognised all of the revenue in accordance with AASB 1004 Contributions, or revenue in combination with a provision in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
AASB 16 Leases (February 2016)
Paragraph Aus25.1 and, in Appendix C, paragraphs AusC5.1, AusC5.2, AusC8.1 and AusC11.1 are added.
Aus25.1 Notwithstanding paragraphs 23–25, where the lessee is a not-for-profit entity and the lease has significantly below-market terms and conditions principally to enable the entity to further its objectives, the right-of-use asset shall initially be measured at fair value in accordance with AASB 13 Fair Value Measurement. AASB 1058 Income of Not-for-Profit Entities addresses the recognition of related amounts.
AusC5.1 Not-for-profit entities applying this Standard retrospectively in accordance with paragraph C5(a) to leases that at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives shall:
(a) measure the right-of-use asset at fair value;
(b) measure the lease liability in accordance with this Standard; and
(c) recognise any related items in accordance with paragraph 9 of AASB 1058 Income of Not-for-Profit Entities.
Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the earliest prior period presented.
AusC5.2 Notwithstanding paragraph AusC5.1, not-for-profit entities that adopted AASB 1058 in an earlier reporting period are not required to remeasure the fair value of the right-of-use asset arising from leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were previously classified as finance leases applying AASB 117. Instead, the entity shall transition those leases in accordance with paragraph C11, regardless of which transition option in paragraph C5 is applied.
AusC8.1 Not-for-profit entities applying this Standard retrospectively in accordance with paragraph C5(b) to leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were previously classified as operating leases applying AASB 117 shall:
(a) notwithstanding paragraph C8(b), measure the right-of-use asset at fair value at the date of initial application of this Standard;
(b) measure the lease liability in accordance with paragraph C8(a); and
(c) recognise any related items in accordance with paragraph 9 of AASB 1058.
Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application of this Standard.
AusC11.1 Subject to paragraph AusC5.2 and notwithstanding paragraph C11, not-for-profit entities applying this Standard retrospectively in accordance with paragraph C5(b) to leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were previously classified as finance leases applying AASB 117 shall:
(a) measure the right-of-use asset at fair value at the date of initial application of this Standard;
(b) measure the lease liability in accordance with this Standard; and
(c) recognise any related items in accordance with paragraph 9 of AASB 1058.
Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application of this Standard.
AASB 101 Presentation of Financial Statements (July 2015)
Paragraph Aus16.2 is deleted.
Aus16.2 [Deleted by the AASB]
AASB 102 Inventories (July 2015)
Paragraph Aus10.1 is amended and paragraph Aus10.2 is added.
Aus10.1 Notwithstanding paragraph 10 and subject to paragraph Aus10.2,
in respect ofnot-for-profit entities shall initially measure the cost of inventories at current replacement cost where the consideration for those inventories is significantly less than fair value principally to enable the entity to further its objectives, where inventories are acquired at no cost, or for nominal consideration, the cost shall be the current replacement cost as at the date of acquisition. AASB 1058 Income of Not-for-Profit Entities addresses the recognition of related amounts.
Aus10.2 As a practical expedient, where a not-for-profit entity acquires inventory for consideration that is significantly less than fair value principally to enable the entity to further its objectives, the entity may elect to recognise an item of inventory based on an assessment of the materiality either of the individual item or of inventories at an aggregate or portfolio level.
AASB 112 Income Taxes (August 2015)
Paragraphs 4 and Aus33.1 are amended. Paragraph Aus4.1 is added.
4 This Standard does not deal with the methods of accounting for government grants (see AASB 120 Accounting for Government Grants and Disclosure of Government Assistance
or, for not-for-profit entities, AASB 1004 Contributions) or investment tax credits. However, this Standard does deal with the accounting for temporary differences that may arise from such grants or investment tax credits.
Aus4.1 In respect of not-for-profit entities, AASB 1058 Income of Not-for-Profit Entities and AASB 15 Revenue from Contracts with Customers address the accounting for government grants.
…
Aus33.1 In respect of not-for-profit entities, a deferred tax asset will not arise on a non-taxable government grant relating to an asset. For example,
Under AASB 1004 Contributionsunder AASB 1058 Income of Not-for-Profit Entities, where a not-for-profit entity accounts for the receipt of non-taxable government grants as income rather than as deferred incomewhen those grants are controlled by the entity. As such, a temporary difference does not arise.
AASB 116 Property, Plant and Equipment (August 2015)
Paragraph Aus15.2 is deleted, and paragraphs Aus15.1 and Aus15.3 are amended.
Aus15.1 Notwithstanding paragraph 15,
in respect ofnot-for-profit entities,shall initially measure the cost of an item of property, plant and equipment at fair value in accordance with AASB 13 Fair Value Measurement where the consideration for the asset is significantly less than fair value principally to enable the entity to further its objectiveswhere an asset is acquired at no cost, or for a nominal cost, the costis its fair value as at the date of acquisition. AASB 1058 Income of Not-for-Profit Entities addresses the recognition of related amounts.
