AASB 15 |
Revenue from Contracts with Customers
This compiled Standard applies to annual periods beginning on or after 1 January 2022 but before 1 January 2023. Earlier application is permitted for annual periods beginning before 1 January 2022. It incorporates relevant amendments made up to and including 20 December 2021.
Prepared on 7 April 2022 by the staff of the Australian Accounting Standards Board.
Compilation no. 6
Compilation date: 31 December 2021
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© Commonwealth of Australia 2022
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Contents
COMPARISON WITH IFRS 15
ACCOUNTING STANDARD
AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
from paragraph
Meeting the objective 2
Scope 5
Recognition exemptions (paragraphs G22–G27) Aus8.1
Recognition
Identifying the contract 9
Combination of contracts 17
Contract modifications 18
Identifying performance obligations 22
Promises in contracts with customers 24
Distinct goods or services 26
Satisfaction of performance obligations 31
Performance obligations satisfied over time 35
Performance obligations satisfied at a point in time 38
Measuring progress towards complete satisfaction of a performance obligation 39
Measurement 46
Determining the transaction price 47
Variable consideration 50
The existence of a significant financing component in the contract 60
Non-cash consideration 66
Consideration payable to a customer 70
Allocating the transaction price to performance obligations 73
Allocation based on stand-alone selling prices 76
Allocation of a discount 81
Allocation of variable consideration 84
Changes in the transaction price 87
Contract costs
Incremental costs of obtaining a contract 91
Costs to fulfil a contract 95
Amortisation and impairment 99
Presentation 105
Disclosure 110
Contracts with customers 113
Disaggregation of revenue 114
Contract balances 116
Performance obligations 119
Transaction price allocated to the remaining performance obligations 120
Significant judgements in the application of this Standard 123
Determining the timing of satisfaction of performance obligations 124
Determining the transaction price and the amounts allocated to performance obligations 126
Assets recognised from the costs to obtain or fulfil a contract with a customer 127
Practical expedients 129
Commencement of the legislative instrument
Appendices
A Defined terms
A.1 Australian defined terms
B Application guidance
C Effective date and transition
E Australian simplified disclosures for Tier 2 entities
F Australian implementation guidance for not-for-profit entities
G Australian implementation guidance for not-for-profit public sector licensors
Australian illustrative examples for not-for-profit entities
Australian illustrative examples for not-for-profit public sector licensors
COMPILATION DETAILS
DELETED IFRS 15 TEXT
BASIS FOR CONCLUSIONS ON AASB 2016-8
BASIS FOR CONCLUSIONS ON AASB 2018-4
available on the AASB website
Introduction to IFRS 15
Illustrative examples
Basis for Conclusions on IFRS 15
Australian Accounting Standard AASB 15 Revenue from Contracts with Customers (as amended) is set out in paragraphs 1 – 129 and Appendices A – C and E – G. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendices A and A.1 are in italics the first time they appear in the Standard. AASB 15 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
Comparison with IFRS 15
AASB 15 Revenue from Contracts with Customers as amended incorporates IFRS 15 Revenue from Contracts with Customers as issued and amended by the International Accounting Standards Board (IASB). Australian‑specific paragraphs (which are not included in IFRS 15) are identified with the prefix “Aus”. Paragraphs that apply only to not-for-profit entities begin by identifying their limited applicability.
Tier 1
For-profit entities complying with AASB 15 also comply with IFRS 15.
Not-for-profit entities’ compliance with IFRS 15 will depend on whether any “Aus” paragraphs that specifically apply to not-for-profit entities provide additional guidance or contain applicable requirements that are inconsistent with IFRS 15.
Tier 2
Entities preparing general purpose financial statements under Australian Accounting Standards – Simplified Disclosures (Tier 2) will not be in compliance with IFRS Standards.
AASB 1053 Application of Tiers of Australian Accounting Standards explains the two tiers of reporting requirements.
Accounting Standard AASB 15
The Australian Accounting Standards Board made Accounting Standard AASB 15 Revenue from Contracts with Customers under section 334 of the Corporations Act 2001 on 12 December 2014.
This compiled version of AASB 15 applies to annual periods beginning on or after 1 January 2022 but before 1 January 2023. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 20 December 2021 (see Compilation Details).
Accounting Standard AASB 15
Revenue from Contracts with Customers
Meeting the objective
Scope
5 An entity shall apply this Standard to all contracts with customers, except the following:
(a) lease contracts within the scope of AASB 16 Leases;
(b) insurance contracts within the scope of AASB 4 Insurance Contracts;
Aus5.1 In addition to paragraph 5, in respect of not-for-profit entities, a transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity, as described in AASB 1058 Income of Not-for-Profit Entities, is not within the scope of this Standard.
Aus5.2 Notwithstanding paragraph 5, in respect of not-for-profit public sector licensors, this Standard also applies to licences issued, other than licences subject to AASB 16 Leases, or transactions subject to AASB 1059 Service Concession Arrangements: Grantors, irrespective of whether the licences are contracts with customers. Licences include those arising from statutory requirements. Guidance on applying this Standard to licences is set out in Appendix G, including the distinction between a licence and a tax.
Aus7.1 For not-for-profit entities, a contract may also be partially within the scope of this Standard and partially within the scope of AASB 1058.
Recognition exemptions (paragraphs G22–G27)
Aus8.1 Except as specified in paragraph Aus8.2, a not-for-profit public sector licensor may elect not to apply the requirements in paragraphs 9–90 (and accompanying Application Guidance) to:
(a) short-term licences; and
(b) licences for which the transaction price is of low value.
Aus8.2 The option allowed in paragraph Aus8.1 is not available to licences that have variable consideration in their terms and conditions (see paragraphs 50–59 for identifying and accounting for variable consideration).
Aus8.3 If in accordance with paragraph Aus8.1 a not-for-profit public sector licensor elects not to apply the requirements in paragraphs 9–90 (and accompanying Application Guidance) to either short-term licences or licences for which the transaction price is of low value, the licensor shall recognise the revenue associated with those licences either at the point in time the licence is issued, or on a straight-line basis over the licence term or another systematic basis.
Aus8.4 If in accordance with paragraph Aus8.1 a not-for-profit public sector licensor elects not to apply the requirements in paragraphs 9–90 (and accompanying Application Guidance) to short-term licences, a licence shall be treated as if it is a new licence for the purposes of AASB 15 if there is:
(a) a modification to the scope of, or the consideration for, the licence; or
(b) any change in the term of the licence.
Aus8.5 The election for short-term licences under paragraph Aus8.1 shall be made by class of licence. A class of licences is a grouping of licences of a similar nature and similar rights and obligations attached to the licence. The election for licences for which the transaction price is of low value can be made on a licence-by-licence basis.
Recognition
Identifying the contract
(b) the entity can identify each party’s rights regarding the goods or services to be transferred;
(c) the entity can identify the payment terms for the goods or services to be transferred;
Aus9.1 Notwithstanding paragraph 9, in respect of not-for-profit entities, if a contract that would otherwise be within the scope of AASB 15 does not meet the criteria in paragraph 9 as it is unenforceable or not sufficiently specific, it is not a contract with a customer within the scope of AASB 15 (see paragraph F5). An entity shall consider the requirements of AASB 1058 in accounting for such contracts.
(a) the entity has not yet transferred any promised goods or services to the customer; and
Combination of contracts
(a) the contracts are negotiated as a package with a single commercial objective;
Contract modifications
(ii) the consideration promised as part of the contract modification.
Identifying performance obligations
(a) a good or service (or a bundle of goods or services) that is distinct; or
Promises in contracts with customers
Distinct goods or services
(a) sale of goods produced by an entity (for example, inventory of a manufacturer);
(b) resale of goods purchased by an entity (for example, merchandise of a retailer);
(d) performing a contractually agreed-upon task (or tasks) for a customer;
(h) constructing, manufacturing or developing an asset on behalf of a customer;
(i) granting licences (see paragraphs B52–B63B); and
Aus26.1 Notwithstanding paragraph 26(i), a not-for-profit public sector licensor shall refer to Appendix G for guidance on accounting for revenue from licences issued.
27 A good or service that is promised to a customer is distinct if both of the following criteria are met:
(c) the goods or services are highly interdependent or highly interrelated. In other words, each of the goods or services is significantly affected by one or more of the other goods or services in the contract. For example, in some cases, two or more goods or services are significantly affected by each other because the entity would not be able to fulfil its promise by transferring each of the goods or services independently.
Satisfaction of performance obligations
(a) using the asset to produce goods or provide services (including public services);
(b) using the asset to enhance the value of other assets;
(c) using the asset to settle liabilities or reduce expenses;
(d) selling or exchanging the asset;
(e) pledging the asset to secure a loan; and
Performance obligations satisfied over time
Performance obligations satisfied at a point in time
Measuring progress towards complete satisfaction of a performance obligation
Methods for measuring progress
Reasonable measures of progress
Measurement
Determining the transaction price
(a) variable consideration (see paragraphs 50–55 and 59);
(b) constraining estimates of variable consideration (see paragraphs 56–58);
(c) the existence of a significant financing component in the contract (see paragraphs 60–65);
(d) non-cash consideration (see paragraphs 66–69); and
(e) consideration payable to a customer (see paragraphs 70–72).
Variable consideration
50 If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.
51 An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. The promised consideration can also vary if an entity’s entitlement to the consideration is contingent on the occurrence or non-occurrence of a future event. For example, an amount of consideration would be variable if either a product was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.
Refund liabilities
Constraining estimates of variable consideration
(e) the contract has a large number and broad range of possible consideration amounts.
Reassessment of variable consideration
The existence of a significant financing component in the contract
(b) the combined effect of both of the following:
(ii) the prevailing interest rates in the relevant market.
Non-cash consideration
Consideration payable to a customer
Allocating the transaction price to performance obligations
Allocation based on stand-alone selling prices
Allocation of a discount
(a) the entity regularly sells each distinct good or service (or each bundle of distinct goods or services) in the contract on a stand-alone basis;
(b) the entity also regularly sells on a stand-alone basis a bundle (or bundles) of some of those distinct goods or services at a discount to the stand-alone selling prices of the goods or services in each bundle; and
Allocation of variable consideration
Changes in the transaction price
Contract costs
Incremental costs of obtaining a contract
Costs to fulfil a contract
(c) the costs are expected to be recovered.
(b) direct materials (for example, supplies used in providing the promised services to a customer);
(d) costs that are explicitly chargeable to the customer under the contract; and
98 An entity shall recognise the following costs as expenses when incurred:
Amortisation and impairment
Presentation
Disclosure
(a) its contracts with customers (see paragraphs 113–122);
Contracts with customers
Disaggregation of revenue
Contract balances
116 An entity shall disclose all of the following:
(a) changes due to business combinations;
(c) impairment of a contract asset;
(d) a change in the time frame for a right to consideration to become unconditional (ie for a contract asset to be reclassified to a receivable); and
Performance obligations
(d) obligations for returns, refunds and other similar obligations; and
(e) types of warranties and related obligations.
Transaction price allocated to the remaining performance obligations
120 An entity shall disclose the following information about its remaining performance obligations:
(ii) by using qualitative information.
Significant judgements in the application of this Standard
(a) the timing of satisfaction of performance obligations (see paragraphs 124–125); and
(b) the transaction price and the amounts allocated to performance obligations (see paragraph 126).
