Document ID: chunk:federal_register_of_legislation:F2023C00402:reg:97:p2
Version: federal_register_of_legislation:F2023C00402
Segment Type: reg
Provision Reference: reg 97 (pt 2/56)
Character Range: 262971–266220

factors than to others.

The need for change
     BC2               Prior to the issue of AASB 15 Revenue from Contracts with Customers, the recognition and measurement requirements for transactions of not-for-profit entities giving rise to income depended on whether the transaction was reciprocal or non-reciprocal in nature.  The accounting for income arising from reciprocal transactions was predominantly addressed in AASB 118 Revenue and AASB 111 Construction Contracts.  The accounting for income arising from non-reciprocal transactions was addressed in AASB 1004 Contributions.

     BC3               The Board observed determining whether a transaction was reciprocal or non-reciprocal in practice was not always straightforward.  Entities found it challenging to determine whether approximately equal value had been provided in exchange to the other party or parties to the transfer, and contended that in many instances the immediate recognition of income in a non-reciprocal transaction did not faithfully represent the underlying financial performance of the entity.  Constituents noted that identifying reciprocal transactions was difficult and that diverse interpretations existed, with some entities recognising transactions with return obligations and specified performance outcomes as reciprocal transactions and some not.  Constituents were also concerned about the income recognition requirements as applied to grants, appropriations and other transfers of assets made on the condition that the not-for-profit entity deliver goods or services to nominated third parties.  Constituents also noted difficulties in discussing financial information with grantors/donors when explaining why they needed additional resources when the financial statements indicated no such need because of the immediate income recognition requirement of AASB 1004.  Users noted they did not think the financial statements were reflecting the economic reality of the not-for-profit entities' financial circumstances.  Accordingly, the Board decided to undertake a project to conduct a fundamental review of the income recognition requirements applying to not-for-profit entities.

     BC4               As a consequence of its policy on transaction neutrality, the Board gave consideration to International Accounting Standards Board developments in the accounting for revenue; finalised with the issue of IFRS 15 Revenue from Contracts with Customers in May 2014 and noted it needed to determine what, if any, amendments and guidance would be required to enable not-for-profit entities to apply this Standard.  In addition, the Board noted the application of the performance obligation approach to revenue recognition adopted in IFRS 15, using a broader concept of customer had the potential to resolve some of the issues noted with AASB 1004.  The Board also had regard to the work of the International Public Sector Accounting Standards Board (IPSASB) in developing its income recognition requirements for 'non-exchange' transactions.

     BC5               The Board's proposals with respect to the accounting for income of not-for-profit entities finalised in this Standard were exposed for public comment in April 2015 as part of ED 260 Income