Changes in Australian Accounting Standards for Non-Profit Entities

Thursday, 21 Feb 2019

The not-for-profit entities operating in Australia are required to adhere to the Australian Accounting standards which specify the financial reporting obligations. The Australian Accounting Standards Board (AASB) is involved in the development, issuance and maintenance of the Australian Accounting Standards for both not-for-profit organisations and for-profit entities.

The recent changes in the Standards will help the non-profit entities in Melbourne to better organise their financial operations and streamline the process with higher transparency. These alterations are effective in allowing advanced bookkeeping for non-profit organisations in Melbourne.

The amendments were announced in December 2016 which comprised of AASB 1058 Income of Not-for-Profit Entities, AASB 2016-7 Deferral of AASB 15 for Not-for-Profit Entities and AASB 2016-8 Australian Implementation Guidance for Not-for-Profit Entities. These new standards will be applicable to the reporting periods on or after 1 January 2019.

Let us take a look at them in detail to understand the accounting requirements for not-for-profit bookkeeping in Melbourne.

New Standard Of Income Recognition For Not-For-Profit Entities

Until now as per AASB 1004, the non-profits in Melbourne were required to conduct specific activities to earn contributions which were non-reciprocal as the activities were not directed towards the grantor. The income thus generated was recognised upfront, but there were many interpretations which led to inconsistency.

To align bookkeeping for non-profit in Melbourne with economics of the transactions, the AASB came up with changes. Under the new guidelines, non-profit bookkeeping in Melbourne doesn’t require accounting for all the contribution transactions. They now need to identify whether the transaction is a legitimate donation or is a contract with a customer (AASB 15).

For the application of AASB 15 to a transaction, the non-profit entity must have an enforceable contract with the customer and it must include sufficiently specific promises to transfer goods or services to the customer or third party beneficiaries. For other transactions which do not fall under AASB 15, the AASB 1058 will provide the guidelines on when the contribution will be recognised.

Thus accounting under AASB 15 means revenue will be recognised when the performance obligations are met. No performance obligations imply that the income gets recognised when it is controlled by the entity. On the other hand, under the AASB 1058, a government grant will get recognised upfront by the non-profit bookkeepers in Melbourne.

Accounting For Volunteer Services

According to the AASB 1058, charities are not required to recognise volunteer services. Nevertheless, they can opt to recognise volunteer services if they can rightfully and responsibly determine the reasonable value of these services through bookkeepers in Melbourne.

Usually, volunteer services are recognised as revenue but they can also be recognised under other Australian Accounting Standards if the details and the situation meet the recognition conditions of those Standards. Likewise, volunteer services are considered as an expense upon receipt, but they can also be identified as an asset under other Australian Accounting Standards such as AASB 116 if the facts and circumstances meet the conditions of those Standards.

The non-profit entity in Melbourne must make appropriate incremental disclosures including disaggregation of income, the time when the obligations will be met and optional disclosures about the non-profit organisation’s dependence on volunteer services and donated stock.

Accounting For Concessionary Leases

A concessionary lease is a lease which has terms and conditions below the market value such as peppercorn rent payments. The AASB 1058 guides the non-profit entities in Melbourne to measure the right-of-use asset at fair value and the lease liability of future payments at current value.

Also, they need to determine the income from the difference between the asset and the liability if there are no obligations on the lease. It should, however, not be a part of the income from ACNC purposes. The AASB allows the non-profits in Melbourne to choose to record a class of right-of-use assets at cost than at fair price with the lease liability of the future payments at current price.

If some non-for-profit entities in Melbourne decide to measure below the market leases at cost, they will have to provide additional disclosures in the financial documents. The new Standard will ensure that the difference between the fair value of the asset and the liability will be instantly identified in the financial records.

Obligations To Acquire Or Construct An Asset

If the non-profit entity in Melbourne has received money for the construction or acquisition of an asset such as a building for its own use, it will not fall under the jurisdiction of AASB 15. However, AASB 1058 requires the not-for-profit organisation in Melbourne to defer income till the asset is acquired or constructed as per the terms of the transfer.

With the new changes, more assets will be put on the balance sheet. At present, only those assets which are acquired by NFP entities in Melbourne at zero or a nominal cost must be recorded at fair value. However, this will be expanded to include all the assets where the NFP in Melbourne pays considerably less than the fair value.

The amendments in the Standard aim to help NFPs recognise and maintain their resources and provide the users with a clear view of the NFP’s reliance on the donated assets.

Recognition of Revenue From Contracts

If a contract falls under the scope of AASB 15, then the whole consideration received should be assigned to the promises in the contract. The consideration for every promise will then be recognised as income as it gets satisfied as per the guidelines in AASB 15.

On the other hand, if whole or a part of this consideration is non-refundable and the NFP in Melbourne is unable to meet the terms of the promises, then the non-refundable part will be accounted for as a contribution as per the AASB 1058 by the bookkeeping company in Melbourne.

Conclusion

The accounting for NFPs in Melbourne was inconsistent with haphazard outcomes for the longest time as the income was being recognised upfront without matching income and expenditure. With the new Standards, bookkeeping for non-profits in Melbourne will be simplified by allowing the deferring of recording the income till the performance obligations are satisfied.

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