Determining the timing of satisfaction of performance obligations
124 For performance obligations that an entity satisfies over time, an entity shall disclose both of the following:
Determining the transaction price and the amounts allocated to performance obligations
(b) assessing whether an estimate of variable consideration is constrained;
(d) measuring obligations for returns, refunds and other similar obligations.
Assets recognised from the costs to obtain or fulfil a contract with a customer
127 An entity shall describe both of the following:
(b) the method it uses to determine the amortisation for each reporting period.
128 An entity shall disclose all of the following:
(b) the amount of amortisation and any impairment losses recognised in the reporting period.
Practical expedients
Commencement of the legislative instrument
Aus129.1 [Repealed]
This appendix is an integral part of AASB 15.
contract | An agreement between two or more parties that creates enforceable rights and obligations. |
contract asset | An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). |
contract liability | An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. |
customer | A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. |
income | Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants. |
performance obligation | A promise in a contract with a customer to transfer to the customer either: (a) a good or service (or a bundle of goods or services) that is distinct; or (b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. |
revenue | Income arising in the course of an entity’s ordinary activities. |
stand-alone selling | The price at which an entity would sell a promised good or service separately to a customer. |
transaction price | The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. |
Appendix A.1
Australian defined terms
This appendix is an integral part of AASB 15. The appendix applies only to not-for-profit public sector licensors.
short-term licence | A licence that has a term of 12 months or less. |
Appendix B
Application guidance
This appendix is an integral part of AASB 15. It describes the application of paragraphs 1–129 and has the same authority as the other parts of AASB 15.
B1 This application guidance is organised into the following categories:
(a) performance obligations satisfied over time (paragraphs B2–B13);
(b) methods for measuring progress towards complete satisfaction of a performance obligation (paragraphs B14–B19);
(c) sale with a right of return (paragraphs B20–B27);
(d) warranties (paragraphs B28–B33);
(e) principal versus agent considerations (paragraphs B34–B38);
(f) customer options for additional goods or services (paragraphs B39–B43);
(g) customers’ unexercised rights (paragraphs B44–B47);
(h) non-refundable upfront fees (and some related costs) (paragraphs B48–B51);
(i) licensing (paragraphs B52–B63B);
(j) repurchase agreements (paragraphs B64–B76);
(k) consignment arrangements (paragraphs B77–B78);
(l) bill-and-hold arrangements (paragraphs B79–B82);
(m) customer acceptance (paragraphs B83–B86); and
(n) disclosure of disaggregated revenue (paragraphs B87–B89).
Performance obligations satisfied over time
Simultaneous receipt and consumption of the benefits of the entity’s performance (paragraph 35(a))
Customer controls the asset as it is created or enhanced (paragraph 35(b))
Entity’s performance does not create an asset with an alternative use (paragraph 35(c))
Right to payment for performance completed to date (paragraph 35(c))
Methods for measuring progress towards complete satisfaction of a performance obligation
(a) output methods (see paragraphs B15–B17); and
(b) input methods (see paragraphs B18–B19).
Output methods
Input methods
(b) When a cost incurred is not proportionate to the entity’s progress in satisfying the performance obligation. In those circumstances, the best depiction of the entity’s performance may be to adjust the input method to recognise revenue only to the extent of that cost incurred. For example, a faithful depiction of an entity’s performance might be to recognise revenue at an amount equal to the cost of a good used to satisfy a performance obligation if the entity expects at contract inception that all of the following conditions would be met:
Sale with a right of return
(a) a full or partial refund of any consideration paid;
(b) a credit that can be applied against amounts owed, or that will be owed, to the entity; and
(c) another product in exchange.
Warranties
Principal versus agent considerations
B34 When another party is involved in providing goods or services to a customer, the entity shall determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself (ie the entity is a principal) or to arrange for those goods or services to be provided by the other party (ie the entity is an agent). An entity determines whether it is a principal or an agent for each specified good or service promised to the customer. A specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer (see paragraphs 27–30). If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others.
AusB34.1 Notwithstanding paragraphs B34–B38, not-for-profit entities that are government departments shall apply the requirements of AASB 1050 Administered Items to administered items.
B34A To determine the nature of its promise (as described in paragraph B34), the entity shall:
(b) assess whether it controls (as described in paragraph 33) each specified good or service before that good or service is transferred to the customer.
B35 An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. However, an entity does not necessarily control a specified good if the entity obtains legal title to that good only momentarily before legal title is transferred to a customer. An entity that is a principal may satisfy its performance obligation to provide the specified good or service itself or it may engage another party (for example, a subcontractor) to satisfy some or all of the performance obligation on its behalf.
(a) a good or another asset from the other party that it then transfers to the customer.
B36 An entity is an agent if the entity’s performance obligation is to arrange for the provision of the specified good or service by another party. An entity that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer. When (or as) an entity that is an agent satisfies a performance obligation, the entity recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. An entity’s fee or commission might be the net amount of consideration that the entity retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.
Customer options for additional goods and services
(a) any discount that the customer could receive without exercising the option; and
(b) the likelihood that the option will be exercised.
Customers’ unexercised rights
Non-refundable upfront fees (and some related costs)
Licensing
(b) motion pictures, music and other forms of media and entertainment;
(d) patents, trademarks and copyrights.
(a) a right to access the entity’s intellectual property as it exists throughout the licence period; or
(b) a right to use the entity’s intellectual property as it exists at the point in time at which the licence is granted.
Determining the nature of the entity’s promise
B57 [Deleted]
Sales-based or usage-based royalties
(a) the subsequent sale or usage occurs; and
Repurchase agreements
B65 Repurchase agreements generally come in three forms:
(a) an entity’s obligation to repurchase the asset (a forward);
(b) an entity’s right to repurchase the asset (a call option); and
(c) an entity’s obligation to repurchase the asset at the customer’s request (a put option).
A forward or a call option
B69 If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue.
A put option
B76 If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue.
Consignment arrangements
Bill-and-hold arrangements
(b) the product must be identified separately as belonging to the customer;
(c) the product currently must be ready for physical transfer to the customer; and
(d) the entity cannot have the ability to use the product or to direct it to another customer.
Customer acceptance
Disclosure of disaggregated revenue
(a) type of good or service (for example, major product lines);
(b) geographical region (for example, country or region);
(c) market or type of customer (for example, government and non-government customers);
(d) type of contract (for example, fixed-price and time-and-materials contracts);
(e) contract duration (for example, short-term and long-term contracts);
(g) sales channels (for example, goods sold directly to consumers and goods sold through intermediaries).
Appendix C
Effective date and transition
Effective date
C1 An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact.
AusC1.1 Notwithstanding paragraph C1, this Standard applies to not-for-profit entities for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted, provided that AASB 1058 Income of Not-for-Profit Entities is also applied to the same period. If a not-for-profit entity applies this Standard earlier, it shall disclose that fact.
AusC1.2 Notwithstanding paragraph AusC1.1, not-for-profit entities may elect not to apply this Standard to research grants until annual reporting periods beginning on or after 1 July 2019. If a not-for-profit entity applies this Standard to research grants prior to that, it shall also apply AASB 1058 to research grants at the same time.
C1A AASB 16 Leases, issued in February 2016, amended paragraphs 5, 97, B66 and B70. An entity shall apply those amendments when it applies AASB 16.
Transition
C2 For the purposes of the transition requirements in paragraphs C3–C8A:
AusC2.1 In respect of not-for-profit entities, the reference in paragraph C2(b) to a completed contract also includes contracts for which the entity has recognised all of the revenue in accordance with AASB 1004 Contributions, or revenue in combination with a provision in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
C3 An entity shall apply this Standard using one of the following two methods:
(a) for completed contracts, an entity need not restate contracts that:
(i) begin and end within the same annual reporting period; or
(ii) are completed contracts at the beginning of the earliest period presented.
(i) identifying the satisfied and unsatisfied performance obligations;
(ii) determining the transaction price; and
(iii) allocating the transaction price to the satisfied and unsatisfied performance obligations.
(a) the expedients that have been used; and
C7 If an entity elects to apply this Standard retrospectively in accordance with paragraph C3(b), the entity shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application. Under this transition method, an entity may elect to apply this Standard retrospectively only to contracts that are not completed contracts at the date of initial application (for example, 1 January 2018 for an entity with a 31 December year-end).
(a) for all contract modifications that occur before the beginning of the earliest period presented; or
(b) for all contract modifications that occur before the date of initial application.
If an entity uses this practical expedient, the entity shall apply the expedient consistently to all contracts and disclose the information required by paragraph C6.
(b) an explanation of the reasons for significant changes identified in C8(a).
C8A An entity shall apply AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 (see paragraph C1B) retrospectively in accordance with AASB 108. In applying the amendments retrospectively, an entity shall apply the amendments as if they had been included in AASB 15 at the date of initial application. Consequently, an entity does not apply the amendments to reporting periods or to contracts to which the requirements of AASB 15 are not applied in accordance with paragraphs C2–C8. For example, if an entity applies AASB 15 in accordance with paragraph C3(b) only to contracts that are not completed contracts at the date of initial application, the entity does not restate the completed contracts at the date of initial application of AASB 15 for the effects of these amendments.
References to AASB 9
Withdrawal of other Standards
C10 [Deleted by the AASB]
AusC10.1 When applied or operative, this Standard supersedes:
(a) AASB 111 Construction Contracts;
(c) Interpretation 13 Customer Loyalty Programmes;
(d) Interpretation 15 Agreements for the Construction of Real Estate;
(e) Interpretation 18 Transfers of Assets from Customers;
(f) Interpretation 131 Revenue – Barter Transactions Involving Advertising Services; and
(g) Interpretation 1042 Subscriber Acquisition Costs in the Telecommunications Industry.
Appendix E
Australian simplified disclosures for Tier 2 entities
This appendix is an integral part of the Standard.
AusE1 Paragraphs 110–129 and B87–B89 do not apply to entities preparing general purpose financial statements that apply AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.
Appendix F
Australian implementation guidance for not-for-profit entities
This appendix is an integral part of AASB 15 and has the same authority as other parts of the Standard. The appendix applies only to not-for-profit entities.
Introduction
F2 AASB 15 provides guidance on the following five elements of a contract with a customer:
(a) identifying a contract (paragraphs 9–21);
(b) identifying performance obligations (paragraphs 22–30);
(c) determining the transaction price (paragraphs 46–72);
(d) allocating the transaction price to performance obligations (paragraphs 73–90); and
(e) recognising revenue (paragraphs 31–45).
F3 This appendix should be read in conjunction with the requirements of this Standard.
F4 This appendix provides guidance to assist not-for-profit entities to determine whether particular transactions or other events, or components thereof, are within the scope of this Standard, in particular in relation to identifying a contract and identifying performance obligations. If a transaction is outside the scope of this Standard, the recognition and measurement of income arising from the transaction may instead be specified by another Standard, for example AASB 1058 Income of Not-for-Profit Entities.
Identifying whether a contract with a customer exists
Customer
(a) the customer remains the party that has contracted with the entity for those goods or services and promises consideration in exchange for those goods or services; and
(b) the provision of goods or services to third-party beneficiaries is a characteristic of the promised transfer of goods or services to the customer.
Contract
F8 In relation to the definition of ‘contract’ in Appendix A, the reference to an ‘agreement’ in that definition shall be read by not-for-profit entities as encompassing an arrangement entered into under the direction of another party (for example, when assets are transferred to an entity with a directive that they be deployed to provide specified services).
