NFPs – Disclosures about revenue and income – more than you bargained for?

30 June 2020 was the first year that not-for-profit entities (NFPs) were required to adopt the new revenue and income standards, AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities. As is typical when a new standard is first adopted, preparers tend to focus on recognition and measurement issues, and not a lot of focus is given to the required disclosures.

Income disclosures

AASB 1058 requires NFPs to disclose income recognised during the period, disaggregated into categories that reflect how the nature and amount of income (and the resultant cash flows) are affected by economic factors. In this regard, NFPs must consider disclosing the following categories of income separately:

• Grants, bequests and donations of cash, other financial assets and goods
• Recognised volunteer services, and
• For government departments and other public sector entities - appropriation amounts recognised as income, by class of appropriation.

As grants, bequests and donations of cash/other financial assets and goods may each be affected by different economic factors, NFPs should, subject to materiality, consider showing these amounts separately as well.

The Australian Charities and Not-for-Profits Commission (ACNC) issued a Best Practice Guide on annual financial reporting disclosures, which further reiterates the importance of disaggregated income disclosures, particularly with respect to disclosing different types of revenue received from government. Refer February 2021 Accounting News article for more information.

Volunteer services

NFPs are also encouraged to disclose information about the contribution of volunteer services and inventories to the achievement of the entity’s objectives during the reporting period, and the entity’s dependence on such contributions.

Suggested disclosures include qualitative information, by major class of transaction, about the nature of the entity’s dependence arising from:

• Volunteer services it receives, including those not recognised, and
• Inventories held but not recognised as assets during the period.

Non-contractual income arising from statutory requirements

More an issue for public sector entities, income from statutory requirements such as taxes, rates and fines should be disclosed separately because they are affected by different economic factors. In addition, AASB 1058 also requires entities to consider disclosing information about:

• Statutory receivables that are not financial assets under AASB 132 Financial Instruments: Presentation (e.g. income taxes receivable), as well as interest income on such receivables and any impairment losses recognised during the period
• Financial liabilities relating to prepaid taxes or rates where the taxable event has not yet occurred (i.e. is refundable until the taxable event occurs), as well as which future periods these taxes or rates relate to.

Transfers to enable a NFP to acquire or construct a recognisable non-financial asset to be controlled by the entity

Generally, donations of financial assets are taken to income immediately under AASB 1058 if there is no other related amount to be recognised such as revenue, a lease, a financial liability, or a provision. However, there are special rules when accounting for transfers of financial assets (such as cash or other investments) to acquire or construct recognisable non-financial assets for the NFP’s ongoing use. Income is usually deferred, and recognised in period(s) when the asset is constructed or acquired.

With this comes additional disclosures, including:

• The opening and closing balances of financial assets transferred (e.g. cash)
• The opening and closing balances of associated liabilities from such transfers
• Description of obligations under the transfer, i.e. what is the NFP obliged to acquire or construct, and when will the entity satisfy their performance obligation (e.g. as the asset is constructed, on completion of construction of the asset, or when the asset is acquired)
• Qualitatively explain when the liability for unsatisfied performance obligations will be recognised as income (or quantitatively using time bands)
• Judgements, and changes in judgements, that significantly impact the amount and timing of income arising from the transfer
• For obligations satisfied over time – the methods used to recognise income (e.g. output or input method), and an explanation as to why the method used provides a faithful depiction of the entity’s progress towards satisfying the performance obligation, and
• For obligations satisfied at a point in time – the significant judgements made in evaluating when it has satisfied its performance obligation.

Restrictions

AASB 1058 encourages disclosure about externally imposed restrictions that limit or direct the purpose for which resources can be used, including:

• Judgements about whether funds are restricted
• Which assets are to be used for specified purposes
• Equity components, divided into restricted and unrestricted amounts
• Total comprehensive income, divided into restricted and unrestricted amounts.

Need assistance?

Please contact one of our NFP Advisory Partners if you requires assistance with any NFP matters.