Aus15.3 In respect of not-for-profit entities, for the purposes of this Standard, the initial recognition and measurement at fair value of an item of property, plant and equipment
, acquired at no or nominal cost,consistent with the requirements of paragraph Aus15.1in accordance with paragraph Aus15.1,does not constitute a revaluation. Accordingly, the revaluation requirements in paragraph 31, and the supporting commentary in paragraphs32 to34 and 35, only apply where an entity elects to revalue an item of property, plant and equipmentin subsequent reporting periodsafter its recognition.
Paragraph Aus6.2 in Appendix A Australian defined terms is amended.
Aus6.2 Examples of property, plant and equipment held by not-for-profit public sector entities
and for-profit government departmentsinclude, but are not limited to, infrastructure, cultural, community and heritage assets.
The scoping guidance to the Australian implementation guidance accompanying AASB 116 is amended.
Australian implementation guidance
This guidance accompanies, but is not part of, AASB 116. This guidance is pertinent to not-for-profit public sector entities and for-profit government departments that hold heritage or cultural assets.
AASB 117 Leases (August 2015)
The amendment to AASB 117 applies to periods beginning before 1 January 2019. This means that the amendment applies only if AASB 1058 is applied to an earlier period.
Paragraph Aus20.1 is added.
Aus20.1 Notwithstanding paragraph 20, the leased asset shall initially be measured at fair value in accordance with AASB 13 Fair Value Measurement where:
(a) at inception the lease has significantly below-market terms and conditions principally to enable the lessee to further its objectives; and
(b) the lessee applies AASB 1058 Income of Not-for-Profit Entities to the period.
AASB 1058 addresses the recognition of related amounts.
AASB 128 Investments in Associates and Joint Ventures (August 2015)
Paragraph Aus10.1 is added.
Aus10.1 Notwithstanding paragraph 10, not-for-profit entities shall initially measure the cost of an investment in an associate or joint venture at fair value in accordance with AASB 13 Fair Value Measurement where the consideration for the investment is significantly less than fair value principally to enable the entity to further its objectives. AASB 1058 Income of Not-for-Profit Entities addresses the recognition of related amounts.
AASB 138 Intangible Assets (August 2015)
Paragraph Aus24.1 is amended.
Aus24.1 Notwithstanding paragraph 24,
in respect ofnot-for-profit entities, where an asset is acquired at no cost, or for a nominal cost,shall initially measure the cost of the asset atis itsfair valueas at the date of acquisitionwhere the consideration for the asset is significantly less than fair value principally to enable the entity to further its objectives. AASB 1058 Income of Not-for-Profit Entities addresses the recognition of related amounts.
The footnote to paragraph 44 is amended.
AASB 120 only applies to for-profit entities. Not-for-profit entities shall initially measure the intangible asset at fair value where the consideration for the asset is significantly less than the fair value of the asset principally to enable the entity to further its objectives are required to recognise the intangible asset and the grant initially at fair value in accordance with AASB 1004 Contributions.
AASB 140 Investment Property (August 2015)
Paragraph Aus20.1 is amended.
Aus20.1 Notwithstanding paragraph 20,
in respect ofnot-for-profit entities,shall initially measure the cost of the asset at fair value in accordance with AASB 13 Fair Value Measurement where the consideration for the asset is significantly less than fair value principally to enable the entity to further its objectiveswhere an investment property is acquired at no cost or for nominal cost, its cost shall be deemed to be its fair value as at the date of acquisition. AASB 1058 Income of Not-for-Profit Entities addresses the recognition of related amounts.
AASB 141 Agriculture (August 2015)
Paragraph Aus38.1 is amended.
Aus38.1 Notwithstanding paragraphs 34-38, not-for-profit entities
recogniseshall account for government grants related to a biological asset in accordance withAASB 1004 ContributionsAASB 1058 Income of Not-for-Profit Entities.
AASB 1004 Contributions (December 2007)
Paragraphs 1–5 are deleted and paragraph 6 is replaced.
6 The following table identifies which paragraphs are applicable to each type of entity to which this Standard applies:
Type of entity to which the paragraph is applicable Content of paragraphs Para No. Government departments Parliamentary appropriations 32 Liabilities of government departments assumed by other entities 39 – 43A Contributions by owners and distributions to owners 48 – 53 Restructure of administrative arrangements 54 – 59 Other government controlled not-for-profit entities Restructure of administrative arrangements 54 – 59 Local governments and whole of governments Contributions by owners and distributions to owners 48 – 53
Paragraphs 11–31, 33–38, 44–47 and 60–68 and the related headings and scoping guidance are deleted. Paragraph 32 is amended and scoping guidance added. The scoping guidance before paragraph 39 is amended. Paragraph 43A is added. Appendix B Comparison of AASB 1004 with AAS 27, AAS 29 and AAS 31 accompanying AASB 1004 is deleted.
Parliamentary Appropriations to Government Departments
Paragraph 32 of this Standard applies only to government departments.
