AASB issues new FAQ to assist in determining whether there are sufficiently specific performance obligations under AASB 15 for a research grant

The Australian Accounting Standards Board (AASB) previously issued FAQ 5 to assist research entities receiving grant funding in determining the appropriate Accounting Standard to apply when recognising revenue or income under AASB 15 Revenue from Contracts with Customers or AASB 1058 Income of Not-for-Profit Entities respectively. FAQ 5 is limited to the following ‘sufficiently specific’ performance obligations being provided to a customer:

  • Intellectual property
  • Licence to use the NFP’s intellectual property, and
  • Research findings.

In particular, Chart 3 to FAQ 5 illustrates how research findings transferred to a customer that are considered ‘sufficiently specific’ are recognised under AASB 15 by referring to Examples 4A, 4B and 4C in Appendix F to AASB 15. However, those examples simply refer to ‘publication of research data on a public web site’ as resulting in a ‘sufficiently specific’ performance obligation. There is not much guidance provided on factors to consider when assessing whether the requirement to undertake research activities would result in ‘sufficiently specific’ performance obligations or not.

In October 2019, the AASB therefore updated these FAQs and added FAQ 6 to provide NFPs receiving research grants with some guidance on the types of activities that are not considered ‘sufficiently specific’ performance obligations, and those that could be. The principles in FAQ 6 are summarised below.

Inputs and processes are not ‘sufficiently specific’

Grant agreements to conduct research activities are typically not specific as to the detailed outputs required from research activities because research, by its nature, is inherently uncertain. Instead, these agreements tend to be specific in terms of the objectives of the research and how the research will be conducted (i.e. specificity about inputs and processes).

Outputs

In our October 2019 Accounting News article, we outlined a practical approach for analysing grant contracts to determine if they contain ‘sufficiently specific’ performance obligations where there is an enforceable contract with a customer. We noted there that ‘inputs’ and ‘outcomes/objectives’ do not result in the presence of ‘sufficiently specific’ performance obligations, however, ‘outputs’ typically would because they are the deliverables described in the grant contract that result in the transfer of a good or service to the customer.

FAQ 6 notes that in order for a performance obligation to be ‘sufficiently specific’ under AASB 15:

  • The research entity must promise to transfer goods or services (e.g. outputs from the research) to the customer (i.e. the donor or to other parties on behalf of the donor), and
  • That promise must be sufficiently specific such that it can be determined when the research entity has satisfied its obligation to transfer those goods or services.
Both of the above factors must be present in order for the research entity to conclude that there are ‘sufficiently specific’ performance obligations in the grant contract.

Examples

FAQ 6 then provides some examples of rights of the donor, and for each, notes whether these would be considered ‘sufficiently specific’ performance obligations. These examples are summarised in the table below. Please refer to FAQ 6 for more detailed information.

Nature of donor’s right

Sufficiently specific performance obligation?

Financial reports & acquittal statements (how the research entity spent the grant funds)

No.

The requirement to submit financial reports and acquittal statements to the donor is specific as to the type (e.g. format and content) and frequency. However, these do not represent a good or service that is transferred to the donor.

These reports/statements simply provide evidence to the donor that the research entity has discharged its accountability for the grant funding received, i.e. spent grant monies in accordance with the agreement.

BDO comment:

Preparation of financial reports and acquittal statements usually only represent an ‘input’ to the research process, and is not an ‘output’ of the research to the donor.

Progress reports

Typically no.

The content of progress reports do not normally transfer a good or service to the donor because they do not communicate information about the findings or the research data from the research performed to date.

These progress reports simply provide evidence to the donor that the research entity has discharged its accountability for the grant funding received, i.e. spent grant monies in accordance with the agreement.

BDO comment:

Preparation of progress reports usually only represent an ‘input’ to the research process, and is not an ‘output’ of the research to the donor.

Final report

Typically no.

Same as for progress reports above. However, if the final report provides research findings in some form then it could be considered a ‘sufficiently specific’ performance obligation.

Report on the research activity requested by the donor

Typically no.

Such reports do not normally provide research findings.

They typically only provide evidence to the donor that the research entity has discharged its accountability for the grant funding received, i.e. spent grant monies in accordance with the agreement. They do not usually communicate information on the research findings in sufficient detail for the recipient to be able to obtain any substantive benefit from that information.

BDO comment:

Preparation of a report on the research activity usually only represents an ‘input’ to the research process, and is not an ‘output’ of the research to the donor.

Access to personnel and premises

No.

The purpose of the donor having this right is for them to manage risks associated with the research project, rather than to provide access that would enable the donor to obtain a benefit from the research itself.

Access to information and ‘research material’ – includes the project proposal and summary, progress reports and final reports only

No.

Such research material typically only provides evidence to the donor that the research entity has discharged its accountability for the grant funding received, i.e. spent grant monies in accordance with the agreement. It does result in the transfer of a good or service to the donor.

Access to information and ‘research material’ – includes the project proposal and summary, progress reports and final reports, plus research data, findings or publications created from that data

Yes.

Research data, detailed findings or publications created from the data would result in the transfer of a good or service to the donor (customer).

Licence to IP relating to ‘research material’– includes the project proposal and summary, progress reports and final reports only

Typically no.

The licence is to the research material, which is defined as the project proposal and summary, progress reports and final reports, and the nature of the research materials (as defined by the agreement) does not include the underlying research data, findings or publications created from that data.

The focus of the licence is to provide evidence to the donor that the research entity has discharged its accountability for the grant funding received, i.e. spent grant monies in accordance with the agreement. It does not result in the transfer of goods or services to the donor.

Licence to IP relating to ‘research material’ – includes the project proposal and summary, progress reports and final reports, plus research data, findings or publications created from that data

Yes.

Research data, detailed findings or publications created from the data would result in the transfer of a good or service to the donor (customer).

Intellectual property created from the research

Yes.

For more information:

Licence to the IP created from the research

Yes.

For more information:

  • Refer Chart 2 in research grant flowchart (AASB FAQ 5)
  • See Accounting News article, May 2019

Research findings (including publications)

Yes.

For more information:

  • Refer Chart 3 in research grant flowchart (AASB FAQ 5)
  • See Accounting News article, June 2019

Next month

In next month’s Accounting News, we continue our focus on how research entities determine whether grant agreements contain sufficiently specific performance obligations by looking at some practical scenarios included in FAQ 6.

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