F9 Paragraph 10 states that contracts can be written, oral or implied by an entity’s customary business practices. The customary business practices of a not-for-profit entity refer to that entity’s customary practice in performing or conducting its activities.
Enforceable agreement
F10 An inherent feature of a contract with a customer is that the entity makes promises in an agreement that creates enforceable rights and obligations. Paragraphs F11–F18 provide guidance for not-for-profit entities on when an agreement creates enforceable rights and obligations.
F11 An agreement is enforceable when a separate party is able to enforce it through legal or equivalent means. It is not necessary for each promise in the agreement to transfer goods or services to be enforceable by legal or equivalent means, as long as some enforceable obligations of the entity arise from the agreement. For an agreement to be enforceable by a separate party through ‘equivalent means’, the presence of a mechanism outside the legal system that establishes the right of a separate party to oblige the entity to act in a particular way or be subject to consequence is required.
F12 An agreement typically is enforceable by another party through legal or equivalent means if the agreement is in writing and includes sufficiently specific requirements of the parties. Oral agreements also may be enforceable. Enforceability needs to be considered in relation to both the particular terms of an agreement and any additional terms agreed by the parties as a result of further discussions or actions. Examples of terms that result in enforceable agreements include the following:
(a) a refund in cash or kind is required when the agreed specific performance has not occurred;
(b) the customer, or another party acting on its behalf, has a right to enforce specific performance or claim damages;
(c) the customer has the right to take a financial interest in assets purchased or constructed by the entity with resources provided under the agreement;
(d) the parties to the agreement are required to agree on alternative uses of the resources provided under the agreement; and
(e) an administrative process exists to enforce agreements between sovereign States or between a State and another party.
F13 A sufficiently specific, written agreement can be enforceable even if the particular terms do not include refund or other enforcement provisions, since Australian law generally provides remedies of specific performance or damages for breach of an agreement. Agreements that explicitly state they are not intended to be legally binding may nonetheless become enforceable agreements if the parties act in a manner that is inconsistent with the stated intention. Agreements that lack elements of a contract may nonetheless become legally enforceable if there is conduct by one party that causes the other party to act in reliance on such conduct. The enforceability of agreements does not depend on their form. For example, documents such as Memoranda of Understanding, Heads of Agreement and Letters of Intent can constitute legally enforceable agreements; a formal contract is not required.
F14 In respect of not-for-profit entities, enforcement mechanisms may arise from administrative arrangements or statutory provisions. An example of such an enforcement mechanism is a directive given by a Minister or government department to a public sector entity controlled by the government to which the Minister or government department belongs. The ministerial authority to require a transfer of goods or services would be sufficient for an agreement to be enforceable by a separate party through legal or equivalent means.
F15 In relation to paragraph F11, a consequence for failing to transfer promised goods or services could be either a return of consideration or a penalty for non-performance that is sufficiently severe to compel the entity to fulfil its promise to transfer goods or services. In some circumstances, where rights to specific performance are unavailable or unnecessary, the authority to require compensation may be the key determinant of the enforceability of an agreement involving a promise to transfer goods or services. A capacity to impose a severe penalty for non-performance can exist without a capacity to require a return of transferred assets or assets of equivalent value.
F16 Identification of an agreement as being enforceable by another party through legal or equivalent means does not require a history of enforcement of similar agreements by the customer or even an intention of the customer to enforce its rights. A customer might choose not to enforce its rights against an entity. However, that decision is at the customer’s discretion, and does not affect the enforceability of the customer’s rights. Enforceability depends solely on the customer’s capacity to enforce its rights.
(b) a not-for-profit entity publishes a statement of intent to spend money or consume assets in particular ways. The statement of intent is generally in the nature of a public policy statement, and does not identify parties who could enforce the statement. Such a statement of intent would, of itself, be insufficient to create an enforceable agreement, even if that statement is the subject of budget-to-actual reporting and of other oversight mechanisms to discharge accountability for the raising of funds, expenditure or consumption of assets. This is in contrast to a letter of intent which is typically an agreement between specifically identified parties. See also paragraph Aus26.1 of AASB 137.
Commercial substance
Identifying whether a performance obligation exists
(a) the nature or type of the goods or services;
(b) the cost or value of the goods or services;
(c) the quantity of the goods or services; and
(d) the period over which the goods or services must be transferred.
F21 In the not-for-profit context, a service can include an arrangement whereby one entity undertakes specific activities on behalf of another entity. Activities may include service delivery, research or asset management, among others. However, performance obligations do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer. For example, research activities undertaken to develop intellectual property that the entity will license to a customer are not themselves a transfer of goods or services to the customer.
F22 Whether a promise is sufficiently specific so as to qualify as a performance obligation is assessed separately for each promise and will depend on the facts and circumstances. No specific number or combination of the conditions noted in paragraph F20 need to be specified in an agreement for the promise to be sufficiently specific. In addition, there may be other conditions that need to be taken into account in applying the judgement above that may indicate the promise is sufficiently specific.
F23 Conditions specified regarding the promised goods or services may be explicit or implicit in an agreement. Paragraph 24 states that the performance obligations identified in a contract with a customer may not be limited to the goods or services that are explicitly stated in that contract. This is because a contract with a customer may also include promises that are implied by an entity’s customary business practices, published policies or specific statements if, at the time of entering into the contract, those promises create a valid expectation of the customer that the entity will transfer a good or service to the customer. A not-for-profit entity may make a statement of intent to spend a transfer in a particular way. As noted in paragraph F17(b), a statement of intent alone is generally not enough to create a performance obligation. Some element of the contract will need to be enforceable and past practice would need to support the customer expectation.
F24 In relation to paragraph F20(d), a condition that a not-for-profit entity must transfer unspecified goods or services within a particular period does not, of itself, meet the ‘sufficiently specific’ criterion. For example, a not-for-profit entity may provide a number of services under its charter such as counselling and housing to disadvantaged youth. Where it receives a transfer to be used for an unspecified purpose over a particular time period, such a promise would not meet the ‘sufficiently specific’ criterion.
F25 Some not-for-profit entities have a single purpose charter, such as to provide counselling services. However, it is unlikely that an entity’s charter or stated objectives would be specific enough to require the recognition of contract liabilities under a contract that provided the entity with a grant for a specified period of time but did not also adequately identify the goods or services to be provided to other parties. Where entities receive a transfer to be used over a particular time period for specified services, such a transfer could meet the ‘sufficiently specific’ criterion. Specifying the services to be provided under the arrangement and the stipulation to use the transferred funds over a particular time period enables a determination of when the services have been provided. However, if the transfer does not specify the period over which the entity must use the funds or the services to be provided (such as the number of counselling sessions), the entity would not meet the ‘sufficiently specific’ criterion because it would be unable to determine when it meets the performance obligations.
F27 Where a contract provides a transfer of a financial asset for an entity to acquire or construct a non-financial asset (eg a building or an intangible asset) that is to be controlled by the entity, the contract does not establish rights and obligations for the transfer of the non-financial asset to the transferor or other parties. Accordingly, the contract is not a contract with a customer, and hence is not accounted for in accordance with AASB 15. Such contracts are instead accounted for in accordance with paragraphs 15–17 of AASB 1058. In this case, the transferor has made an in-substance transfer of the non-financial asset to the entity. The entity would retain control of the non-financial asset and use it in its operations, such as to produce goods or services for transfer to other parties under other contracts. A contract to transfer a financial asset for an entity to acquire or construct a non-financial asset that is to be controlled by the entity may be part of a contract that includes other conditions that give rise to performance obligations that require the entity to transfer goods or services to other entities. Those performance obligations are accounted for under AASB 15.
Allocating the transaction price to performance obligations
F28 A customer may enter into a contract with a not-for-profit entity with a dual purpose of obtaining goods or services and to help the not-for-profit entity achieve its objectives. An entity shall allocate the transaction price to each performance obligation so that the performance obligation allocation depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. This is based on the rebuttable presumption that the transaction price is treated as wholly related to the transfer of promised goods or services.
F29 The presumption is rebutted where the transaction price is partially refundable in the event the entity does not deliver the promised goods or services.
F30 Where the presumption is rebutted, the entity shall disaggregate the transaction price and account for the component that relates to the transfer of promised goods or services in accordance with this Standard. The remainder of the transaction price shall be accounted for in accordance with AASB 1058. Whether the element not related to the performance obligation is material, and therefore needs to be accounted for separately, shall be assessed in relation to the individual contract, without reassessment at an aggregate or portfolio level.
F31 To disaggregate the component that relates to the promised goods or services, the following may be indicative of an element that is not related to the promised goods or services (and more likely to be for the purpose of enabling the not-for-profit entity to further its objectives):
(a) a non-refundable component of the transaction price; and
(b) where the entity has the status of a deductible gift recipient – the donor can claim part of the transaction price as a tax deduction for a donation.
Appendix G
Australian implementation guidance for not-for-profit public sector licensors
This appendix is an integral part of AASB 15 and has the same authority as other parts of the Standard. The appendix applies only to not-for-profit public sector licensors.
Overview – Accounting framework for licences issued by not-for-profit public sector licensors
G1 The diagram below summarises the accounting requirements under AASB 15 applicable to not-for-profit public sector licensors when determining how to account for revenue from licences. The diagram should be read in conjunction with the guidance set out in paragraphs G2–G27, and as referenced in the diagram.
Introduction
G2 AASB 15 Revenue from Contracts with Customers incorporates International Financial Reporting Standard IFRS 15 Revenue from Contracts with Customers, issued by the International Accounting Standards Board. Consequently, the text of AASB 15 is generally expressed from the perspective of for-profit entities in the private sector. AASB 15 provides explicit Application Guidance for intellectual property (IP) licences. It does not provide explicit guidance for non-IP licences. The AASB has prepared this Appendix to explain and illustrate the principles in the Standard from the perspective of not-for-profit public sector licensors with respect to non-IP licences. The Appendix does not apply to for-profit entities or not-for-profit private sector entities, or affect their application of AASB 15.
Distinguishing a licence from a tax
G3 In determining whether a transaction is a licence subject to this Standard, as distinct from a tax subject to AASB 1058 Income of Not-for-Profit Entities[1], the following features are pertinent. These features are not an exhaustive list and not all features need to be present for an arrangement to be a licence:
Feature | Licence | Tax |
(a) Is the arrangement discretionary rather than compulsory for the payer? | Discretionary | Compulsory |
(b) What is the primary purpose? | Non-financial purpose (eg equitable allocation of a public resource) | Generating income for the public sector entity (eg very high proceeds in relation to the costs incurred might be indicative of a tax element) |
(c) Does the arrangement create direct rights to use or access an asset for the payer, or perform an activity, and, depending on the type of arrangement, direct obligations of the payee? | Creates direct rights for the payer (licensee), and could create direct obligations for the payee (licensor) | No specific rights for the payer or obligations for the payee |
(d) Does the arrangement give the payer specific permission that must be obtained prior to performing an activity or using or accessing a resource of the payee that would otherwise be unlawful? | Yes | No |
(e) Does the arrangement transfer control of the payee’s underlying asset? | No | Not relevant |
G5 The presumption is rebutted if one of the following criteria are satisfied:
(a) the transaction price is partially refundable in the event the entity does not issue the licence; or
(b) a similar activity effected through a different transaction or organisational structure is subject to a tax, providing evidence of the composite nature of the arrangement or there is other evidence supporting that there is a tax not specific to the licencing arrangement.