32 Parliamentary appropriations over which a government department gains control during the reporting period shall be recognised as
:
(a)income of that reporting period where the appropriation:
(i)satisfies the definition of income in the Framework for the Preparation and Presentation of Financial Statements (the Framework); and
(ii)satisfies the recognition criteria for income;
(b)a direct adjustment to equity where the appropriation satisfies the definition of a contribution by owners; or
(c)a liability of the government department where the appropriation:
(i)satisfies the definition of liabilities in the Framework; and
(ii)satisfies the recognition criteria for liabilities in the Framework.
…
Liabilities of Government Departments Assumed by Other Entities
Paragraphs 39 to
4343A of this Standard apply only to government departments.
…
43A A government department shall disclose liabilities that were assumed during the reporting period by the government or other entity.
Paragraphs 54–57 and the related scoping guidance are amended.
Restructure of Administrative Arrangements
Paragraphs 54 to 59 of this Standard apply only to government departments and other government controlled not-for-profit entities and for-profit government departments.
54 In relation to a restructure of administrative arrangements, a government controlled not-for-profit transferor entity
or a for-profit government department transferor entityshall recognise distributions to owners and a government controlled not-for-profit transferee entityor a for-profit government department transferee entityshall recognise contributions by owners in respect of assets transferred.
55 In relation to a restructure of administrative arrangements, a government controlled not-for-profit transferor entity
or a for-profit government department transferor entityshall recognise contributions by owners and a government controlled not-for-profit transferee entityor a for-profit government department transferee entityshall recognise distributions to owners in respect of liabilities transferred.
56 When both assets and liabilities are transferred as a consequence of a restructure of administrative arrangements, a government controlled not-for-profit transferor entity
or a for-profit government departmenttransferor entityand a government controlled not-for-profit transferee entityor a for-profit government departmenttransferee entityshall recognise a net contribution by owners or distribution to owners, as applicable.
57 When activities are transferred as a consequence of a restructure of administrative arrangements, a government controlled not-for-profit transferee entity
or a for-profit government departmenttransferee entityshall disclose the expenses and income attributable to the transferred activities for the reporting period, showing separately those expenses and items of income recognised by the transferor during the reporting period. If disclosure of this information would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case.
AASB 1049 Whole of Government and General Government Sector Financial Reporting (October 2007)
In the Illustrative Examples accompanying AASB 1049, the explanatory notes supporting illustrative examples A and B are amended.
Explanatory Notes Supporting Illustrative Examples A and B
…
q Liabilities – Provisions
…
q(ii) …
[Note: Depending on the arrangements operating in a particular jurisdiction, a GGS, as an income tax collector, may not be able to recognise revenue unless it meets the criteria in
AASB 1004 ContributionsAASB 1058 Income of Not-for-Profit Entities. …
AASB 1057 Application of Australian Accounting Standards
Paragraphs 6 and 11 are amended. Paragraph 20A is added.
6 AASB 8 Operating Segments applies to:
(a) each for-profit entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other for-profit reporting entity
other than for-profit government departments; and
(c) financial statements of a for-profit entity
other than for-profit government departmentsthat are, or are held out to be, general purpose financial statements.
…
11 AASB 1004 Contributions applies to general purpose financial statements of local governments, government departments, other government controlled not-for-profit entities and whole of governments.
:
(a) each not-for-profit entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act 2001 and that is a reporting entity;
(b) general purpose financial statements of each other not-for-profit entity that is a reporting entity;
(c) financial statements of not-for-profit entities that are, or are held out to be, general purpose financial statements; and
(d) financial statements of GGSs prepared in accordance with AASB 1049.
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20A AASB 1058 Income of Not-for-Profit Entities applies to:
(a) each not-for-profit entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other not-for-profit entity that is a reporting entity; and
(c) financial statements of a not-for-profit entity that are, or are held out to be, general purpose financial statements.
Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities (December 2007)
Paragraphs 3, 6, 19, 20 and 30 are amended.
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3 This Interpretation addresses the essential characteristics of contributions by owners and provides indicators of when those characteristics exist. With one significant exception, it applies to parliamentary appropriations and other transfers to statutory authorities, government departments and government-owned corporations from other entities within the same group of entities but only where the transferee is wholly owned by the controlling government. The exception is that this Interpretation does not apply in respect of “restructures of administrative arrangements”, as defined in AASB 1004. In such cases the requirements in AASB 1004 apply, which means that government departments and other government controlled not-for-profit entities
and for-profit government departmentsaccount for “restructures of administrative arrangements” as transactions with owners in their capacity as owners.
The Board noted there may be some overlap between the disclosures set out in paragraph 37 of this Standard, and these other Australian Accounting Standards.
Disclosure of parliamentary appropriations and other related authorities for expenditure
BC131When developing AASB 1004 (December 2007), the Board decided to defer consideration of whether disclosures of parliamentary appropriations should apply to not-for-profit public sector entities other than government departments, given the short-term nature of its project at that time. The Board noted that in due course, it would consider extending the application of the requirements.
