Revenue and income standards for not-for-profit entities ......Nov 20, 2018 · Not-for-profit...
Transcript of Revenue and income standards for not-for-profit entities ......Nov 20, 2018 · Not-for-profit...
Not-for-profit entities Implementing the new revenue and income standards
20 November 2018
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Your facilitators are…
Ben Seumahu
Julie Locke Joe Rinarelli
Kim Heng
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Examples of revenue and income streams —Sales & services—Fees—Hire income—Volunteer services—Peppercorn (below-market) leases—Grants & subsidies—Donations & fundraising —Endowments—Bequests—Capital grants—Sales outside ordinary activities—Certain appropriations – depending on when gain control
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Revenue and income: guidance we have
AASB 15 Revenue from Contracts with Customers
AASB 15 Appendix F: Australian implementation guidance for not-for-profit entities
AASB 1058 Income of Not-for-profit Entities
AASB 15 Appendix G: Australian implementation guidance for not-for-profit public sector licensors
Effective date 1 January 2019
AASB 16 Leases interaction: Potential deferral of fair value
requirement for below-market leases
Agenda When to apply which standard? Implementation challenges, including
interaction with AASB 16 and 9 Transition and disclosures Wrap up
When to apply which standard?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
What to apply: AASB 15 or AASB 1058?Is the service provided to you a volunteer service?
AASB 1058(Income)
Yes
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
What to apply: AASB 15 or AASB 1058?Is the service provided to you a volunteer service?
Do you acquire an asset for which the consideration you provide is significantly less than FV and the asset enables the
entity to further its objectives?
AASB 1058(Income)
Yes
Yes
No
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
What to apply: AASB 15 or AASB 1058?Is the service provided to you a volunteer service?
Do you acquire an asset for which the consideration you provide is significantly less than FV and the asset enables the
entity to further its objectives?
Does the agreement (contract) contain enforceable rights and obligations?
Does the contract create sufficiently specific performance obligations of you?
AASB 1058(Income)
Yes
Yes
Yes
No
No
No
No
AASB 15Step 1
AASB 15Step 2
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
What to apply: AASB 15 or AASB 1058?Is the service provided to you a volunteer service?
Do you acquire an asset for which the consideration you provide is significantly less than FV and the asset enables the
entity to further its objectives?
Does the agreement (contract) contain enforceable rights and obligations?
Does the contract create sufficiently specific performance obligations of you?
Is there a material donation element to the contract?
AASB 15 – Revenue is recognised as performance obligations are met
AASB 1058(Income)
Yes
Yes
Yes
Yes
No
No
No
YesNo
Allocate consideration:Transaction: AASB 15Donation: AASB 1058
No
AASB 15Step 1
AASB 15Step 2
AASB 15Step 4
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
AASB 1058: Overview (excluding volunteer services)
NoYes
Transaction where consideration to acquire asset is significantly less than fair value principally to enable a NFP entity to further its objectives
AASB 1058 applies Recognise and measure asset in accordance with other AASBs
Recognise related amounts in accordance with other AASBs, e.g.: • contributions by owners (AASB 1004)• revenue/a contract liability under a contract with a customer (AASB 15) • liability to pay for a lease (AASB 16)• a financial instrument (AASB 9) • a provision (AASB 137)
Transfer of financial asset to enable the entity to acquire a non-financial asset controlled by the entity?
Recognise income as entity satisfies obligations under the transfer
Recognise excess of initial carrying amount of asset over related
amounts as income
Reciprocal vs Non-reciprocalX
Implementation challenges
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Applying the new revenue standard to NFPs
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to performance obligations in the contract
Recognise revenue when (or as) the entity satisfies a performance obligation
NFP Implementation Guidance on AASB 15
explains how NFP entities shall apply five
step model and provides illustrative
examples
1
2
3
4
5
Contract enforceability
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Customer:• Customer is the contracting party, but does not have to be recipient of goods or services
‒ E.g. Government can still be customer where directs goods or services to third party beneficiaries
AASB 15 : NFP guidance 1
Identify the contract(s) with a customer1
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Customer:• Customer is the contracting party, but does not have to be recipient of goods or services
‒ E.g. Government can still be customer where directs goods or services to third party beneficiaries
Contract and enforceability:• Contract need not have commercial substance – only economic substance• Arrangement is enforceable if customer has capacity to enforce through legal or “equivalent
means”‒ E.g. MoU, heads of Agreement, Administrative arrangements, statutory provisions
AASB 15 : NFP guidance 1
Identify the contract(s) with a customer1
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #1
• Clean Water enters into a MOU with a government to manage its clean-water projects
• MOU outlines various activities for which Clean Water will be responsible for
• The government will partially fund the costs of the project
• MOU specifies that it is not legally binding, does not impose a refund obligation on Clean Water, nor refer to other enforceability mechanisms
Clean Water Forever “Clean Water” is an NGO that specialises in assisting governments with implementing water purification projects in communities
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #1Is there an enforceable contract for the purposes of AASB 15?