Non-contractual licences arising from statutory requirements
G8 The scope of AASB 15 is underpinned by the definition of a contract in Appendix A, which is an agreement between two or more parties that creates enforceable rights and obligations. When determining whether a licence is a contract with a customer a not-for-profit public sector entity shall consider paragraphs F5–F19 of AASB 15, also having regard to paragraphs G9 and G10.
Types of licences issued by not-for-profit public sector licensors
G11 Paragraphs B52–B63B describe the application of AASB 15 to licences of intellectual property (IP). Licences issued by not-for-profit public sector licensors extend beyond IP licences to include licensing arrangements in which the licence does not relate to IP (ie non‑IP licences).
IP licences
(a) software and technology;
(b) motion pictures, music and other forms of media and entertainment;
(c) franchises; and
(d) patents, trademarks and copyrights.
Non-IP licences
G15 Where a not-for-profit public sector licensor determines that a licence is a non-IP licence, the licensor shall consider whether the licence is for:
(a) rights over the licensor’s identified asset(s), in which case the arrangement might be a lease (or contain a lease), and fall within the scope of AASB 16;
(b) rights over the licensor’s non-identified asset(s), in which case the licence might:
(i) not be distinct from other promised goods or services in the arrangement, and shall therefore be combined with the other goods or services and accounted for as a bundle of goods or services (see paragraphs G20 and G21); or
(ii) be distinct from other promised goods or services, and shall therefore be accounted for as a separate performance obligation in accordance with the principles of AASB 15 (see paragraphs G16–G21 for guidance on applying certain aspects of the principles). The Application Guidance for licences of IP in paragraphs B52–B63B shall not be applied to this type of licence; or
(c) the right to perform an activity, which would not involve an asset or assets of the licensor, and if distinct from other goods or services, shall be accounted for as a separate performance obligation in accordance with the principles of AASB 15 (see paragraphs G16–G21 for guidance on applying certain aspects of the principles). The Application Guidance for licences of IP in paragraphs B52–B63B shall not be applied to this type of licence.
Identifying performance obligations
Identifying the customer
Identifying the goods or services
G18 The good or service being transferred in a non-IP licence by a licensor would most commonly be either issuing rights over the licensor’s non-identified assets or issuing rights to the licensee to perform an activity (ie issuing the licence itself is the sole good or service). However, an entity shall also assess the arrangement to identify any other goods or services promised to the licensee.
G19 In accordance with paragraph 25, performance obligations do not include activities that a licensor must undertake to fulfil a contract unless those activities transfer a good or service additional to the licence issued to the licensee. For example:
(b) activities that a licensor is required to undertake in the context of a non-IP licence to benefit the general public or to confirm the terms of the licence are being met (for example ‘policing’ activities to ensure licensee is not carrying out illegal activities or customers of the licensee are of a legally allowable age) are not performance obligations. Such activities do not transfer additional goods or services to the licensee (even though the licensee could benefit from those activities); and
(c) activities that a licensor performs to check that a licensee continues to meet the eligibility requirements of the arrangement are not performance obligations. The licensee controls whether they meet the eligibility requirements of the arrangement. Activities performed by the licensor to uphold the integrity of the licence merely confirm that the arrangement is not breached, and do not transfer goods or services to the licensee.
Licences distinct from other goods and services
(a) the licensor is using the licence as an input to deliver the fish to the licensee, which is the output to the licensee; and
(b) the licence and the promise to deliver the fish are highly interrelated – the licensor would not be able to fulfil its promise of delivering the fish independently of issuing the licence without undermining its policies and customary business practices (ie the fish can only be delivered when a fishing licence has been issued).
In these circumstances, the licence is not separately identifiable from other promises in the arrangement, in accordance with paragraphs 29(a) and (c) of AASB 15.
Recognition exemption: low-value licences (paragraphs Aus8.1–Aus8.3)
G23 Notwithstanding paragraph G22, the option allowed in paragraph Aus8.1 is not available to licences including variable consideration.
G24 Low-value licences qualify for the accounting treatment in paragraph Aus8.3 regardless of whether those licences are material in aggregate to the licensor. The assessment is not affected by the size, nature or circumstances of the licensor. Accordingly, different licensors would be expected to reach the same conclusions about whether a particular licence has a low-value transaction price.
Recognition exemption: short-term licences (paragraphs Aus8.1–Aus8.5)
Australian illustrative examples for not-for-profit entities
These illustrative examples accompany, but are not part of, AASB 15. They illustrate aspects of the Australian guidance for not-for-profit entities in AASB 15, but are not intended to provide interpretative guidance.
IE1 The following examples portray hypothetical situations. They are intended to illustrate how a not-for-profit entity might apply some of the requirements of AASB 15 Revenue from Contracts with Customers to particular types of transactions, on the basis of the limited facts presented. Although some aspects of the examples might be present in actual fact patterns, all relevant facts and circumstances of a particular fact pattern would need to be evaluated when applying AASB 15.
Identifying performance obligations (paragraphs F20–F27)
IE2 Examples 1 and 2 illustrate the requirements of AASB 15 for identifying whether a transaction or agreement involves a performance obligation in a contract with a customer.
IE3 For a performance obligation to exist, there must be an enforceable agreement with sufficiently specific promises to transfer goods or services to or on behalf of the other party to enable assessment of whether the performance has occurred, ie whether the obligation has been satisfied. Further examples are provided in AASB 1058 of transactions or agreements where the performance obligation is not sufficiently specific.
Example 1—Enforceable agreement
Local Government A (the reporting entity) signed a Memorandum of Understanding (MOU) with a not-for-profit private sector entity. The MOU specifies that it is not legally binding on either of the parties and does not impose a refund obligation on the not-for-profit entity in the event it fails to perform under the terms of the agreement or refer to other enforceability mechanisms. Despite the statement that the MOU is not legally binding, the parties have indicated in their discussions their intention to rely upon it. The not-for-profit entity has commenced providing services under the MOU and has reported to Local Government A on its first two months’ work.
Given the intention of the parties to rely upon the MOU, and the actions of the not-for-profit entity in reliance on the MOU, the MOU is enforceable despite the statement that it is not legally binding and the absence of a refund obligation or other enforcement requirements.
Example 2—Research activities—Transfer of intellectual property
University A receives a cash grant from a donor, Road Safety Authority B, of $1.2 million to undertake research that aims to observe and model traffic flows and patterns through black-spot intersections and to develop proposals for improvements to the road system.
The terms of the grant are:
a period of three years;
the return of funds that are either unspent or not spent in accordance with the agreement;
annual progress reports and a final report are required;
publication of research results in conference presentations and/or scholarly journals; and
the transfer of the intellectual property (IP) rights arising from the research activity to the donor, Authority B.
University A concludes its arrangement with donor B is a contract with a customer as defined in AASB 15. This is on the basis that:
University A’s promise of specified research and transfer of the resulting IP is enforceable as the grant is refundable if the research is not undertaken;
University A identifies that its promise to transfer the IP created through the research to the donor is sufficiently specific to be a performance obligation. The university determines that the research services are required to develop the IP in order to fulfil the contract and therefore do not, of themselves, give rise to a transfer of goods or services to the donor; and
University A determines that the requirements for annual progress reports, a final report and publication of research results are an acquittal process that will assist it to measure its progress towards satisfaction of the performance obligation, rather than a separate performance obligation or obligations.
Accounting treatment
In accordance with AASB 15, University A allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $1.2 million on initial recognition.
University A concludes that the performance obligation is satisfied over time as the university’s performance creates or enhances an asset (knowledge – the IP) that the donor controls as the asset is created or enhanced (AASB 15, paragraph 35(b)). Accordingly, the university recognises revenue over time as it satisfies the performance obligation. The university elects to measure its progress towards complete satisfaction of the performance obligation on the basis of an input method, such as labour hours expended.
Example 3—Research activities—Provision of licence to donor
Example 3A – Enforceable agreement, sufficiently specific performance obligation, licence granted to donor (right to access IP)
In this example, the facts of Example 2 apply, except that:
University A retains control of the IP arising from the research, instead of the IP transferring to the donor;
the IP is licensed permanently to donor B at the commencement of the agreement; and
the licence covers the research activities undertaken and the results that arise over the term of the agreement as the IP is developed.
University A concludes its arrangement with donor B is a contract with a customer as defined in AASB 15. This is on the basis that:
University A’s promise of specified research and granting of the licence is enforceable as the grant is refundable if the research is not undertaken;
University A identifies that its promise to grant the licence to the donor is sufficiently specific to be a performance obligation. The university determines that the research services are required to develop the IP in order to fulfil the contract and therefore do not, of themselves, give rise to a transfer of goods or services to the donor; and
University A determines that the requirements for annual progress reports and a final report and publication of research results are an acquittal process that will assist it to measure its progress towards satisfaction of the performance obligation.
Accounting treatment
In accordance with AASB 15, University A allocates the cash grant to its identified performance obligation (granting of the licence to the IP) and recognises the financial asset (cash) and a contract liability of $1.2 million on initial recognition.
University A concludes that the performance obligation is satisfied over time as the licence provides the donor with a right to access the entity’s IP as it exists throughout the licence period (paragraph B58):
the university’s activities significantly affect the IP to which the donor has rights;
the licence exposes the donor to any positive or negative effects of the university’s activities; and
the university’s activities do not result in the transfer of a good or service to the donor as those activities occur.
Accordingly, the university recognises revenue over time as it satisfies the performance obligation. The university elects to measure its progress towards complete satisfaction of the performance obligation on the basis of an input method, such as labour hours expended.
Example 3B – Enforceable agreement, sufficiently specific performance obligation, licence granted to donor (right to use IP)
In this example, the facts of Example 3A apply, except that:
the research aims to observe and model traffic flows and patterns along roads potentially affected by a future freeway development and to develop proposals for the freeway interchanges; and
the IP (as it then exists) is licensed permanently to donor B at the conclusion of the agreement.
University A concludes its arrangement with donor B is a contract with a customer as defined in AASB 15. This is on the basis that:
University A’s promise of specified research and granting of the licence is enforceable as the grant is refundable if the research is not undertaken; and
University A identifies that its promise to grant the licence to the donor is sufficiently specific to be a performance obligation. The university determines that the research services are required to develop the IP in order to fulfil the contract and therefore do not, of themselves, give rise to a transfer of goods or services to the donor.
Accounting treatment
In accordance with AASB 15, University A allocates the cash grant to its identified performance obligation (granting of the licence to the IP) and recognises the financial asset (cash) and a contract liability of $1.2 million on initial recognition.
University A concludes that the performance obligation is satisfied at a point in time (the end of the grant period) as the licence provides the donor only with a right to use the entity’s IP as it exists when the licence is granted (paragraph B61). That is, the licence provides the donor with a right to use the university’s IP as it exists at the end of the grant period. The licence does not provide a right to access the university’s IP as the criteria in paragraph B58 are not met.
Accordingly, the university recognises revenue at the conclusion of the agreement, when the licence is granted to the donor.
Example 4—Research activities—Transfer of research findings
Example 4A – Enforceable agreement, sufficiently specific performance obligation, research data only
Research Institute C receives a cash grant from a donor, Marine Sanctuaries Trust M, of $5.3 million to undertake research that aims to track whale migration along the eastern coast of Australia.
