Ralph Martin is the Partner, Accounting Technical
Ralph Martin
Partner, Accounting Technical

Not-for-profit entities with 31 December 2019 year ends can elect to not apply AASB 15 or AASB 1058 in the recognition of revenue from research grants. 

What has happened? 

AASB 15

The AASB has decided to defer the application of AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities to research grants by not-for-profit entities from periods beginning on or after 1 January 2019 to periods beginning on or after 1 July 2019, with earlier application permitted.  This occurred in its Board meeting on November 21st and was a result of the continuing divergent views on revenue recognition for research grants.

The Board also decided to add Example 4D (previously Scenario 2A in the Staff FAQs) to illustrate additional contract features to help entities in implementing AASB 15, and to amend illustrative examples 4A and 4B as proposed in the Fatal-Flaw Review draft.

Board members will be voting out of session on a revised version of the amending Standard; and will run a webinar and issue revised Staff FAQs on this topic with additional guidance.

What does this mean in practice?

NFPs with a 31 December 2019 year-end may elect to defer the application of AASB 15 and AASB 1058 in respect of research grants only and instead continue to apply either AASB 1004 or AASB 118 as appropriate.

The deferral applies to research grants only.  Other forms of income must still be recognised under AASB 15 or AASB 1058.  The precise scope and definition of “research grant” has not been clarified by the AASB.

Entities which have done significant work to implement AASB 15 and AASB 1058 may still wish to apply these standards based on their interpretation to date. There is however a risk that as the standards are clarified over the next 6 months, the conclusions drawn by these entities may have to change. If these changes were material, financial statements would be adjusted in the following period.

Why is this happening?

The application of AASB 15 and AASB 1058 to research grants has been a matter of debate since the issue of the standards. The key issue under consideration is whether research grants which are enforceable can be said to contain sufficiently specific performance obligations, and what these performance obligations are. Where these are identified, the other matter where diverging views arise is in the timing of satisfaction of the performance obligations. The Staff FAQs provide the AASB’s current guidance on these matters.

For further information, please contact your local RSM contact, or Ralph Martin, National Technical Director.