Analysis:
• Is there a customer?
• Is there economic substance?
• Is the MOU enforceable?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #1Is there an enforceable contract for the purposes of AASB 15?
Analysis:
• Is there a customer?
• Is there economic substance?
• Is the MOU enforceable?
Yes, although beneficiaries are community, customer is government
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #1Is there an enforceable contract for the purposes of AASB 15?
Analysis:
• Is there a customer?
• Is there economic substance?
• Is the MOU enforceable?
Yes, partial funding of projects still considered to have “economic substance” for Clean Water
Yes, although beneficiaries are community, customer is government
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #1Is there an enforceable contract for the purposes of AASB 15?
Analysis:
• Is there a customer?
• Is there economic substance?
• Is the MOU enforceable?
Yes, partial funding of projects still considered to have “economic substance” for Clean Water
Absent other information, no intention or mechanism to be considered enforceable
Yes, although beneficiaries are community, customer is government
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #2
• Clean Water enters into a MOU with a government to manage its clean-water projects
• MOU outlines various activities for which Clean Water will be responsible for
• The government will partially fund the costs of the project
• MOU specifies that it is not legally binding, does not impose a refund obligation on Clean Water, nor refer to other enforceability mechanism
Clean Water Forever “Clean Water” is an NGO that specialises in assisting governments with implementing water purification projects in communities
The parties indicated in their discussions their intention to rely upon the MOU. Clean Water commenced providing services under the MOU and has reported for 2 months.
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #2Is there an enforceable contract for the purposes of AASB 15?
Analysis:
• Is there a customer?
• Is there economic substance?
• Is the MOU enforceable?
Yes, partial funding of projects still considered to have “economic substance” for Clean Water
Yes, although beneficiaries are community, customer is government
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Memorandum of understanding (“MOU”) #2Is there an enforceable contract for the purposes of AASB 15?
Analysis:
• Is there a customer?
• Is there economic substance?
• Is the MOU enforceable?
Yes, partial funding of projects still considered to have “economic substance” for Clean Water
Yes, intention of parties is to rely on MOU, and actions by Clean Water support it
Yes, although beneficiaries are community, customer is government
Sufficiently specific
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Identify performance obligations
Capable of being distinct
Can the customer benefit from promise on its own or
together with other resources that are readily available?
Distinct within the context of the contract
Is it separately identifiable from other promises in the
contract?
&A promise to transfer to the customer a distinct good or service
2
The unit of account for revenue recognition
Entity assesses the goods or services promised in contract to identify distinct performance obligations
Performance Obligation
Change from current practice
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
AASB 15: NFP guidance
NFP has a different specificity of performance obligations requirementPerformance obligation needs to be sufficiently specific to determine when the obligation under the arrangement has been satisfied
Identify the performance obligations in the contract2
Activities need to transfer good or service to the customer
Unspecified goods or services over a particular period not in itself sufficiently specific
Acquittal process could: demonstrate
progress of transferring goods and services
provide evidence of sufficiently specific
2
Judgements regarding goods or services:- Nature or type - Cost or value- Quantity- Period over which transferred
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Intellectual property #1
A research organisation is given $5.2m cash to conduct research. Terms of agreement are:• Provide research in a specified area (food production and climate)• Return all unspent, uncommitted funding on completion of the research• All research remains the property of the research organisation, there is no transfer
to the funding provider• Is an enforceable agreement
Q: Are the performance obligations in the contract sufficiently specific?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Intellectual property #1
Q: Are the performance obligations in the contract sufficiently specific?
