Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p68
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 68/91)
Character Range: 193531–196415

that at times the purpose for fundraising could be very specific but not legally binding.  The Board discussed when a not-for-profit entity may have a constructive obligation, in the absence of a legal obligation, on acquiring an asset in a transaction where consideration is significantly below fair value principally to further the entity's objectives, such that a related provision is recognised on initial recognition of the asset.

BC91            In its discussion, the Board had regard to paragraph 20 of AASB 137 Provisions, Contingent Liabilities and Contingent Assets, which states:

"…  Because an obligation always involves a commitment to another party, it follows that a management or board decisions does not give rise to a constructive obligation at the end of the reporting period unless the decisions has been communicated before the end of the reporting period to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will discharge its responsibilities."

Hence, the Board considered that it would be unlikely, for example, for a not-for-profit entity's charter or stated objectives to be a sufficiently specific statement creating a valid expectation on the part of other parties such that a provision should be recognised in accordance with AASB 137.

BC92            The Board decided it would be useful to set out its views in this regard in Appendix B of the Standard and also as part of the Illustrative Examples accompanying AASB 1058.

Onerous contracts

BC93            Some not-for-profit entities enter into enforceable agreements where both a grantor and a service recipient both compensate the not-for-profit entity for the delivery of a specified good or service.  The grantor may transfer an amount over to the not-for-profit entity in advance of the services being provided, but require a certain sum to be repaid where the service is not delivered.

BC94            The Board discussed a concern that a not-for-profit entity will be required to recognise an onerous contract for the costs of delivering future services when entering into such arrangements.  The Board observed that each arrangement will need to be assessed based on its specific terms and conditions, and that judgement is involved in identifying whether an onerous contract which is part of the same economic event as the transfer from the grantor exists.  The Board decided not to address the accounting for onerous contracts in AASB 1058 (or in AASB 15) as:

(a)                    the accounting for onerous contracts is specified by AASB 137 and is outside the scope of its current project; and

(b)                   agreements in which different parties pay collectively for a specified good or service are not limited to not-for-profit entities.

Transfers for the purpose of enabling an entity to acquire or construct