Time is ticking. Is your organisation prepared for, or equipped to deal with the biggest change in accounting standards since the introduction of International Financial Reporting Standards (IFRS) back in 2005?
The new revenue standard/s will have wide-ranging implications for every industry and every business. For NFP entities, the first year of adoption is reporting periods ending after 1 January 2019.
NFP entities are required to assess each individual revenue contract to determine whether the income received is that of a contract with a customer, a donation or a combination of both.
A contract with a customer would exist if the following two criteria have been met:
Applications must be legal entities with an ABN or ACN, and be one of the following:
The entity has a legally enforceable contract with a customer, and
That contract includes “sufficiently specific” promises for the not-for-profit entity to transfer goods or services to the customer or third party beneficiaries.
If these two criteria have been met revenue would be recognised in accordance with AASB 15. If not met, then the revenue would be accounted for under AASB 1058.
Depending on the size of the organisation and the number of funding contracts, the exercise of reviewing individual contracts could prove to be time consuming and complex. The complexity arises in determining whether promises are sufficiently specific.
NFPs would need to consider indicators such as whether there is enough detail in the contract regarding the nature of the good/service they’re providing, the cost/value of the good/service and the period of time over which the good/service will be transferred. Judgement will be required in assessing these indicators.
Financial reporting for not-for-profit entities will now more closely reflect economic reality. Revenue from grants and donations will be recognised where any associated performance obligation to provide goods or services is satisfied, and not immediately upon receipt as usually occurs with current standards.
Because of the wide ranging effects of the new standards, the implementation effort should include functions outside of the Finance team, including R&D, Philanthropic Grant managers and senior managers. A number of related work streams should be considered in this effort, including:
Business processes and systems
Change management, communication and training
ShineWing Australia is currently working closely with several large Universities to review contracts and assist with project managing the implementation. Our team is well placed to help alleviate some of the stress that can come with the sheer volume of contracts you may need to review, and then how you will need to implement.
It will be critical to have strong project management plan in order to coordinate the roles of the various business functions and to keep the work streams running smoothly and on schedule.
If you require a consultation on the likely impact this change will bring, please contact Hayley Underwood: [email protected]