Clarifications for the not-for-profit sector – membership income, lease exemptions and remuneration disclosures

The AASB have clarified several accounting treatments in a new Exposure Draft (ED 318) which will provide consistency across the Not-for-profit sector.

Ever since the implementation of the revenue, income and lease standards*, we have observed differing accounting treatments for several routine transactions.


Membership income

For example, membership fees that are frequently levied prior to the start of the year have been recorded as income as well as income in advance (a liability). Consistent with our observations in the sector, the AASB have indicated that the principle of deferral is confusing to boards, management committees, members and other users as membership fees are generally not refundable. Stakeholders requested further guidance to clarify the principle and why a contract liability is recognised when the funds will never be repaid.

To resolve the above inconsistencies, the AASB are proposing to add/amend illustrative examples in AASB 15 and AASB 1058. For our example of membership fees above, it would appear that most upfront joining fees and enrolment fees will be recorded as income over the period to which the membership relates. However, there is substantial detail considered in reaching this outcome, and individual circumstances should be carefully considered to compare and contrast against the illustrative example. Such details include:

  • Is there a customer, agreement and enforceable rights and obligations?
  • Whether the payment of the fee relates to a transfer of distinct goods or services to the customer that meets the definition of a performance obligation? i.e. excluding internal administrative services.
  • What are the performance obligations in the contract, and are the activities associated with the non-refundable upfront fee one of these performance obligations?
  • Is the upfront fee an advance payment for performance obligations to be satisfied in the future?


Concessionary leases (peppercorn leases)

AASB 1058 amended AASB 16 Leases to require right-of-use assets arising under leases that have significantly below market terms (a.k.a concessionary or peppercorn leases) to be initially measured at fair value. The difference between the initial fair value of the right-of-use asset and the lease liability is immediately recognised as income. This had the potential to result in disproportionate once-off income transaction followed by many years of heightened depreciation/amortisation expense charges. Fortunately, the AASB issued AASB 2018-8 which provided an optional exemption from the initial fair value requirement and allow not-for-profit entities to elect to measure right-of-use assets arising under concessionary leases at cost. Retaining this optional exemption indefinitely or grandfathering leases prior to the standard are options considered in the exposure draft. We will await the final determination!


Further guidance on disclosure of Key Management Personnel (KMP) Remuneration

We have previously reported on the changing size thresholds and increasing disclosure requirements of the ACNC (Audit Relief for ACNC Charities).

Only certain charities need to report key management personnel remuneration.

  • Small charity: no requirement to submit an annual financial report, so there is no requirement to report key management personnel remuneration.
  • Medium charity: If it prepares:
    • General Purpose Financial Statements: must report key management personnel remuneration.
    • Special Purpose Financial Statements: reporting key management personnel remuneration is optional.
  • Large charity: must report key management personnel remuneration (unless an exemption applies).

A Basic Religious Charity, regardless of size, does not have to report key management personnel remuneration. However, if it chooses to submit a financial report, it must follow this guidance.

The ACNC has issued further guidance for identifying KMP and clarifying the various components of remuneration for disclosure purposes which are consistent with AASB 124 Related Party Disclosures. The guidance includes several example case studies.

*AASB 15 Revenue from Contracts with Customers, AASB 1058 Income of Not-for-Profit Entities and AASB 16 Leases

Further information is available:

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