In December 2016, the Australian Accounting Standards Board (AASB) announced the following standards:
- AASB 1058 Income of Not-for-Profit Entities
- AASB 2016-7 Deferral of AASB 15 for Not-for-Profit Entities
- AASB 2016-8 Australian Implementation Guidance for Not-for-Profit Entities
These standards are effective and apply to annual reporting periods beginning on or after 1 January 2019.
The information below provides general guidance on how the standards may affect common aspects of accounting for charities. More information is available on the AASB website.
How do I account for a government grant?
This depends on the nature of the grant. It may be accounted for under the revenue standard AASB 15 Revenue from Contracts with Customers or under AASB 1058 Income of Not-for-Profit Entities.
To be accounted for under AASB 15, the grant should be enforceable and have sufficiently specific performance obligations. Accounting under AASB 15 would result in revenue being recognised when the performance obligations are satisfied.
Otherwise a government grant shall be recognised upfront under AASB 1058.
How do I account for volunteer services?
AASB 1058 does not require charities to recognise volunteer services. However, charities can choose to recognise volunteer, or a class of volunteer services, if they can reliably measure the fair value of those services.
Generally, volunteer services are recognised as revenue, but they may be recognised under other Australian Accounting Standards (for example, AASB 15) if the facts and circumstances satisfy the recognition criteria of those standards.
Similarly, volunteer services are generally recognised as an expense upon receipt, but may be recognised as an asset under other Australian Accounting Standards (for example, AASB 116 Property, Plant and Equipment) if the facts and circumstances satisfy the recognition criteria of those standards.
Appropriate disclosure should be made to demonstrate the choice of accounting policy.
How do I account for concessionary leases?
Where a charity enters into a lease that has terms and conditions significantly below the market value, it is referred to as a ‘concessionary lease’.
To account for such leases, AASB 1058 amends AASB16 Leases to ordinarily require charities to measure the right-of-use asset at fair value and the lease liability of future lease payments at present value. The difference would be income under AASB 1058 if there are no other obligations on the lease, but is not considered to form part of revenue for ACNC purposes.
However, the AASB has provided temporary relief for charities by allowing them to choose to measure a class (or classes) of right-of-use assets arising under concessionary leases at cost, rather than at fair value with the lease liability of future lease payments at present value. This temporary relief is effective from 1 January 2019.
For charities that choose to measure these concessionary leases at cost, additional disclosures are required in the financial statements; at a minimum:
- The charity’s dependency on the concessionary leases to further its charitable purposes, and
- The nature and terms of the leases, including:
- The lease payments
- The lease terms
- A description of the underlying assets, and
- Restrictions on the use of the underlying assets specific to the entity.
Why are volunteer services classified as revenue but concessionary leases classified as income?
The ACNC’s interpretation of revenue is based on whether it is derived during the ordinary course of charity activities. Receiving the services of volunteers is most likely an ordinary activity within a charity’s operations. However, the once-off initial recognition of a concessionary lease would not be part of the ordinary course of charity activities.
This is similar to when a charity sells a building and the proceeds are considered income rather than revenue. Again, this is because the once-off nature of the transaction means it is not considered part of the charity’s ordinary activities.
Will AASB 1058 affect the ACNC’s current interpretation of revenue and income?
Despite the reference to ‘income’ in the title, AASB 1058 will not affect the ACNC’s current interpretation of revenue and income.
The concept of the ordinary course of charity activities will still apply when determining the revenue of an entity, and its size for ACNC reporting purposes. This is outlined in paragraph BC36 of AASB 1058.