The terms of the grant are:
a period of three years;
the return of funds that are either unspent or not spent in accordance with the agreement;
publication of research data on a public website as it is obtained, so that any researchers can use the data;
the IP arising from the research is neither transferred to nor licensed to donor M;
annual progress reports and a final report are required;
Institute C may publish research results in conference presentations and/or scholarly journals, retaining the copyright to such results; and
the institute has an explicit right to payment for the research services completed to date if the agreement is terminated.
Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15 on the basis that:
Institute C’s promise of specified research and contemporaneous publication of the research data is enforceable as the grant is refundable if the research is not undertaken;
the institute identifies its promise to undertake the research and contemporaneously publish the research data is sufficiently specific and represents a single performance obligation; and
the undertaking of the research and contemporaneous publication of the data will represent services provided to the donor, as it is a beneficiary of the research even though the research data is publicly available.
Accounting treatment
In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.
Institute C concludes that the performance obligation is satisfied over time as the donor simultaneously receives and consumes the benefits of the research services as they are performed (paragraph 35(a)). This is on the grounds that the research data is made public as it is collected.
Accordingly, the institute recognises revenue over time as it satisfies the performance obligation. The institute elects to measure its progress towards complete satisfaction of the performance obligation on the basis of research data published.
Example 4B – Enforceable agreement, sufficiently specific performance obligation, research data and assessment only
In this example, the facts of Example 4A apply, except that:
the grant requires Research Institute C to prepare interim and final reports analysing the tracking data obtained;
publication of the research data is required at the conclusion of the research, rather than contemporaneously;
the IP arising from the research is neither transferred to nor licensed to donor M; and
the institute is restricted from readily directing the tracking information and analysis for another use of the institute.
Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15, on the same basis as set out in Example 4A.
Accounting treatment
In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.
Institute C concludes that the donor does not simultaneously receive and consume the benefits of the research services as they are performed, since the research data is not published until the conclusion of the research. Furthermore, the performance of the research activities results in the accumulation of knowledge, which is an asset (whether recognisable or unrecognisable) developed by the researcher but not immediately consumed. Therefore, paragraph 35(a) is not satisfied.
As the donor does not obtain the IP under the agreement, Institute C determines that its research does not create or enhance an asset that donor M controls as the asset is created or enhanced. Therefore, paragraph 35(b) is not satisfied.
Institute C notes that its research performance does not create an asset with an alternative use to the entity due to the restrictions in the agreement regarding directing the research to another use. Institute C also notes that it has an explicit, enforceable right to payment for performance completed. Therefore, paragraph 35(c) is satisfied.
Accordingly, Institute C concludes that the performance obligation is satisfied over time and recognises revenue over time as it satisfies the performance obligation. The institute elects to measure progress on the basis of the amount it would be entitled to receive for its performance to date, which corresponds with the value of the performance to the customer.
Example 4C – Enforceable agreement, sufficiently specific performance obligation, research data and assessment only
In this example, the facts of Example 4B apply, except that Institute C is able to utilise the research it performs for any other use of the institute. Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15, on the same basis as set out in Example 4A.
Accounting treatment
In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.
Institute C concludes that the donor does not simultaneously receive and consume the benefits of the research services as they are performed, on the same basis as set out in Example 4B. Therefore, paragraph 35(a) is not satisfied.
Institute C determines that its research does not create or enhance an asset that donor M controls as the asset is created or enhanced, on the same basis as set out in Example 4B. Therefore, paragraph 35(b) is not satisfied.
Moreover, the institute notes that it is able to utilise the research it performs for any other use it determines. This is on the grounds that the institute has no contractual or practical limitation on its use of the research, including having the ability to sell the research to another customer. Therefore, the institute’s performance does create an asset with an alternative use to the entity, and paragraph 35(c) is not satisfied.
Accordingly, Institute C concludes that the performance obligation is satisfied at a point in time (the end of the grant period) and recognises revenue at the conclusion of the agreement, when it satisfies the performance obligation.
Example 4D – Enforceable agreement, sufficiently specific performance obligation, research data only
In this example, the facts of Example 4C apply, except that, rather than requiring publication of research data contemporaneously or at the conclusion of the research, the grant agreement refers to the institute’s policy that requires the de-identified research findings (including data) to be made available to the donor and authorised third parties periodically (eg at least annually at the end of each year).a
Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15 on the basis that:
Institute C’s promise of specified research and making available the de-identified research findings is enforceable as the grant is refundable if the research is not undertaken; and
the institute identifies its promises to make available de-identified research findings periodically as sufficiently specific promises as they are separate performance obligations each satisfied at a point in time, representing discrete transfers of the research findings to the donor or third-party beneficiaries. The promises are sufficiently specific on the basis that the policies attached to the research grant specify the nature of the material (de-identified research findings (including data)) to be made available and a timeframe for that to occur (ie making the research findings available periodically, at least at the end of each of the three years). The terms of the grant require the institute to make the research findings available to the donor and third parties as set out in its policy, regardless of whether the donor or third parties actually access the findings.
Accounting treatment
In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligations and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.
Institute C concludes that for each of the performance obligations, the donor does not simultaneously receive and consume the benefits of the research services as they are performed. This is on the grounds that performance of the research activities results in the accumulation of knowledge, an asset (whether recognisable or unrecognisable) that is not immediately consumed. Therefore, paragraph 35(a) is not satisfied.
The donor does not obtain the IP under the agreement, nor does the donor control the knowledge accumulated as research activities are carried out. As a result, Institute C determines that its research does not create or enhance an asset that the donor M controls as the asset is created or enhanced. Therefore, paragraph 35(b) is not satisfied.
Moreover, the institute notes that it is able to utilise the research it performs for any other use it determines. This is on the grounds that the institute has no contractual or practical limitation on its use of the research, including having the ability to sell the research to another party. Therefore, the institute’s performance does create an asset with an alternative use to the entity, and paragraph 35(c) is not satisfied.
Accordingly, Institute C concludes that each performance obligation is satisfied at a point in time (eg the end of each year) when the research findings to date are made available, whether or not the donor or third parties access the findings, and recognises the related revenue at those points in time (eg the end of each year).
a Alternatively, where the grant agreement does not explicitly refer to the institute’s policy, provided the donor is aware of this policy, the institute’s past practice of making de-identified research findings available at least annually to donors and authorised third parties in accordance with its policy may create a valid expectation that the research findings will be made available. In this case, the implicit promises to make available de-identified research findings periodically would be treated as part of the grant terms. [The grant agreement could instead refer explicitly to the making available of research findings, so that reference to a policy of the institute would not be necessary.]
Example 5—Research activities—No contract with a customer
Example 5A – Enforceable agreement, performance obligations not sufficiently specific
University G receives a cash grant from a donor, Medical Research Trust Z, of $2 million to undertake research that aims to identify and validate biomarkers to distinguish malignant cancers from benign tumours.
The terms of the grant are:
a period of two years;
the return of funds that are either unspent or not spent in accordance with the agreement;
semi-annual budget reports that detail how the funds have been spent to date; and
the research results are publicised, when appropriate, in conference presentations and/or published in scholarly journals.
University G notes that the arrangement is enforceable as the grant is refundable if the research is not undertaken. However, University G concludes its arrangement with donor Z is not a contract with a customer as defined in AASB 15. This is on the basis that:
publicising the research results when appropriate is not sufficiently specific to enable University A to identify when it satisfies its obligations because there is no requirement to produce a specified number of publications or deliver a specified number of presentations; and
the budget reports merely provide the grantor an indication of the University’s spending of funds and do not represent a transfer of a benefit to the grantor.
Accordingly, the university concludes that the arrangement is not within the scope of AASB 15. Given that the university acquired cash (the grant funds) for consideration that is significantly less than fair value (there are no performance obligations to recognise) principally to enable it to further its objectives (research), University G concludes that AASB 1058 Income of Not-for-Profit Entities is applicable.
Accounting treatment
University G recognises a financial asset of $2 million for the cash grant received and recognises any related amounts arising under other Australian Accounting Standards in accordance with AASB 1058. Any excess of the financial asset over the related amounts would be recognised as income.
Example 5B – Enforceable agreement, performance obligations not sufficiently specific, individual researcher controls grant funds
In this example, the facts of Example 5A apply, except that:
University G receives the grant funds to administer on behalf of a researcher named in the grant;
the named researcher may direct the use of the funds in accordance with the grant agreement; and
the funding arrangement is tied to the researcher, so that if the researcher moves from University G to another research institution, any unspent grant funds held by the university will be transferred to the other research institution.
University G concludes that the arrangement is not a contract with a customer as defined in AASB 15, on the same basis as set out in Example 5A.
University G notes that it merely administers the grant funds on behalf of the researcher. Accordingly, the university considers the arrangement under the requirements of AASB 9 Financial Instruments, noting it:
receives cash that it administers in accordance with the grant agreement (to which it is a party);
may invest the funds it holds as it considers appropriate, benefiting from any interest received and obliged to reimburse any losses incurred; and
agrees to expend those funds at the direction of the researcher.
Accounting treatment
University G recognises a financial asset of $2 million for the funds received, in accordance with paragraph 3.1.1 of AASB 9. The university then considers whether it has transferred the financial asset to the researcher, but notes that because it may invest the funds as it considers appropriate, the university retains substantially all the risks and rewards of ownership of the funds. Accordingly, the university continues to recognise the grant funds as a financial asset and recognises an equal amount as a financial liability to expend the grant funds at the researcher’s direction, as required by paragraph 3.2.15 of AASB 9.
Allocating the transaction price to performance obligations (paragraphs F28–F32)
IE4 Examples 6 and 7 illustrate the requirements of AASB 15 for accounting for the transaction or agreement, including assessing whether the transaction includes an element not related to performance obligations (eg a donation).
Example 6—Performance obligation, transfer of goods without donation element
Entity A (a not-for-profit entity) sells chocolates in a fundraising drive for a greater margin than a for-profit entity would typically generate by selling chocolates. In addition, buyers of the chocolates are often motivated by the not-for-profit entity’s benevolent aims. The customer is entitled to a full refund of the purchase price if the chocolates were ordered and paid for in advance and either the delivered chocolates were spoiled or Entity A is unable to deliver the chocolates.
Entity A determines there is a contract with a customer accounted for under AASB 15, as there is:
an enforceable contract due to the return obligation; and
a sufficiently specific performance obligation requiring the transfer of the chocolates to the customer, which is satisfied at the time of delivery.
Entity A determines that the presumption in paragraph F28 cannot be rebutted because the transaction price is not partially refundable.
Accounting treatment
Accordingly, the entire consideration received, including the proceeds from the additional profit margin, forms part of the transaction price that is allocated to the performance obligation. There is no element unrelated to the transfer of the chocolates that would require separate accounting.
Example 7—Performance obligation, transfer of goods with donation element
Entity B holds an annual fundraising dinner in its local community. The ticket price is $600 per head, and is partially refundable if the dinner is cancelled, in which case the customer will receive a refund of $300. Based on the menu, the retail price of the dinner at a local restaurant is $200 per ticket. Hosting the dinner also provides patrons (customers) with the benefit of socialising with a wide range of community members (including networking) and the amount of consideration to which Entity B expects to be entitled in exchange for transferring the promised goods or services (the dinner and networking) to the customer is $250.