BC132As part of this project, the Board reviewed the specified disclosures of compliance with parliamentary appropriations and other externally-imposed requirements required of government departments which had been included in AASB 1004 (now deleted from that Standard). The Board decided, in light of changes in public sector financial management arrangements since originally developing these requirements, to propose extending the scope of disclosures in this regard to include other public sector entities that obtain part or all of their spending authority from parliamentary appropriations.
BC133In reviewing the disclosures, the Board acknowledged constituent concerns that the interaction between two of the specified disclosures was unclear, as the scope of paragraph 64(e) of AASB 1004 was broader than the scope of paragraph 64(d). The Board decided to clarify its requirements in this regard by proposing in ED 260:
(a)not to carry forward the text of paragraph 64(e) into AASB 1058; and
(b)to require disclosure of the financial consequences of an unauthorised expenditure.
BC134Respondents to the ED were generally supportive of the Board’s proposals in this regard. In its redeliberations, the Board noted a concern raised that by extending the application of these disclosure requirements beyond government departments some might interpret the disclosure requirements as applying to for-profit entities in the public sector. The Board observed that the scope of AASB 1058 is limited to not-for-profit entities and therefore for-profit public sector entities would not be subject to these disclosures.
BC135The Board discussed a concern whether the proposed disclosure requirements duplicate existing disclosures in AASB 1055 Budgetary Reporting. The Board reaffirmed its view that these disclosures contain fundamentally different requirements from AASB 1055 and should be retained, as the disclosures are focused on information concerning how appropriations and other advances received have been expended, rather than the more broadly based requirements in AASB 1055 for actual to budget variance analysis (see paragraph BC28 in AASB 1055).
BC136In addition, as part of its deliberations, the Board discussed whether to relocate disclosures about a government department’s compliance with parliamentary appropriations and other externally-imposed requirements from AASB 1004 to AASB 1054 Australian Additional Disclosures, rather than this Standard. The Board concluded it would be more user-friendly to include these disclosure requirements in AASB 1058 given the nexus between the income of government departments and appropriated amounts.
BC137Having regard to the feedback received, the Board decided to finalise the disclosure in this regard largely as exposed in ED 260.
Reduced disclosure requirements (Tier 2)
BC138The Board decided, in light of its current project to review the principles underlying Tier 2 reporting requirements, not to specify any reduction in applicable disclosures in making AASB 1058. Through a separate due process, the AASB will consider whether relief from certain specified disclosure requirements should be provided to entities that adopt Tier 2 Reduced Disclosure Requirements.
Transition
BC139The Board considered whether it should provide transitional relief to entities on adopting AASB 1058 and decided that, consistent with the IASB’s decisions on IFRS 15, some form of transition relief would be appropriate.
BC140In developing ED 260, the Board observed there did not appear to be any not-for-profit specific reason for AASB 1058 to depart from the general features of the transitional provisions in AASB 15 as arrangements giving rise to income are not specific to not-for-profit entities. Accordingly, the Board proposed transitional relief on initial application of AASB 1058 be limited to permitting entities the option of recognising the cumulative effect of initially applying AASB 1058 in opening retained earnings (or another component of equity, as appropriate) at the date of initial application of AASB 1058, to be consistent with AASB 15.
BC141Many respondents were not supportive of the Board’s limited proposals in this regard. In its redeliberations, the Board noted concerns about the absence of any specific transitional provisions:
(a)for existing research, donation and grant funded projects;
(b)for assets acquired for no cost or a nominal consideration (including “peppercorn” leases where a nominal amount is made as payment to the lessor); and
(c)in acknowledgement of the short lead time between issue and implementation of AASB 1058.
BC142Having regard to the feedback received, the Board decided to confirm its proposal to allow entities an option between fully retrospectively applying the Standard, or recognising the cumulative effect of initially applying the Standard at the date of initial application (that is, not to restate comparative information). The Board decided entities should be encouraged, but not required, to restate comparative information on adoption of AASB 1058. In addition, the Board redeliberated whether further transitional relief was necessary.
BC143The Board observed that not-for-profit entities commonly receive assets through donations, taxes and other similar transfers. The Board acknowledged constituent concerns about the transition requirements for inflows of resources previously accounted for in AASB 1004 but now within the scope of this Standard or AASB 15. The Board noted that in the absence of any transitional provisions in AASB 1058 or amendment to AASB 15, not-for-profit entities would be required to retrospectively apply the requirements of AASB 1058 or AASB 15 (where the transaction is within the scope) to contracts for which the associated inflow of resources had already been fully recognised in accordance with AASB 1004.
BC144The Board was concerned that this imposed a greater implementation burden on not-for-profit entities compared to for-profit entities. Consequently, the Board decided to extend the transitional relief in AASB 1058 to permit relief from retrospective application for contracts for which the entity has recognised all of the income in accordance with AASB 1004, to be consistent with the relief available in IFRS 15 for completed contracts. The Board also additionally amended the definition of a completed contract in AASB 15 to include contracts for which the entity has recognised all of the revenue in accordance with AASB 1004, or revenue in combination with a provision in accordance with AASB 137. The extent of the relief is dependent on the entity’s elections on retrospective application.
