Good 360
MEDIA, JOBS & RESOURCES FOR THE COMMON GOOD
NEWS  |  Leadership

Changes to Accounting Standards on Income for NFPs


Thursday, 14th May 2015 at 11:50 am
Xavier Smerdon, Journalist
New accounting proposals in the Not for Profit sector may result in better matching of income and expenditure than the current standards, according to the Australian Accounting Standards Board.

Thursday, 14th May 2015
at 11:50 am
Xavier Smerdon, Journalist


0 Comments


FREE SOCIAL
SECTOR NEWS

 Print
Changes to Accounting Standards on Income for NFPs
Thursday, 14th May 2015 at 11:50 am

New accounting proposals in the Not for Profit sector may result in better matching of income and expenditure than the current standards, according to the Australian Accounting Standards Board.

In releasing the proposals for public discussion, the AASB Chair, Kris Peach said the most significant change to accounting practice proposed by the new Exposure Draft ED 260 is to defer income from grants and donations.

The AASB said this relates to the conditions around the delivery of goods or services regardless of whether the ultimate beneficiary is the grantor or a third party.

“The current standard has been interpreted as requiring income to be recognised immediately if the ultimate beneficiary is not the grantor. For example, under the proposals a charity receiving grants requiring the provision of a certain number of hospital beds would not recognise revenue until the beds were provided, despite the ultimate beneficiary being the patient, rather than the grantor,” Peach said.

Senior Project Manager with AASB, Jim Paul said the aim of the proposed changes is to simplify the existing standards and clear up some of the uncertainty around the treatment of various conditions.

“The focus for NFPs is what have you promised to do and is it enforceable."

The AASB said some types of transfers to Not for Profit entities would continue to be recognised as income immediately—for example:

(a) donations to a charity with discretion regarding which charitable purposes the donations will be used for; and

(b) grants, or local government rates, specified to be used in a particular future period but without any specification of the nature of the goods or services for which they must be used.

The AASB said the proposals will also require that transactions with a donation element be recognised at fair value.  For example a grant of a peppercorn lease of land for 99 years for a $1 would require the finance lease asset to be recognised at fair value, with corresponding income (unless there are performance conditions attached).

“The proposals provide guidance on how current grant/donation agreements would need to be amended regarding performance obligation conditions to enable better matching of income with expenditure,” Peach said.

“An entity would need to consider its own specific circumstances and service performance objectives before determining whether such amendments would be beneficial.”

Accounting standards expert with Ernst and Young, David Hardidge, commenting on the Aussie Charities and NFPs LinkedIn group, said the proposals may change the way charities recognise income (grants, donations, revenue) from provision of goods and services.

“One of the biggest complaints in relation to the current standard for NFPs is that revenue is recognised when received, and associated expenses are recognised in later reporting periods, leading to volatility in reported results,” Hardidge said.

“While there is likely to be some deferral of revenue from “grants” to be recognised when the associated expenses are incurred, the proposals do NOT reintroduce the “matching” concept.

“The proposals are going to become increasing relevant to many charities and NFP entities as Governments move to a public service commissioning and contestability approach, and well as fee for services, rather than the provision of block grants. Think NDIS service agreements, or Payment by Results.”

He said the proposals are likely to be more complex than current, in particular, dealing with the new concept of “performance obligations”, and potentially separately recognising donation components (e.g. for a fundraising event recognising revenue from the provision of food and beverages separately and at a different time from a donation component).

The AASB said it will conduct an extensive outreach programme on ED 260, including education sessions and roundtables in Brisbane, Canberra, Melbourne and Sydney in June.

The AASB Australian Accounting Standards Board  invites comments on ED 260 Income of Not-for-Profit Entities, which proposes:

(a) guidance to assist not-for-profit entities to apply the principles of AASB 15 Revenue from Contracts with Customers; and

(b) a replacement Standard for AASB 1004 Contributions, including income recognition requirements for donations, grants, taxes and similar transactions.

Comments on the Exposure Draft ED 260 are due by 14 August 2015.

 

E-mail: standard@aasb.gov.au


Xavier Smerdon  |  Journalist |  @XavierSmerdon

Xavier Smerdon is a journalist specialising in the Not for Profit sector. He writes breaking and investigative news articles.

FEATURED SUPPLIERS


Brennan IT helps not-for-profit (NFP) organisations drive gr...

Brennan IT

NGO Recruitment is Australia’s not-for-profit sector recru...

NGO Recruitment

Helping the helpers fund their mission…...

FrontStream Pty Ltd (FrontStream AsiaPacific)

HLB Mann Judd is a specialist Accounting and Advisory firm t...

HLB Mann Judd

More Suppliers

Get more stories like this

FREE SOCIAL
SECTOR NEWS

YOU MAY ALSO LIKE

Charity Reporting Regime – Not A Level Playing Field

Lina Caneva

Tuesday, 24th October 2017 at 2:46 pm

Impact of Accounting Standard Changes in Recognition of Revenue

Contributor

Tuesday, 18th July 2017 at 8:15 am

Simplifying Income Recognition for Not-for-Profit Entities

Wendy Williams

Wednesday, 21st December 2016 at 11:55 am

ACNC Myth-Busts Charity Admin Costs

Lina Caneva

Thursday, 11th August 2016 at 11:18 am

POPULAR

Red Cross Moves to Wage-Based Fundraising Model

Lina Caneva

Thursday, 16th November 2017 at 8:30 am

Disability Advocacy Group Fights to Restore State Funding

Luke Michael

Thursday, 9th November 2017 at 8:37 am

New Same-Sex Marriage Bill Looks to Protect Faith-Based Charities

Luke Michael

Monday, 13th November 2017 at 5:25 pm

Concerns Raised Over New ACNC Board Appointments

Luke Michael

Monday, 20th November 2017 at 2:28 pm

Write a Reply or Comment

Your email address will not be published. Required fields are marked *


Good 360
pba inverse logo
Subscribe Twitter Facebook

The social sector's most essential news coverage. Delivered free to your inbox every Tuesday and Thursday morning.

You have Successfully Subscribed!