Analysis
• Transfer of goods or services?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Intellectual property #2A research organisation is given $5.2m cash to conduct research. Terms of agreement are:• Provide research in a specified area (food production and climate)• Return all unspent, uncommitted funding on completion of the research • All intellectual property is provided to the government and research organisation is
required to publish their findings in a scientific journal within five years• Is an enforceable agreement
Q: Are the performance obligations in the contract sufficiently specific?
Analysis• Transfer of goods or services?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Intellectual property #2Q: Are the performance obligations in the contract sufficiently specific?
Analysis• the nature or type of goods or services• the cost or value of goods or services• the quantity of goods or services• the period over which goods or services must be transferred
Contract likely to be sufficiently specific
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Childcare #1A childcare organisation has been given $10m provide childcare services. Terms of agreement are:• Provide childcare services to low income families• Return all unspent funds after two years• Is an enforceable agreement
Q: Are the performance obligations in the contract sufficiently specific?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Childcare #1
Q: Are the performance obligations in the contract sufficiently specific?
Analysis•the nature or type of goods or services
•the cost or value of goods or services
•the quantity of goods or services
•the period over which goods or services must be transferred
Services sufficiently specified?
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Childcare #2
• the nature or type of goods or services
• the cost or value of goods or services
• the quantity of goods or services
• the period over which goods or services must be transferred
Services sufficiently specified?
A childcare organisation has been given $10m provide childcare services. Terms of agreement are:• Provide childcare services consisting of 250,000 hours of care in 25 childcare
centres to children aged between 1 and 4 from low income families (as defined)• Return all unspent funds after two years
Q: Are the performance obligations in the contract sufficiently specific?
Analysis
Revenue over-time or at a point-in-time
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Step 5: Recognising revenue over-time
A performance obligation is satisfied over-time if:
Customer simultaneously receives and consumes the benefits as the entity performs
Routine or recurring services, e.g. counselling
services
1 3
5
Change from standard and
current practice
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Step 5: Recognising revenue over-time
A performance obligation is satisfied over-time if:
Customer simultaneously receives and consumes the benefits as the entity performs
Customer controls the asset as the entity creates or enhances it
Routine or recurring services, e.g. counselling
services
E.g. Development of intellectual property
for customer
1 2
OR
5
Change from standard and
current practice
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Step 5: Recognising revenue over-time
A performance obligation is satisfied over-time if:
Customer simultaneously receives and consumes the benefits as the entity performs
Customer controls the asset as the entity creates or enhances it
Entity’s performance does not create an asset for which the entity has an alternate use and there is a right to payment for performance to date
Routine or recurring services, e.g. counselling
services
E.g. Development of intellectual property
for customer
E.g. Specific report for customer
1 2 3
OR OR
5
Change from standard and
current practice
39
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Research grant#1
Research Institute receives grant from Kids Health Foundation of $5m: Using technology to improve stroke prevention following cardiac surgery for patients under the age of 12 years
• Grant for 3 years• Refund obligation – unspent or not spent in accordance with agreement • Publish research data on website as obtained (any researcher can use data)• IP from research neither transferred nor licensed to Kids Health Foundation • If terminated by Kids Health Foundation – Right to payment for research completed
to date
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Research grant#1
Q: When would Research Institute recognise the revenue for their performance obligations?
Analysis:
• Enforceable?
• Specific performance obligations?
Funds unspent or not spent in accordance with agreement returned
Conduct specific research activities and publish data on a public website
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Research grant#1
Q: When would Research Institute recognise the revenue for their performance obligations?
• Over time as donor simultaneously receives and consumes benefits of research • Donor simultaneously receives and consumes benefits as research data is collected
and available to any replacement researcher
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Research grant#2
Research Institute receives grant from Kids Health Foundation of $5m: Using technology to improve stroke prevention following cardiac surgery for patients under the age of 12 years
• Grant for 3 years• Refund obligation – unspent or not spent in accordance with agreement • IP from research neither transferred nor licensed to Kids Health Foundation • Final report on findings received only at end of 3 years• If terminated by Kids Health Foundation – Right to payment for research completed
to date
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Research grant#2
Q: When would Research Institute recognise the revenue for their performance obligations?