Entity B determines there is a contract with a customer to be accounted for under AASB 15, as there is:
an enforceable contract due to the return obligation; and
a sufficiently specific performance obligation requiring the provision of the dinner and networking to the customer, which would be satisfied at the point in time when provided.
Entity B determines that the presumption in paragraph F28 is rebutted as there is a partial refund in the event of non-performance. The element not related to the performance obligation is considered material.
Accounting treatment
For each ticket sold, Entity B recognises:
a contract liability of $250, in accordance with AASB 15, which represents the transaction price of the dinner and networking to be provided to the ticketholder. Entity B would recognise this amount as revenue when it provides the dinner event; and
income of $350, in accordance with AASB 1058 – the residual of $350 is a result of a transaction where the consideration provided by the entity ($250) is significantly less than the fair value of the asset (cash of $600) principally to enable Entity B to further its objectives and therefore AASB 1058 applies, with immediate recognition of income.
A refund obligation is recognised only to the extent that the entity does not expect to retain the refundable amount. Entity B therefore does not recognise the refund obligation of $300 unless the dinner is cancelled or is expected to be cancelled. In that case, and subsequent to the initial accounting above, Entity B would then recognise in respect of each ticket:
the reversal of the contract liability of $250 (debit), as settlement is no longer expected;
a reduction in cash of $300 (credit), being the refund to the ticket holder; and
the difference of $50 (debit) is either an expense or a reduction of donation income previously recognised.
This results in a net donation of $300 per ticket, reflecting the net cash received for each ticket after the refund has been made.
Australian illustrative examples for not-for-profit public sector licensors
These illustrative examples accompany, but are not part of, AASB 15. They illustrate aspects of the Australian guidance for not-for-profit public sector licensors in AASB 15, but are not intended to provide interpretative guidance.
These examples illustrating aspects of the Australian guidance for not-for-profit public sector licensors in AASB 15 complement, and have the same status, as the Illustrative Examples accompanying IFRS 15 Revenue from Contracts with Customers, which are available on the AASB website to website users in Australia.
These examples are additional to the illustrative examples accompanying AASB 15 that were added as part of AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities. Therefore the numbering of these paragraphs starts at IE5 and the numbering of the examples starts at Example 8.
Satisfaction of performance obligations (paragraphs 31–38)
IE6 Example 8 illustrates a not-for-profit public sector licensor recognising revenue when (or as) the licensor satisfies the performance obligation of transferring the promised licence to the licensee. A licence is transferred when (or as) the licensee obtains control of that licence. To determine when a licensee obtains control of the promised rights associated with the licence and the licensor satisfies its performance obligation, the licensor shall consider the requirements for control in AASB 15 paragraphs 31–34 regarding control by the licensee (the customer).
IE7 The licensor shall determine at the inception of each licensing arrangement whether the performance obligation from issuing the licence is recognised over time (in accordance with AASB 15 paragraphs 35–37) or at a point in time (in accordance with AASB 15 paragraph 38).
Example 8—Performance obligations, non-IP licence
Example 8A – Exclusivity rights
Public Sector Authority A (Licensor) issued Casino Operator B (Licensee) a licence to operate a casino in geographical location C for $100 million.
The terms of the arrangement are:
a period of ten years;
payment for the arrangement is not refundable and is due when the licence is issued;
the arrangement contains an exclusivity clause, whereby no other casinos may operate within geographical location C during the licence period. Licensor is responsible for protecting the exclusivity of the arrangement and will be responsible for the payment of damages to Licensee if exclusivity is breached;
as part of the arrangement, Licensor is responsible for performing a number of regulatory oversight and monitoring activities prior to issuing the licence and ongoing throughout the licensing period to ensure Licensee and operation of the casino remain free from criminal influence or exploitation, and gaming in the casino is conducted honestly; and
the cost for issuing the casino licence (including surveying the proposed gaming premises and the upfront and ongoing regulatory activities) is expected to be $100,000.
Applying the accounting framework for licences issued by not-for-profit public sector licensors
Is the arrangement a licence or a tax?
Licensor applies paragraph G3 and concludes its arrangement with Licensee is not a tax, on the basis that the majority of the indicators support a licence classification:
it is a discretionary arrangement entered into by each of the parties;
its primary purpose is not generating income for the public sector, but ensuring that the participation of the general public in gaming activities is controlled, provided in a safe environment and protected from criminal influence and exploitation. The low costs of $100,000 in comparison to the licence payment of $100 million may be indicative of a tax element (see below);
it contains an obligation for Licensor to issue a casino licence, and creates enforceable rights for Licensee to conduct gaming activities;
it gives Licensee specific permission to provide gaming activities which would otherwise be unlawful;
there is no underlying asset of Licensor that is transferred to Licensee.
Licensor applies paragraphs G4–G6 and concludes there is no tax element that needs to be separated. Although the arrangement has a low cost in relation to the consideration received, which might be indicative of a tax element, the transaction price is not refundable, and there is no other evidence indicating similar activities operating through different structures (such as online gaming) are subject to a tax. Accordingly, the criteria necessary to rebut the presumption for Licensor to allocate the transaction price of $100 million wholly to the licence are not satisfied.
Is it a low-value or short-term licence?
Applying paragraphs Aus8.1 and G22–G27, Licensor concludes that its arrangement with Licensee is not a low-value or short-term licence because the transaction price of the licence is $100 million and the term of the licence is 10 years.
Is it an intellectual property (IP) licence?
Applying paragraph G13, Licensor concludes its arrangement with Licensee is a non-IP licence as the arrangement does not involve rights over IP of Licensor.
Is the non-IP licence a lease or does it contain a lease?
Applying paragraphs Aus5.2 and G14(a), Licensor concludes its arrangement with Licensee gives Licensee a right to perform an activity (ie operate a casino) rather than conveying a right over an identified asset of the Licensor. Therefore the arrangement is not a lease and does not contain a lease.
Identifying the performance obligation
Who is the customer?
Applying paragraph G16, Licensee (Casino Operator B) is identified as the customer. Licensee has entered into an arrangement with Licensor to obtain goods or services that are an output of Licensor’s ordinary activities in exchange for consideration.
What are the goods and services promised in the arrangement?
Applying paragraphs G18–G21, Licensor concludes the only goods and services transferred to Licensee (the customer) is the licence itself, being the ‘right to perform’ gambling activities.
Licensor observes that the following promises/activities are not performance obligations as they do not transfer additional goods or services to Licensee, beyond the licence itself, but instead either confirm the attributes promised at inception of the licence or confirm that the terms of the licence have been met:
refraining from issuing new casino licences in geographical location C as the licence is exclusive (ie an exclusive licence is issued and continues throughout the licence period); and
performing regulatory activities to monitor that Licensee continues to meet the eligibility criteria (including that the gaming offered is honest and free from criminal influence) during the period of the licence. The Licensee must meet the eligibility criteria to be issued the licence and controls whether the criteria continue to be met, so no additional goods or services are provided by the licensor.
Licensor does not identify any remaining promises to transfer a good or service to Licensee in the arrangement that are distinct from the licence.
Licensor concludes there is a single distinct performance obligation to issue the licence.
Example 8B – Distinct goods or services
In this example, the facts of Example 8A apply, except that, in addition to issuing the licence, Licensor will perform maintenance of Licensee’s gaming machines throughout the licence term to ensure that the gaming machines are in working order, have not been tampered with and are not in need of repair. If such services were not provided by Licensor, it is expected that Licensee would engage a third party to carry out the maintenance services to provide assurance to Licensee’s patrons that the machines are functioning as they should be. In addition:
Licensor observes that, based on market conditions, a customer in the market for such maintenance services would be willing to pay $5 million; and
the upfront payment of $100 million includes the maintenance services.
Applying the accounting framework for licences issued by not-for-profit public sector licensors
Licensor concludes on the same basis as Example 8A that its arrangement to issue a non-IP licence to Licensee is not a tax, is not a low-value or short-term licence, is not an IP licence and is not a lease or does not contain a lease.
Identifying the performance obligation
Licensor concludes on the same basis as Example 8A that Licensee is the customer, and identifies the issue of the licence (the right to perform) as a performance obligation.
Applying paragraphs 22 and G15–G20, Licensor concludes there are two distinct performance obligations to:
issue the licence; and
provide a series of maintenance services.
The promise to perform maintenance services on the gaming machines transfers a series of services that are substantially the same and have the same pattern of transfer to Licensee and in accordance with paragraph 27 this service is distinct from granting the licence to operate a casino, as:
(a) Licensee can benefit from the service either on its own or together with other resources that are readily available to Licensee (paragraph 28) – if Licensor were not providing this service to Licensee, Licensee would be reasonably expected to obtain such services from a third party to ensure machines are operating at capacity to generate maximum revenue; and
(b) Licensor’s promise to transfer the good or service to Licensee is separately identifiable from other promises in the arrangement (paragraph 29) as:
(i) the maintenance services are not integral to the issue of the casino licence;
(ii) the maintenance services do not modify the rights provided by the licence; and
(iii) the nature of Licensor’s promise is to transfer the maintenance services separately to the issue of the casino licence.
Licensor does not identify any remaining promises to transfer a good or service to Licensee in the arrangement that are distinct from the licence and the maintenance services.
Compilation details
Accounting Standard AASB 15 Revenue from Contracts with Customers (as amended)
Compilation details are not part of AASB 15.
This compiled Standard applies to annual periods beginning on or after 1 January 2022 but before 1 January 2023. It takes into account amendments up to and including 20 December 2021 and was prepared on 7 April 2022 by the staff of the Australian Accounting Standards Board (AASB).
This compilation is not a separate Accounting Standard made by the AASB. Instead, it is a representation of AASB 15 (December 2014) as amended by other Accounting Standards, which are listed in the table below.
Table of Standards
Standard | Date made | FRL identifier | Commence-ment date | Effective date | Application, saving or transitional provisions |
AASB 15 | 12 Dec 2014 | F2015L00115 | 12 Dec 2014 | (beginning) 1 Jan 2018 | see (a) below |
AASB 2015-8 | 22 Oct 2015 | F2015L01840 | 31 Dec 2016 | (beginning) 1 Jan 2017 | see (b) below |
AASB 16 | 23 Feb 2016 | F2016L00233 | 31 Dec 2018 | (beginning) 1 Jan 2019 | see (c) below |
AASB 2016-3 | 11 May 2016 | F2016L00825 | 31 Dec 2017 | (beginning) 1 Jan 2018 | see (d) below |
AASB 1058 | 9 Dec 2016 | F2017L00042 | 31 Dec 2018 | (beginning) 1 Jan 2019 | see (e) below |
AASB 2016-7 | 9 Dec 2016 | F2017L00043 | 31 Dec 2016 | (beginning) 1 Jan 2017 | see (f) below |
AASB 2016-8 | 9 Dec 2016 | F2017L00044 | 31 Dec 2018 | (beginning) 1 Jan 2019 | see (g) below |
AASB 17 | 19 Jul 2017 | F2017L01184 | 31 Dec 2022 | (beginning) 1 Jan 2023 | not compiled* |
AASB 2018-4 | 4 Sept 2018 | F2018L01392 | 31 Dec 2018 | (beginning) 1 Jan 2019 | see (h) below |
AASB 2019-6 | 16 Dec 2019 | F2020L00055 | 31 Dec 2019 | (beginning) 1 Jan 2019 | see (i) below |
AASB 1060 | 6 Mar 2020 | F2020L00288 | 30 Jun 2021 | (beginning) 1 Jul 2021 | see (j) below |
AASB 2021-7 | 20 Dec 2021 | F2021L01883 | 31 Dec 2021 | (beginning) 1 Jan 2022 | see (k) below |
* The amendments made by this Standard are not included in this compilation, which presents the principal Standard as applicable to annual reporting periods beginning on or after 1 January 2022 but before 1 January 2023.