BC145In ED 260, the Board proposed requiring an asset that has been acquired for consideration that is below market but that is more than nominal to be measured at fair value. The Board decided to finalise the proposal in issuing this Standard (other than with respect to inventory). However, the Board observed that an entity would not have previously applied AASB 1004 to these transactions, nor recognised any income on the transaction as the asset acquired will generally have been measured at the amount of the consideration transferred. Accordingly, in the absence of any transitional provisions, a not-for-profit entity will be required to apply the requirements of AASB 1058 retrospectively to such transactions, including determining the fair value (or, in respect of inventory, current replacement cost) of the asset on acquisition.
BC146In its redeliberations, the Board considered that the costs of applying AASB 1058 retrospectively to all such assets would exceed the benefits of doing so, having regard to the need for an entity to identify and value such assets still existing at reporting date. Accordingly, the Board determined some form of transitional relief to be appropriate. The Board decided to consider transitional provisions for leases made on significantly below-market terms and conditions separately from any transitional provisions for other assets. The Board’s considerations with respect to transitional provisions for leases made on significantly below-market terms and conditions is set out in paragraphs BC150–BC153 below.
BC147With respect to assets other than lease assets, the Board decided not to require a not-for-profit entity to revisit the accounting that previously applied on initial recognition of these assets. The Board made this decision having regard to costs involved in identifying and measuring the various assets held on adoption of this Standard that may have been acquired at an amount that was more than nil or nominal, but significantly less than fair value, and the associated discount to fair value. The Board considered these costs to outweigh the benefits of retrospective application of the Standard, as these assets are already recognised (generally at cost on initial recognition) in the statement of financial position, and noting that there is unlikely to be any deferred income to recognise in future periods in accordance with this Standard.
BC148The Board observed that, consequently, the statement of financial position will reflect a mixed measurement position for assets acquired for consideration that is significantly less than fair value but more than nominal. Those acquired for more than a nominal amount prior to the application of AASB 1058 would continue to be reflected at cost on initial recognition. Assets acquired under similar circumstances after adoption of AASB 1058 will generally be initially measured at fair value (or current replacement cost, in relation to inventories).
BC149The Board decided that the transitional relief for other assets need not be aligned with transitional relief for leases. In making this decision, the Board considered:
(a)the quantum of transactions involving a lease. The Board observed it expects an entity to have undertaken fewer transactions involving leases, and that the terms and conditions of these transactions to be clearly identifiable, compared to acquisitions of other assets at a discount to fair value; and
(b)that a lessee may not necessarily have recognised an amount in its statement of financial position in respect of the right-to-use asset in an operating lease.
Leases with significantly below-market terms and conditions
BC150The Board decided to consider transitional relief for leases on significantly below-market terms and conditions separately from transitional relief for other assets. The Board made this decision having regard to:
(a)the diversity in accounting for such leases under previous requirements (see paragraph BC6 above);
(b)the potential significance of leases made on such terms to the financial position of a not-for-profit entity; and
(c)the prevalence of below-market leases in the not-for-profit sector.
BC151The Board considered whether to:
(a)require retrospective application of this Standard, without any relief on initial application;
(b)permit a not-for-profit lessee to continue its existing accounting for such leases, in a similar manner to the relief specified for other transactions; or
(c)permit a not-for-profit lessee access to a similar level of relief on initial application of this Standard as is available to a for-profit entity on adoption of AASB 16.
BC152The Board decided that it should, at a minimum, permit a not-for-profit lessee access to a similar level of relief on initial application of this Standard as is available to a for-profit entity on adoption of AASB 16. However, having regard to its decisions on the measurement of assets acquired in a lease (see paragraph BC84 above), the Board concluded it would be appropriate to modify the transitional provisions set out in AASB 16 to require the lease asset, on initial adoption of this Standard, to be measured at its fair value rather than by reference to the lease liability.
BC153In its discussion, the Board decided not to permit a not-for-profit lessee to continue its existing accounting for such leases, in a similar manner to the relief specified for other transactions. The Board made this decision having regard to its concern the financial position of a not-for-profit entity may be misrepresented, and the lack of comparability between entities if such leases were entered into before and after adoption of this Standard.
Early adoption of AASB 1058 before AASB 16
BC154The Board did not want to unintentionally require a lessee to fair value a right-of-use asset twice, once on transition to AASB 1058, if early adopted, and again on transition to AASB 16. Having regard to this and the feedback received about the adequacy of the transitional provisions in ED 260, the Board decided to add early adoption transition requirements to AASB 1058.
