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Are you a NFP and accounting for your revenue and income properly?
Technical article

Are you a NFP and accounting for your revenue and income properly?

Applying Australian Accounting Standards to your revenue, income or grants is proving a challenging task by many NFP entities. The new accounting standards for revenue and income of NFPs first applied from 1 January 2019 with an option to delay the start date by six months in relation to research grants.

The one thing we can be certain of is that significant judgement is required in order to apply these standards, particularly in circumstances where contracts exist. Further, each arrangement needs to be reviewed at the time it is entered into, therefore as old contracts expire and new contracts are entered into, the accounting will need to be reviewed considering the terms and conditions in the new contractual arrangements. It may not follow that the accounting is the same if the terms and conditions of the contract are different.

Firstly, it should be determined which accounting standard is applicable – AASB 15 Revenue from Contract with Customers or AASB 1058 Income of Not-for-Profit Entities. Then it should be determined whether there are other relevant standards that should be applied first – such as AASB 9 Financial Instruments – which may be relevant if a government contract contains a termination for convenience clause. In determining the relevant revenue or income standard, the factors relevant to this assessment are whether:

  1. a contract exists and is ‘enforceable’; and
  2. performance obligations exist and are ‘sufficiently specific’.

These are some of the factors that determine whether revenue and income is recognised up-front, spread over the life of the contract, or recognised at completion of the contract.

We recommend that you document the judgements made when applying the accounting standard in order to ensure that, when appropriate, consistent treatment is adopted from year to year and material judgements are disclosed in the financial statements for the benefit of users and stakeholders.

For more guidance on applying these standards, refer to our NFP bulletin. Also refer to the AASB staff FAQs and the relevant illustrative examples in each of the accounting standards.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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Andrew Faulkner

Andrew Faulkner

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Jason Evans

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Kylee Byrne

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Wayne Russell

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Leon Mok

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