(a) AASB 15 applies to annual periods beginning on or after 1 January 2018 (instead of 1 January 2017) as a result of amendments made by AASB 2015-8 Amendments to Australian Accounting Standards – Effective Date of AASB 15. Earlier application is permitted.
(b) Entities may elect to apply this Standard to annual periods beginning before 1 January 2017.
(c) Earlier application is permitted, provided entities also apply AASB 15 Revenue from Contracts with Customers at or before the date of initial application of AASB 16 Leases.
(d) Entities may elect to apply this Standard to annual periods beginning before 1 January 2018.
(e) Earlier application is permitted, provided entities also apply AASB 15 to the same period.
(f) AASB 2016-7 deferred the effective date of AASB 15 (and its consequential amendments in AASB 2014-5) for not-for-profit entities to annual reporting periods beginning on or after 1 January 2019, instead of 1 January 2018. However, earlier application is permitted, provided that AASB 1058 Income of Not-for-Profit Entities is also applied.
(g) Entities may elect to apply this Standard to annual periods beginning before 1 January 2019, provided AASB 1058 is also applied to the same period.
(h) Entities may elect to apply this Standard to annual periods beginning before 1 January 2019, provided AASB 15 and AASB 16 are also applied to the same period.
(i) Entities may elect to apply this Standard to annual periods beginning before 1 January 2019.
(j) Entities may elect to apply this Standard to annual periods beginning before 1 July 2021.
(k) Entities may elect to apply this Standard to annual periods beginning before 1 January 2022.
Table of amendments to Standard
Paragraph affected | How affected | By … [paragraph/page] |
Aus4.1 (and preceding heading) | deleted | AASB 2015-8 [9] |
Aus4.2-Aus4.3 | deleted | AASB 2015-8 [7] |
Aus4.4 | renumbered as AusC10.1 | AASB 2015-8 [10] |
Aus4.5-Aus4.6 (and preceding heading) | deleted | AASB 2015-8 [11] |
Aus4.7 (preceding heading) | deleted | AASB 2015-8 [12] |
Aus4.7 | renumbered as Aus129.1 | AASB 2015-8 [12] |
5 | amended | AASB 16 [page 45] |
Aus5.1 | added | AASB 2016-8 [6] |
Aus5.2 | added | AASB 2018-4 [4] |
Aus7.1 | added | AASB 2016-8 [6] |
Aus8.1-Aus8.5 (and preceding heading) | added | AASB 2018-4 [4] |
Aus9.1 | added | AASB 2016-8 [6] |
26-27 | amended | AASB 2016-3 [page 5] |
Aus26.1 | added | AASB 2018-4 [4] |
29 | amended | AASB 2016-3 [page 6] |
97 | amended | AASB 16 [page 45] |
Aus129.1 (preceding heading) | added | AASB 2015-8 [12] |
Aus129.1 | repealed | Legislation Act 2003, s. 48D |
B1 | amended | AASB 2016-3 [page 7] |
B34-B38 | amended | AASB 2016-3 [page 7] |
AusB34.1 | added | AASB 2016-8 [7] |
B34A | added | AASB 2016-3 [page 7] |
B35A-B35B | added | AASB 2016-3 [page 7] |
B37A | added | AASB 2016-3 [page 8] |
B52-B53 | amended | AASB 2016-3 [page 8] |
B57 | deleted | AASB 2016-3 [page 9] |
B58 | amended | AASB 2016-3 [page 9] |
B59A | added | AASB 2016-3 [page 10] |
B63A-B63B | added | AASB 2016-3 [page 10] |
B66 | amended | AASB 16 [page 45] |
B70 | amended | AASB 16 [page 45] |
C1 | added | AASB 2015-8 [7] |
AusC1.1 | added | AASB 2016-7 [4] |
AusC1.2 | added | AASB 2019-6 [6] |
C1A | added | AASB 16 [page 46] |
C1B | added | AASB 2016-3 [page 11] |
C2 | amended | AASB 2016-3 [page 11] |
AusC2.1 | added | AASB 1058 [page 21] |
C5 | amended | AASB 2016-3 [page 11] |
C7 | amended | AASB 2016-3 [page 12] |
C7A | added | AASB 2016-3 [page 12] |
C8A | added | AASB 2016-3 [page 12] |
Appendix A.1 | added | AASB 2018-4 [5] |
Appendix E | added replaced | AASB 2015-8 [11] AASB 1060 [page 60] |
AusE1 | amended | AASB 2021-7 [24] |
Appendix F | added | AASB 2016-8 [8] |
Appendix G | added | AASB 2018-4 [6] |
Table of amendments to guidance
Paragraph affected | How affected | By … [paragraph/page] |
IE1-IE3 | added | AASB 2016-8 [9] |
Examples 4A, 4B | amended | AASB 2019-6 [8] |
Example 4D | added | AASB 2019-6 [9] |
IE4 | added | AASB 2016-8 [9] |
IE5-IE7 | added | AASB 2018-4 [7] |
Deleted IFRS 15 text
Deleted IFRS 15 text is not part of AASB 15.
C10 This Standard supersedes the following Standards:
(a) IAS 11 Construction Contracts;
(c) IFRIC 13 Customer Loyalty Programmes;
(d) IFRIC 15 Agreements for the Construction of Real Estate;
(e) IFRIC 18 Transfers of Assets from Customers; and
(f) SIC-31 Revenue—Barter Transactions Involving Advertising Services.
Basis for Conclusions on AASB 2016-8
This Basis for Conclusions accompanies, but is not part of, AASB 15. The Basis for Conclusions was originally published with AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities.
Introduction
BC1 This Basis for Conclusions summarises the Australian Accounting Standards Board’s considerations in reaching the conclusions in this Standard. It sets out the reasons why the Board developed the Standard, the approach taken to developing the Standard and the key decisions made. In making decisions, individual Board members gave greater weight to some factors than to others.
The need for change
BC2 Prior to the issue of AASB 15 Revenue from Contracts with Customers, the recognition and measurement requirements for transactions of not-for-profit entities giving rise to income depended on whether the transaction was reciprocal or non-reciprocal in nature. The accounting for income arising from reciprocal transactions was predominantly addressed in AASB 118 Revenue and AASB 111 Construction Contracts. The accounting for income arising from non-reciprocal transactions was addressed in AASB 1004 Contributions.
BC4 As a consequence of its policy on transaction neutrality, the Board gave consideration to International Accounting Standards Board developments in the accounting for revenue; finalised with the issue of IFRS 15 Revenue from Contracts with Customers in May 2014 and noted it needed to determine what, if any, amendments and guidance would be required to enable not-for-profit entities to apply this Standard. In addition, the Board noted the application of the performance obligation approach to revenue recognition adopted in IFRS 15, using a broader concept of customer had the potential to resolve some of the issues noted with AASB 1004. The Board also had regard to the work of the International Public Sector Accounting Standards Board (IPSASB) in developing its income recognition requirements for ‘non-exchange’ transactions.
BC5 The Board’s proposals with respect to the accounting for income of not-for-profit entities finalised in this Standard were exposed for public comment in April 2015 as part of ED 260 Income of Not-for-Profit Entities. In developing ED 260, the Board considered both the feedback received on the immediate predecessor Exposure Draft, ED 180 Income from Non-Exchange Transactions (Taxes and Transfers), and the requirements of AASB 15 Revenue from Contracts with Customers. ED 260 proposed both revisions to the income recognition principles in AASB 1004, and development of guidance and illustrative examples to assist not-for-profit entities in implementing AASB 15.
BC6 As part of its due process on this project, the Board held roundtables in Melbourne, Brisbane, Sydney and Canberra, and discussed the proposals at various forums, workshops and discussion groups. In addition, to help ensure it considered implications of its proposals on entities with different objectives (eg charities, local government), the Board conducted several targeted meetings. The Board received comments on its exposed proposals both formally via 34 submissions on the Exposure Draft, and informally via email, meetings with constituents, presentations to various bodies and social media. About half the respondents to the Exposure Draft explicitly considered that overall, the proposals would result in financial statements that would be useful to users. Other respondents were supportive of the Board’s efforts in this area but considered that the proposals did not fully address the concerns noted in paragraph BC3. Following the consultation period, and after considering constituent comments received, the Board decided to proceed with issuing revised principles for the recognition and measurement of income of not-for-profit entities.
BC7 In response to the feedback received, the Board amended or clarified various proposals in the Exposure Draft as part of issuing the final guidance. As part of its processes in this regard, the Board decided to establish a Project Advisory Panel consisting of preparers and advisors to provide input to the revised proposals. The Board considered that, overall, its decisions on this project did not significantly depart from those exposed in a manner that adversely affects entities applying the Standard. However, in order to satisfy itself that sufficient due process had been undertaken, the Board invited public comment on both a discussion draft before the Board at its August 2016 meeting and a fatal flaw draft – publicised via its weekly newsletter.
BC8 The Board decided to finalise its proposals exposed in ED 260 by:
(a) issuing AASB 1058 to address the accounting for income of not-for-profit entities. The Standard establishes principles for not-for-profit entities that apply to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable a not-for-profit entity to further its objectives, and to the receipt of volunteer services;
(b) issuing AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities to add implementation guidance to AASB 15 and AASB 9 as well as illustrative examples to AASB 15 to assist not-for-profit entities in applying the Standard;
(c) retaining AASB 1004 Contributions, amended to exclude transactions now addressed by AASB 1058; and
(d) issuing AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASB 15 for Not-for-Profit Entities to defer the effective date of AASB 15 for application by not-for-profit entities.
Non-contractual receivables arising from statutory requirements
BC9 In ED 260 the Board proposed asset recognition requirements for AASB 1058 that overrode the recognition criteria of other Australian Accounting Standards. Under those proposals entities would have recognised an asset and measured it at fair value in accordance with the proposed requirements and then subsequently measured that asset in accordance with its applicable Standard. In its redeliberations on ED 260 the Board decided not to proceed with the asset recognition requirements it proposed in the ED. Instead, the Board decided to clarify consequential amendments to other Standards that specify the initial measurement requirements for transactions within the scope of AASB 1058.
BC10 As part of its redeliberations the Board observed that entities with statutory receivables, such as from taxes and fines, would not be required to apply AASB 9 to those receivables as they are not financial assets as defined in AASB 132 Financial Instruments: Presentation because there is no contract that provides the entity with the right to future cash flows. However, the Board held the view that the initial fair value measurement requirements of AASB 9 are the most appropriate for the types of receivables under consideration as the economic substance of contractual receivables and receivables arising from statutory requirements is similar at initial recognition and therefore decided to require that AASB 9 be applied for the initial measurement of such receivables. The Board also considered that requiring entities to apply AASB 9 for the initial measurement of non-contractual receivables arising from statutory obligations addressed the uncertainty surrounding the appropriate treatment of those receivables.