BC155The scope of AASB 1058 extends to leases provided to a not-for-profit entity on significantly below-market terms and conditions at inception principally to enable an entity to further its objectives. Not-for-profit entities can apply AASB 1058 early before the mandatory application date of AASB 16, thereby applying AASB 1058 alongside AASB 117. Under AASB 117, leases classified as operating leases do not give rise to a recognised asset of the lessee. The Board considered whether a not-for-profit lessee should be required to recognise right-of-use assets arising from operating leases at fair value when applying AASB 1058 before adopting AASB 16, noting this approach would be consistent with the objective of this Standard. However, the Board was conscious that it were to do so, it would place an additional burden on not-for-profit lessees, and would not be in keeping with its policy on transaction neutrality. Consequently, and having regard to the short lead time before AASB 16 becomes effective, the Board decided to require entities to continue applying the requirements of AASB 117 in respect of operating leases until transition to AASB 16.
BC156With respect to finance leases within the scope of AASB 117, the Board noted that a lessee may not have previously measured a finance lease asset, in a lease made on significantly below-market terms and conditions at inception principally to enable an entity to further its objectives, at fair value on initial recognition. The Board considered the costs to a lessee of having to fully retrospectively apply AASB 1058 to such leases were likely to outweigh the benefits to users of doing so. Consequently, the Board decided to require a lessee to measure the fair value of a finance leased asset at the date of initial application of AASB 1058 (if paragraph C3(b) applies) or at the beginning of the earliest period presented (if paragraph C3(a) applies). The Board decided it was not necessary to require the entity to remeasure the leased asset to fair value again on adoption of AASB 16.
First-time adoption of Australian Accounting Standards
BC157The Board considered whether any amendment is necessary to AASB 1 First-time Adoption of Australian Accounting Standards to assist not-for-profit entities on first-time adoption of Australian Accounting Standards. In making its decision, the Board had regard to the extent of amendment to AASB 1 as a consequence of the issue of AASB 15 and AASB 16.
BC158The Board noted that a not-for-profit entity applying AASB 1 would be able to access the relief specified in AASB 15 in respect of contracts for which the entity has previously fully recognised income in accordance with AASB 1004 (refer paragraphs D34-D35 of AASB 1). Consequently, the Board decided no further amendment was required in this regard.
BC159The Board observed that AASB 1 specifies the accounting on first-time adoption of Australian Accounting Standards for lease assets and lease liabilities, including practical expedients that may be adopted. The Board noted, in the absence of developing Australian specific amendments to AASB 1, it is unclear how a lease within the scope of AASB 1058 should be treated in the financial statements of a first-time adopter of Australian Accounting Standards.
BC160The Board considered whether the general features of the exemptions available for lease assets and lease liabilities in AASB 1 should apply also to leases with significantly below-market terms and conditions at inception. The Board noted if it did so, assets acquired through such leases could remain understated in a first-time adopter’s financial statements. The Board considered this reduced comparability between a not-for-profit first-time adopter and a not-for-profit entity that is already applying Australian Accounting Standards. Accordingly, the Board decided not to extend this exemption to leases for which the initial recognition and measurement is specified by AASB 1058. However, , the Board considered that some measure of transitional relief is necessary, and decided a first-time adopter should have access to similar relief in this regard as an entity already applying Australian Accounting Standards.
Effective date
BC161The Board considered feedback it received from several constituents requesting the Board defer the effective date of AASB 1058 (and related pronouncements) beyond 1 January 2018. The Board discussed the effective date of AASB 1058 (and AASB 2016-8, also issued as part of this project), noting its intention had been to align the effective date of any pronouncements resulting from this project with the effective date of AASB 15. The Board was concerned that an effective date of 1 January 2018 could disadvantage not-for-profit entities compared to for-profit entities applying AASB 15, as not-for-profit entities would have significantly less lead time before implementation of AASB 1058. The Board considered that the transitional provisions may not provide sufficient relief to entities in this regard.
BC162In addition, the Board considered whether to similarly defer the application date of AASB 15 for not-for-profit entities. The Board discussed the interaction between AASB 15, AASB 1004 and AASB 1058 should the application date of AASB 15 differ from that of AASB 1058, including:
(a)whether the scope of AASB 1004 should take precedence over AASB 15 for affected entities. (that is, transaction types subject to AASB 1004 would continue to be subject to that Standard, until such time as AASB 1058 became effective); and
(b)the effect on comparability for transactions that may be accounted for in accordance with AASB 1004 by not-for-profit entities but in accordance with AASB 15 by for-profit entities.
BC163The Board considered that it would be preferable for the effective date of AASB 1058, AASB 2016-8 and AASB 15 to be aligned for application by not-for-profit entities, rather than adopt a stepped approach to adopting the revised income recognition requirements. Having regard to the timing of finalisation of this project, the Board decided, for not-for-profit entities, to defer the application date of AASB 1058, AASB 2016-8 and AASB 15 to 1 January 2019. The amendment to defer the application date of AASB 15 to 1 January 2019 for not-for-profit entities is made by AASB 2016-7.
BC164The Board decided to permit entities to early adopt AASB 1058, provided AASB 15 and AASB 2016-8 are applied at the same time. The ability to early adopt means that a not-for-profit entity wishing to adopt the revised requirements at the same time as a for-profit entity is not prevented from doing so.
