Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p67
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 67/91)
Character Range: 190813–193771

entity may include an element of assisting the not-for-profit entity to achieve its objectives, for example in the form of a below-market interest rate on the financial instrument.  When developing the proposals for ED 260 the Board noted:

(a)                    paragraph 5.1.1 of AASB 9 requires a financial instrument to be initially measured at its fair value; and

(b)                   paragraphs B5.1.1–B5.1.2A of AASB 9 specify the accounting requirements in respect of any difference between the transaction price and the fair value of the instrument(s) transferred, including when any deferred difference is recognised as a gain or loss.

BC87            The Board discussed whether to require an element arising on transfer of a financial instrument (net transfer of financial instruments) on terms significantly below fair value primarily to enable a not-for-profit entity to achieve its objectives to be accounted for in accordance with AASB 1058, or in accordance with paragraphs B5.1.1–B5.1.2A of AASB 9.  The Board weighed the benefits of treating the beneficial element similarly to other forms of transfers to the entity against that of treating a below-market loan differently to a negotiated loan (which may also be provided on better terms to 'market').  The Board noted that overall, paragraphs B5.1.1–B5.1.2A specify that the difference between the transaction price and the fair value of the instrument could qualify for recognition as part of another asset, or otherwise be accounted for in accordance with paragraph B5.1.2A.

BC88            The Board concluded to propose no amendment to AASB 9 in this regard and to finalise its proposals largely as exposed, on consideration of the costs involved in requiring an entity to separately account for these transactions compared to the benefits of more accurately reflecting the substance of part of the transaction.  That is, when applying paragraph 9 of AASB 1058, an entity measures any financial instruments identified as a 'related amount' in accordance with AASB 9, and does not account for the difference between the transaction price and the fair value of the instrument in accordance with this Standard.

Provisions

BC89            ED 260 specifically mentioned provisions as a related liability that could be recognised in relation to an inflow of a resource.  When developing the proposals in ED 260, the Board noted that not-for-profit entities could enter into arrangements that satisfy the criteria to recognise a provision.  However, ED 260 did not contain any further guidance on this point.

BC90            The Board observed that not-for-profit entities often provide specific reasons for their fundraising activities, and 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