Document ID: chunk:federal_register_of_legislation:F2023C00402:reg:97:p9
Version: federal_register_of_legislation:F2023C00402
Segment Type: reg
Provision Reference: reg 97 (pt 9/56)
Character Range: 283486–286531

to IFRS 15 paragraph BC32 states that in determining whether a contractual right or obligation is enforceable is a question to be considered within the context of the relevant legal framework (or equivalent framework) that exists to ensure that the parties' rights and obligations are upheld.  In ED 260 the Board decided to propose not-for-profit entity-specific guidance to help entities identify whether an agreement creates enforceable rights and obligations.  This is because:

          (a)                    moral obligation and economic compulsion can be seen as the motivation for many of the activities of not-for-profit entities;

          (b)                   some mechanisms for enforcing a not-for-profit entity's promises to transfer goods or services are unique to entities (typically not-for-profit) in the public sector.  For example, Ministerial directives might be employed to compel promised transfers of goods or services by a not-for-profit entity; and

          (c)                    some agreements between different levels of government might rely on a common purpose, without the transferor funding a programme necessarily having the power to enforce the transferee entity's promises to provide goods or services.

     BC30            In developing the Exposure Draft, and in finalising the requirements of this Standard, the Board sought input from legal practitioners on some of the most common characteristics that could make an arrangement enforceable.

     BC31            The Board observed that AASB 15 paragraph 10 states that the enforceability of rights and obligations in a contract is a matter of law.  In this regard, the Board noted Australian law has a legal mechanism for the resolution of contractual disputes that establish the rights of a separate party, being the judiciary, to oblige the entity to act in a particular way thereby leaving that entity with little, if any, discretion to avoid settling an obligation.  For an agreement to be enforceable by equivalent means would require the presence of a mechanism outside of the legal system that establishes the right of a separate party to oblige the entity to act in a particular way thereby leaving that entity with little, if any, discretion to avoid settling an obligation.

     BC32            The Board considered that an obligation to return consideration that accompanies a not-for-profit entity's promise to transfer goods or services would make the agreement enforceable.  If a transferor in an agreement presently holds rights to a refund or other compensation in the event of the transferee entity's non-performance, the transferor might choose to, for convenience, 'net settle' by deducting the refund amount from a future transfer.  Cancelling future funding to which the entity is presently entitled is a cancellation of a debt owed to the entity and is, in substance, a refund of promised consideration.  Therefore, the capacity to cancel future funding to which the entity is presently entitled would make the arrangement