Speaking to Accountants Daily, Nexia Australia technical director, Martin Olde, said NFPs needed to be careful with the new standards, namely AASB 1058 Income of Not-for-Profit Entities, AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers, and AASB 16 Leases.
2018 marks the first year of application for AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers (1 July 2019 for NFPs), with AASB 1058 and AASB 16 Leases applying from 1 January 2019.
“We are seeing some potentially significant changes to the revenue recognition profile so it does very much depend on the size and nature of the charity but our message to our clients is just don’t assume it's going to be the same as what you've done previously, you do need to go through the analysis and look at each of the various arrangements and the types of income that you're getting to identify whether there will be changes under AASB 1058,” said Mr Olde.
“What we've been seeing is that they tend not to be straightforward analysis, some of your basic donations will be treated the same and it won't have a huge impact but where we are seeing some potential accounting changes is in relation to those specific grants, scholarships, specific bequests that have conditionality around the use of those funds.
“Some of the larger NFPs have already started looking at internal systems and processes to capture the information to see some of those contracts, some of those grant arrangements, whether they might consider modifying the terms of those to achieve a particular accounting outcome.”
Similarly, BDO partner Aletta Boshoff said many not-for-profits (NFPs) may mistakenly think that the standards do not apply to them.
“Many NFPs think they do not have revenue because they do not have customers. However, in addition to grants, donations and contributions, many NFPs run business enterprises to supplement income, or as part of providing goods or services to clients in need,” said Ms Boshoff.
“These are likely to comprise revenue from contracts with customers and therefore the new ‘5 step model’ in AASB 15 must be applied. Depending on the circumstances, this could result in revenue being recognised either earlier or later, and could also result in a change to the quantum of revenue recognised.”
With regards to AASB 9, Ms Boshoff said NFPs might have a misconception that they do not have any financial instruments because they are not entering into hedging arrangements.
“This is a misconception, with many NFPs having receivables, which will be subject to the new ‘expected loss’ impairment rule, and various types of investments, including unlisted investments which can no longer be measured at cost, and investments of surplus cash in bonds, which in some cases will no longer be measured at amortised cost,” she added.