Other
Forthcoming amendments to the Australian Conceptual Framework
BC165The Board observed that an active project on its work program is the development of a revised Australian Conceptual Framework. The Board expects that there will be amendments to the definitions of various elements of the financial statements resulting from that project, at least for for-profit entities.
BC166The Board considered whether AASB 1058 should be developed having regard to the proposals exposed in ED 264 Conceptual Framework for Financial Reporting (incorporating IASB ED/2015/3 of the same name) and any subsequent decisions of the IASB to date on its project. The Board concluded it would be inappropriate to base its decisions in AASB 1058 on expected forthcoming amendments, noting that it had not yet deliberated the extent of any amendment that may be necessary to the IASB Conceptual Framework for application by Australian not-for-profit entities.
BC167The Board noted it may, at a future time, consider undertaking a project to review the requirements of AASB 1058 against a revised Australian Conceptual Framework.
Contributions by owners
BC168In developing ED 260, the Board noted the concerns of some constituents with the existing definition of “contributions by owners” (see Appendix A of AASB 1058) and Interpretation 1038 that includes for-profit public sector entities within its scope. The Board observed:
(a)the IASB has not defined a similar term employed within the definition of ‘income’ in IFRS Standards; and
(b)the IPSASB’s Public Sector Conceptual Framework includes a broader definition of ‘ownership contributions’ than that in Australian Accounting Standards.
BC169Acknowledging constituent concerns about application of the term, the Board decided to invite comment on the defined term “contributions by owners” as part of this project. The Board did not make a specific proposal regarding the definition of “contributions by owners”. Instead, ED 260 illustrated what a replacement Standard for AASB 1004 would look like without that definition and particular related guidance, and posed related questions including whether a definition of ‘contributions by owners’ is still necessary, or appropriate.
BC170In responding to the ED, constituents noted the definition in AASB 1004 can be problematic, identified a need for a definition of contributions by owners and expressed their support for applying the IPSASB definition or using the IPSASB definition as the basis for an Australian definition. Many respondents considered a definition was necessary to minimise diversity in practice.
BC171In addition, the majority of respondents to ED 260 responding on this topic supported the withdrawal of Interpretation 1038.
BC172Having regard to the feedback received, the Board considered whether to:
(a)withdraw and not replace the current definition in AASB 1004 and Interpretation 1038;
(b)replace the current definition in AASB 1004 with the definition of ownership contributions adopted by the IPSASB, and separately consider whether to retain an amended Interpretation 1038; or
(c)address the accounting for contributions by owners as part of a separate project.
BC173The Board was conscious of the need to finalise its proposals on other aspects of its current project in a timely manner. The Board considered that developing any amendment to the definition, including ensuring adequate due process, would delay finalisation of its current project. Accordingly, the Board decided to progress consideration of ‘contributions by owners’ and the related requirements as part of a separate project. Consequently, the Board decided to retain, for the interim:
(a)the terms ‘contributions’ and ‘contributions by owners’ as presently defined in Australian Accounting Standards;
(b)the requirements specified in AASB 1004 and AASB Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities with respect to contributions by owners and distributions to owners; and
(c)the requirements specified in AASB 1004 with respect to contributions by owners and distributions to owners, including those arising in relation to restructures of administrative arrangements.
GAAP/GFS convergence
BC174The Board discussed implications of its decisions on GAAP/GFS harmonisation. The Board noted that differences between Generally Accepted Accounting Principles (GAAP) and Government Finance Statistics (GFS) may arise in relation to the following:
(a)timing of recognition of income tax revenue – income tax revenue is recognised under GFS in advance of AASB 1058 (see Appendix C of AASB 9);
(b)timing of recognition of property tax revenue – property tax revenue is recognised under GFS later than AASB 1058 (see Appendix C of AASB 9). The Board considered constituent feedback that GFS requires income to be recognised progressively over the period of the levy;
(c)timing of revenue recognition on transfer of goods – GFS generally recognises revenue on legal change in title, while AASB 1058, with limited exception, requires income to be recognised on recognition of the asset. Under Australian Accounting Standards, an entity must control the asset for recognition to occur, which could be at a point in time earlier than on legal change in title;
(d)recognised income for certain volunteer services received – GFS does not recognise any income representing the fair value of volunteer services received; and
(e)recognition of provisions in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets – the amount of income recognised under GAAP and GFS will differ where a provision relating to the transaction or event is recognised in accordance with Australian Accounting Standards but not under GFS.
BC175The Board weighed its policy on GAAP/GFS harmonisation against its policy of transaction neutrality. The Board observed that some areas of potential difference were known when developing AASB 1049. Others were more likely to give rise to differences only in interim reporting periods, or are driven by a difference in the underlying principles. Further, some differences could only be addressed by making changes to the underlying principles in AASB 1058 and AASB 15.
BC176On balance, the Board considered that it was not necessary to amend its decisions reflected in AASB 1058 in order to achieve GAAP/GFS harmonisation. The Board noted that AASB 1049 Whole of Government and General Government Sector Financial Reporting will require entities to identify and explain any differences arising from different requirements in GAAP as compared to GFS.
