New Revenue Rules - Implication for Not-For-Profit Entities

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9
Jul

New Revenue Rules - Implication for Not-For-Profit Entities

09.07.15

Late last year the Australian Accounting Standards Board made the announcement to adopt AASB 15 Revenue from Contracts with Customers.  The adoption of AASB 15 could have an impact on a number of industries, including charities, research foundations, construction, manufacturing, telecommunications, software development and licensing, and real estate.

 

WHAT IS AASB 15?

The core principle of the new standard is that revenue should be recognised in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the provider of the goods or services expects to be entitled.

 

Revenue should be deferred only in certain circumstances where there are:

  • specific milestones to be achieved,
  • specific services to be provided for a special purpose and
  • the non-provision of services will result in a penalty.

 

In all other instances, where the terms and conditions are generic; (for example, when only a time frame is specified by which the service is to be provided) the revenue is to be recognised at the time of receipt.  This revenue recognition process involves the following key steps: 

  • Identify the contract with customer;
  • Identify separate performance obligations;
  • Satisfaction of performance obligations.

 

The application date for the standard is expected to be 1 January 2017; however the standard permits for early adoption.

 

The standard requires retrospective implementation, however provides a choice between two transition approaches, namely:

  • Retrospectively to each prior reporting period presented – i.e. adjust opening retained earnings at the commencement of the comparative period; or
  • Retrospective with the cumulative effect of initially applying the standard recognised at the date of initial application – i.e. adjust opening retained earnings at the commencement of the current period

 

Should you have any queries in relation to the above or need specific advice in relation to the proposed changes for your particular circumstances, please contact your ESV Engagement Partner on 9283 1666. 

 

Article by Lisa Brink