Watch this space
Potentially point in time due to no right to performance to date and not publishing of data until final report (need to consider all circumstances)
44
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Performance obligations and up-front fees 2
Does fee relate to specific goods or
services transferred to customers?
Recognise allocated consideration as revenue on transfer of promised good or
services
Account for as promised good or
services
Yes
45
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Performance obligations and up-front fees 2
Does fee relate to specific goods or
services transferred to customers?
Recognise allocated consideration as revenue on transfer of promised good or
services
Recognise as revenue when future goods or services are provided
Account for as promised good or
services
Account for as advanced payment for future goods or services
Yes No
46
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Performance obligations and up-front fees 2
Does fee relate to specific goods or
services transferred to customers?
Recognise allocated consideration as revenue on transfer of promised good or
services
Recognise as revenue when future goods or services are provided
Account for as promised good or
services
Account for as advanced payment for future goods or services
Yes No
Over what period?
Consider whether material
right exists
Change from current practice
47
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Non-refundable up-front fees
Private School Assoc requires a prospective student to pay an enrolment fee in order to accept a position offered at the school. The enrolment fee is paid a year in advance to the student commencing at the school. The enrolment fee is a non-refundable fee of $8,000.
In addition to the enrolment fee, a tuition fee of $10,000 is charged relating to the education being provided during the respective term. The enrolment fee cannot be offset against future tuition fees.
Private School Assoc and the student can cancel the contract with 1 term’s (3 months) notice making this a term-to-term contract.
Q: How should Private School Assoc account for the up-front enrolment fee?
48
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Non-refundable up-front feesDoes fee relate to specific goods or services transferred to customer?
49
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Non-refundable up-front fees
Considerations Met?a) Has a good or service been transferred to
customer; and
b) Is customer able to realise benefit from good or service received?
Does entity separately price and sell initial right or activities covered by the up-front fee?
Does fee relate to specific goods or services transferred to customer?
50
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Non-refundable up-front fees
Considerations Met?a) Has a good or service been transferred to
customer; and
b) Is customer able to realise benefit from good or service received?
Does entity separately price and sell initial right or activities covered by the up-front fee?
Account for up-front fee as advanced payment for future services
Q: But recognised over what period?
Does fee relate to specific goods or services transferred to customer?
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Example: Non-refundable up-front fees
Does non-refundable up-front fee provide customer with a material right?
Recognise with first term tuition fee. First term’s revenue is $18,000.
Recognise over period Private School Assoc expects students to benefit from not
having to pay $8,000 again (potentially remainder of schooling years)
No Yes
Qualitative Factors
• Quality of tuition provided• Tuition and pricing provided by
competitors• Inconvenience of /ability of
customer to change schools
Quantitative Factors
• Compare up-front fee with total transaction price
$18,000 in term one, discount of $8,000 for future terms (44%
discount)
Peppercorn leases: Revenue and income impacts
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Peppercorn leases: Revenue and income impactsAt inception if the lease is at significantly below market terms and conditions to enable to the entity to further its objectives:
54
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Peppercorn leases: Revenue and income impacts
Right-of-use asset:
Measured at fair value
At inception if the lease is at significantly below market terms and conditions to enable to the entity to further its objectives:
55
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Peppercorn leases: Revenue and income impacts
=Right-of-use asset:
Measured at fair value
Lease liability calculated as per AASB 16
Amounts recognised in accordance with other
standards
+
At inception if the lease is at significantly below market terms and conditions to enable to the entity to further its objectives:
Revenue or income
+
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Peppercorn leases: Revenue and income impacts
=Right-of-use asset:
Measured at fair value
Lease liability calculated as per AASB 16
Amounts recognised in accordance with other
standards
+
At inception if the lease is at significantly below market terms and conditions to enable to the entity to further its objectives:
Revenue or income
+What is current practice?
57
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Peppercorn leases: Revenue and income impacts
=Right-of-use asset:
Measured at fair value
Lease liability calculated as per AASB 16
Amounts recognised in accordance with other
standards
+
At inception if the lease is at significantly below market terms and conditions to enable to the entity to further its objectives:
Revenue or income
+
What if there are nil lease payments?
