Applying standards
This year is big for NFPs that report in compliance with accounting standards.
The following complex accounting standards apply for annual reporting commencing on or after 1 January. Year-enders on 31 December are first cabs off the rank. The standards to watch out for are:
- AASB 15 Revenue from Contracts with Customers (NFP version)
- AASB 1058 Income of Not-for-profit Entities, and
- AASB 16 Leases.
The Australian Accounting Standards Board late last year issued amending standard AASB 2018-8 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-profit Entities, which affects leases.
AASB 2018-8 provides a temporary option for NFP lessees to elect to measure a class (or classes) of right-of-use assets arising under ‘concessionary leases’ at initial recognition, either:
- At cost, in accordance with AASB 16 Leases paragraphs 23–25, which incorporates the amount of the initial measurement of the lease liability, or
- At fair value (under AASB 13 Fair Value Measurement) in accordance with AASB 16 paragraph Aus25.1 (as amended).
There are important disclosure requirements where the ‘cost’ option is chosen.
This extra information helps financial-statements users to assess:
• An entity’s dependence on leases that have significantly below-market terms and conditions principally to enable the entity to further its objectives, and
• The nature and terms of the leases, including lease payments, terms, a description of underlying assets and restrictions on the use of underlying assets specific to the entity.
The information must be provided individually for each material lease that has significantly below-market terms and conditions principally to enable the entity to further its objectives or in aggregate for leases involving right-of-use assets of a similar nature.
You will need to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements.
Remember to 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.
As 30 June approaches, NFPs will apply AASB 9 Financial Instruments (classification, impairment and hedging) and the revised AASB 7 Financial Instruments: Disclosures for the first time. The expected credit-losses model will be particularly challenging.
Good news, though, as NFPs are relieved from extensive disclosures when the reduced-disclosure regime is applied.
NFPs preparing special-purpose financial statements that are lodged with regulators or otherwise made generally available will need to consider the application of the new and revised standards.
AASB staff post FAQs for NFPs
The AASB staff have addressed how NFP schools may work out which standard to apply to different types of upfront fees they charge.
The staff FAQs also show how NFPs may identify and recognise performance obligations under AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities.
The additions accompany the existing FAQs addressing the effective date and scope of new NFP income standards.