Comparison with International Public Sector Accounting Standards
BC177As part of its deliberations, the Board considered the accounting for income of not-for-profit entities specified by the International Public Sector Accounting Standards Board (IPSASB). The Board noted the following International Public Sector Accounting Standards (IPSAS) specified the accounting in this regard:
(a)IPSAS 9 Revenue from Exchange Transactions;
(b)IPSAS 11 Construction Contracts;
(c)IPSAS 23 Revenue from Non-exchange Transactions (Taxes and Transfers).
BC178The Board observed IPSAS 9 and IPSAS 11 are based on the principles of superseded IAS 18 Revenue (incorporated into AASB 118 Revenue) and IAS 11 Construction Contracts (incorporated into AASB 111 Construction Contracts), rather than those of IFRS 15 Revenue from Contracts with Customers (incorporated into AASB 15). In addition, it noted that IPSAS 23 was issued prior to the issue of IFRS 15. The requirements of IPSAS 23 were therefore not necessarily developed with reference to similar principles of IFRS 15. The Board concluded these IPSASB Standards do not provide an appropriate basis for financial reporting in the Australian environment, particularly because they require different income recognition depending on whether the transaction is an exchange transaction or a non-exchange transaction, and IPSAS 9 and IPSAS 11 adopt a ‘risks and rewards’ approach that is not consistent with the performance obligation approach in IFRS 15.
BC179The Board further noted the IPSASB is currently developing proposals for the accounting of non-exchange expenses. The IPSASB is also developing a related project on revenue, which uses IFRS 15 as a starting point and looks at the type of modifications that would be required for IFRS 15 to be suitable for application to a wide range of revenue transactions in the public sector. This may result in revisions to, or a replacement of, the existing revenue recognition requirements. The Board noted that the issues to be considered under the IPSASB revenue project could result in outcomes that are similar to what the Board had achieved in finalising AASB 1058. The IPSASB expects to complete these projects in 2019. The Board noted that it would consider undertaking a project to review the accounting specified by AASB 1058 following the completion of these projects.
BC180The Board noted the following differences between AASB 1058 and IPSAS 9, IPSAS 11 and IPSAS 23 arise as a result of its decisions in finalising AASB 1058:
(a)recognition criteria – the Board decided not to specify asset recognition criteria in AASB 1058, but to require an entity to recognise assets as specified by other Australian Accounting Standards (other than in respect of volunteer services). In contrast, IPSAS 23 specifies that an asset is recognised where it is probable that future economic benefits or service potential will flow to the entity and its fair value can be measured reliably;
(b)fair value of an asset – the consequential amendments arising from AASB 1058 require various assets acquired for consideration that is significantly less than the fair value of the asset principally to enable the entity to further its objectives, to be initially measured at fair value in accordance with AASB 13. AASB 1058 also requires any related amounts to the asset to be recognised and measured in accordance with other Australian Accounting Standards. The IPSASB does not have a fair value measurement standard similar to AASB 13 and therefore IPSAS 9, IPSAS 11 and IPSAS 23 do not include such a reference;
(c)exchange and non-exchange transactions – IPSAS 9 and IPSAS 23 require income recognition based on whether it is an exchange or non-exchange transaction (a transaction in which the entity receives value from another entity without giving approximately equal value in exchange) respectively. IPSAS 23 requires a non-exchange transfer to be recognised as an asset and corresponding revenue when the entity does not have a liability in respect of the same asset. Where a liability is initially recognised, an entity recognises revenue and reduces the liability when it satisfies the present obligations associated with the asset. Except in certain specified instances, AASB 1058 requires an entity to recognise as income immediately in profit or loss the excess of the initial carrying amount of an asset over the related amounts recognised in accordance with other Australian Accounting Standards in the form of contributions by owners, liabilities and revenue;
(d)volunteer services – IPSAS 23 permits an entity to elect whether to recognise services in-kind (ie volunteer services) as revenue and an asset. AASB 1058 requires local government, government departments, general government sectors and whole of government to recognise volunteer services as income (or where appropriate, a contribution by owner) if the fair value of the services can be measured reliably and if the services would have been purchased if they had not been donated. All other entities may elect to recognise volunteer services if those services can be measured reliably; and
(e)disclosure – AASB 1058 includes a number of disclosure requirements that are not included in IPSAS 9, IPSAS 11 and IPSAS 23, such as the requirement for government departments to disclose information relating to compliance with parliamentary appropriations and other externally imposed requirements. IPSAS 9 and IPSAS 23 require some disclosures that are not included in AASB 1058, such as the disclosure of the methods adopted to determine the stage of completion of transactions involving the rendering of services. Additionally, IPSAS 23 encourages, but does not require, the disclosure about the nature and type of all volunteer services received, whether they are recognised or not. This contrasts with AASB 1058, which requires the disclosure of volunteer services that are recognised during the period, and encourages disclosure about the nature of the entity’s dependence on volunteer services, including those not recognised.
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