Short-term leases
58
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Peppercorn leases: Revenue and income impacts
=Right-of-use asset:
Measured at fair value
Lease liability calculated as per AASB 16
Amounts recognised in accordance with other
standards
+
At inception if the lease is at significantly below market terms and conditions to enable to the entity to further its objectives:
Revenue or income
+
What if there are nil lease payments?
Short-term leases
Potential deferral of FV requirement
Financial instruments: Revenue and income impacts
60
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
AASB 9: NFP guidanceFinancial instruments, bequests and endowmentsIs AASB 9 applicable?
Consideration
If yes then the grant received is a financial liability and not income
Is the grant received as cash or another
financial instrument?
Does the grant require the cash received to be paid out ?
Does it require the payment of principal and interest to another
party without any goods or services being provided?
&
61
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Regional Development Foundation
Regional Development Foundation (“Foundation”) has won a contract to administer a $10m regional development fund. Terms of agreement are:• Receipt of $10m upfront• Distribute $10 million (in cash) to projects that meet specific requirements in regional areas• The Foundation is required to identify projects, oversee the funding received and paid to
projects, manage the day-to-day delivery of the project and provide quarterly financial information to the government of funds spent
• If the agreement is breached Foundation is required to return any unspent monies to the government
• The Foundation is able to retain an amount up to 3% of the fund to cover its costs in administering the fund
How should the Foundation account for the contract?
62
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example: Regional Development FoundationHow should the Foundation account for the contract?
Is the grant received as cash or another
financial instrument?
Does the grant require the cash received to be paid out ?
Does it require the payment of principal and interest to another
party without any goods or services being provided?
Cash received is a financial liability under AASB 9, consideration for administration services is revenue under AASB 15
Transition and disclosures
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
ApproachComparative
periodFirst year of
adoption
Date of equityAdjustment June YEs
AASB 111, 118, 1004
AASB 15,1058
AASB 15, 1058
Retrospective – no practical expedients
Partial retrospective –with practical expedients
Cumulative effect AASB 111, 118, 1004
Cumulative effect approach: entity also needs to disclose revenue amounts that would have been presented under AASB 111, 118 and 1004
1 July 2018
1 July 2018
1 July 2019
Mixedrequirements
AASB 15,1058
AASB 15, 1058
Transition options
65
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
ApproachComparative
periodFirst year of
adoption
Date of equityAdjustment June YEs
AASB 111, 118, 1004
AASB 15,1058
AASB 15, 1058
Retrospective – no practical expedients
Partial retrospective –with practical expedients
Cumulative effect AASB 111, 118, 1004
Cumulative effect approach: entity also needs to disclose revenue amounts that would have been presented under AASB 111, 118 and 1004
1 July 2018
1 July 2018
1 July 2019
Mixedrequirements
AASB 15,1058
AASB 15, 1058
Transition options Practical expedient:Assets acquired for
significantly < fair value before date of initial application not required to be remeasured to
fair value
66
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Disclosures
Business as usual (ongoing)Transition
Bridging the gapAASB 108 – change in
accounting policy
Standards issued not yet effective –not required for
Tier 2
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Disclosure requirements: AASB 15
Performance obligationsContract balances
Disaggregation of revenue
Significant judgments
Costs to obtain or fulfil a contract
Disclose quantitative and qualitative information to enable users to understand the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers
Disclosure objective
68
Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Disclosure requirements: AASB 1058
Transfers to enable acquisition or
construction of recognisable non-
financial asset
Non-contractual income arising from
statutory requirements
Disaggregation of income
Significant judgments
Restrictions on use
Disclose quantitative and qualitative information to enable users to understand the effects of volunteer services and other
transactions where an entity acquires an asset for consideration that is significantly less than fair value principally to enable the
entity to further its objectives
Disclosure objective
Wrap up
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Document Classification: KPMG Public
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Take-aways
Use decision tree to help determine when to apply which standard.1
Review contracts to fully understand facts and circumstances to determine which standard will apply.
Determine whether performance obligations are sufficiently specific and whether they are met over-time or point-in-time.Work through transition options to understand which option to elect and what disclosures will be needed.
2
3
4
Document Classification: KPMG Public
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The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
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