BC11 Accordingly, the Board decided to amend AASB 9 to require that non-contractual receivables arising from statutory requirements should initially be measured in accordance with that Standard as if those receivables were financial instruments. The Board considered whether the subsequent measurement requirements of AASB 9 should also apply to statutory receivables; however, the Board noted:
(a) constituent feedback indicating the impact of the subsequent measurement requirements of AASB 9 needs further consideration; and
(b) the International Public Sector Accounting Standards Board (IPSASB) had recently embarked on its Public Sector Specific Financial Instruments project to consider requirements for public sector financial instruments that are not within the scope of IFRS 9 Financial Instruments.
BC12 Accordingly, the Board decided not to require entities to apply the subsequent measurement requirements of AASB 9 to statutory receivables. Instead, the Board decided to monitor the IPSASB’s project and consider the subsequent measurement of statutory receivables in a future project.
BC13 The Board noted that applying AASB 9 only for initial recognition of non-contractual statutory receivables could cause confusion and therefore decided to add guidance to accompany AASB 9.
BC14 The Board decided not to address non-contractual payables at this stage, given the scope of the project is related to income of not-for-profit entities. However, the Board decided to consider non-contractual payables at a future date while monitoring the work of the IPSASB on its public sector specific financial instruments project.
Amendments to AASB 15
BC15 The Board conducted a comprehensive review of AASB 15 to determine where additional not-for-profit guidance might be required. As a result, the Board decided to develop guidance for not-for-profit entities including addressing:
(a) how not-for-profit entities should apply terminology used in AASB 15;
(b) when an agreement with another party creates enforceable rights and obligations; and
(c) how to identify when performance obligations exist, requiring a promise to transfer a good or a service to be specified in sufficient detail to be able to determine when the obligation is satisfied.
BC16 In addition to the guidance mentioned above, the Board also decided to make some amendments to the body of AASB 15:
(a) to require that transfers which enable an entity to acquire or construct a non-financial asset to be controlled by the entity be accounted for in accordance with AASB 1058, not AASB 15; and
(b) to clarify that any contract that is not enforceable or does not contain sufficiently specific performance obligations is not within the scope of AASB 15 for not-for-profit entities.
BC17 The Board observed that not-for-profit entities might receive transfers of financial assets that the entity must use to acquire or construct a non-financial asset that the entity will control. The Board noted various views on the requirements that should apply to these transfers, which could result in divergence in practice. The Board considered that these transfers are an in-substance transfer of the underlying non-financial asset the entity must acquire or construct. Accordingly, the Board decided to specify accounting requirements for these transfers in AASB 1058 and to clearly state that these transfers are not within the scope of AASB 15 for not-for-profit entities.
BC18 The Board noted that paragraph 15 of AASB 15 specifies requirements for contracts with customers that do not meet the criteria in paragraph 9 of AASB 15. For the purposes of the guidance the Board developed to accompany AASB 15 the Board noted, in particular, that some of the criteria in paragraph 9 relate to enforceable agreements and sufficiently specific performance obligations. The Board considered that the requirements of paragraph 15 would create ambiguity in the context of AASB 1058 and the additional guidance the Board developed to accompany AASB 15. Consequently, the Board decided to amend AASB 15 to state that any contract of a not-for-profit entity that is not enforceable or does not contain sufficiently specific performance obligations is not within the scope of AASB 15. Moreover, not-for-profit entities would need to consider whether that contract should be accounted for in accordance with AASB 1058. The Board noted that this amendment would help to avoid confusion and divergence in practice.
Terminology
(a) are not described as contracts, even though they may be part of agreements that specify the goods or services to be transferred by the recipient of the grant;
(b) are not described as transactions with ‘customers’;
(c) might impose an obligation to transfer goods or services; or
(d) might require a not-for-profit entity to provide benefits to third party beneficiaries when they transfer promised goods or services.
In these circumstances, the party, or parties, that should be regarded as the ‘customers’ might be unclear.
BC20 The Board considered whether to make modifications to some terms in AASB 15 that would be clearer for not-for-profit entities to apply. In developing ED 260 the Board decided to maintain a transaction-neutral approach to any modifications it might consider to AASB 15. In this context, the Board reviewed the definitions of a ‘customer’ and of a ‘contract’ to determine whether a modification was necessary or whether additional not-for-profit guidance would be sufficient.
BC21 The Board concluded that these aspects do not warrant using different terms other than ‘contract’ and ‘customer’ because additional guidance on how those terms apply in a not-for-profit context would provide sufficient direction for entities while maintaining the Board’s transaction-neutral approach. Accordingly, in ED 260 the Board decided to clarify those terms in a not-for-profit entity context. Feedback on ED 260 indicated broad support for the proposed clarifications, and therefore the Board decided to finalise its proposals in that regard.
Customer
BC22 In a contract with a customer, the customer may direct that goods or services are to be provided to third party beneficiaries (whether employees, other individuals or the community at large) on the customer’s behalf. The Board noted the IASB’s considerations in its Basis for Conclusions to IFRS 15, specifically paragraphs BC54 and BC55 where the IASB argued that the definition of a ‘customer’ could extend beyond the parties specifically identified in a contract, thereby potentially satisfying the definition of a ‘customer’ to be in scope of IFRS 15. The Board noted that the IASB’s considerations highlighted in paragraphs BC54 and BC55 concur with the Board’s views. However, the Board noted that while the IASB expressed this view in its Basis for Conclusions to IFRS 15, not-for-profit entities would need more authoritative guidance.
BC23 Consistent with the IASB’s conclusions, the Board acknowledged that identifying the ‘customer’ in a contract may not always be straightforward for not-for-profit entities. For example, the Board noted that not-for-profit entities routinely receive grants where the grantor requires the entity to provide services to unspecified third parties. In all other respects the grant would be within the scope of AASB 15. In this example, it is unclear whether those unspecified third parties could be considered ‘customers’ in the contract or whether the grantor is the customer.
(a) the likely greater prevalence of third party beneficiaries in contracts entered by not-for-profit entities; and
(a) uncertainty about this issue expressed to the Board in its project outreach activities.
Contract
BC25 The Board noted that a ‘contract’ is defined in AASB 15 as “an agreement between two or more parties that creates enforceable rights and obligations” and that paragraph 10 of AASB 15 states that contracts can be written, oral or implied by an entity’s customary business practices. The Board considered that this definition and guidance are sufficiently broad to address the issues noted in paragraph BC19, and should readily be able to be applied by not-for-profit entities. The Board acknowledged, however, that clarification was necessary for not-for-profit entities in relation to some specific aspects of applying the definition.
BC26 The Board observed that not-for-profit entities might require additional guidance to distinguish sufficiently specific performance obligations for the purposes of AASB 15 and constructive obligations for the purposes of AASB 137 Provisions, Contingent Liabilities and Contingent Assets. In particular, the Board considered a range of statements not-for-profit entities make regarding, for example, their purpose or reason for a particular fundraising. The Board noted that some of these statements could give rise to:
(a) sufficiently specific performance obligations;
(b) constructive obligations; or
(c) the immediate recognition of income.
BC27 The Board decided that the distinguishing characteristics of an arrangement that would result in any of the above outcomes requires further clarification given the broad range of arrangements not-for-profit entities enter into. The additional guidance would assist entities in determining an appropriate accounting treatment that more accurately reflects the effects of the entity’s arrangements on its financial performance.
BC28 Based on feedback to ED 260 indicating uncertainty regarding the determination of enforceability, particularly for documents not specifically identified as contracts, the Board also decided to clarify:
(a) that a ‘contract’, for the purposes of AASB 15, can extend to arrangements such as Memoranda of Understanding, Heads of Agreement and Letters of Intent if those arrangements are enforceable given that not-for-profit entities might not enter arrangements that are explicitly defined as contracts; and
(b) the factors to consider when determining if a contract is enforceable (see paragraphs BC29–BC36).
Enforceable agreements
(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.
BC33 In contrast to the capacity referred to in paragraph BC32, a transferor’s capacity to withhold future funding to which the entity is not presently entitled is substantially different. The ability of a funding provider to withhold future, uncommitted, funding is a source of economic compulsion for the funding recipient. This is because the recipient might be economically compelled to undertake a present activity to secure that future funding. Economic compulsion is not, of itself, a source of enforceability of a promise. In other words, circumstances affecting possible future transactions are not a feature of existing contractual rights and obligations.
BC34 The Board observed that, if economic compulsion were sufficient to make a promise enforceable, a government’s explicit and implicit promises to provide social benefits (such as age pensions, and health and education services) potentially would qualify as enforceable obligations in a wide range of circumstances. Consequently, a government might identify liabilities for benefits for which members of the community have yet to qualify, as the government would be economically compelled to provide the benefits at some point in the future (for example, on an aggregate basis, there is no doubt that of those already born, a significant percentage will survive to qualify for the aged pension and will need to receive various health services). The Board currently considers that identifying liabilities so broadly would not provide useful information about a government’s present financial position, although information about likely future transfers of social benefits would be useful for long-term fiscal sustainability reporting. The Board notes that the IPSASB is presently considering the range of recognition points in its project on accounting for social benefits.
BC35 Feedback to the guidance provided in ED 260 indicated constituents would continue to have difficulty applying the ‘enforceable’ criterion, despite the proposed additional guidance. In considering the feedback received, the Board significantly expanded the ‘enforceability’ guidance to include a range of factors that could potentially result in an enforceable arrangement. The Board clarified that a return obligation is merely an indicator of enforceability, and not the only indicator. The Board also noted that where parties to the arrangement need to mutually agree on any changes to the use to which transferred funds are put, that this constitutes enforceability, as neither party has the ability to unilaterally make decisions regarding the assets transferred. The Board noted, however, that the guidance is general in nature and, while it is intended to be helpful in assisting entities assess the enforceability of arrangements, it does not constitute legal advice. Accordingly, the Board noted that, depending on the complexity of the individual facts and circumstances, entities might still need to obtain specific legal advice in regard to their arrangements.
Identifying performance obligations
BC37 The Board noted that a performance obligation in IFRS 15 meets the definition of a liability in the AASB Framework for the Preparation and Presentation of Financial Statements as it requires an outflow of resources in settlement of an obligation. Accordingly, a key aspect of a performance obligation is that there is a transfer of goods or services to another party that is not at the discretion of the provider. In a not-for-profit context the Board determined that due to the prevalence of transfers of assets to not-for-profit entities that further guidance on identifying performance obligations was warranted.
Sufficiently specific requirements
BC40 The Board also decided to propose not-for-profit entity guidance:
(a) noting that applying the ‘sufficiently specific’ criterion requires judgement; and
(b) identifying particular conditions to consider in determining whether a promise is ‘sufficiently specific’ to qualify as a performance obligation.
BC41 The Board considered whether to identify particular conditions as essential for treating a promise to transfer a good or a service as ‘sufficiently specific’. The Board concluded that:
(a) no particular condition regarding a promise to provide a good or service would ensure the proposed principle in paragraph BC39 is met; and
(b) prescribing condition(s) that are necessary to make a promise ‘sufficiently specific’ might arbitrarily and unintentionally exclude some performance obligations from being identified as such.
BC42 For example, the Board:
(a) noted that paragraph 26 of AASB 15 states that: “Depending on the contract, promised goods or services may include, but are not limited to … (e) providing a service of standing ready to provide goods or services (for example, unspecified updates to software that are provided on a when-and-if-available basis) or of making goods or services available for a customer to use as and when the customer decides”; and
(b) concluded that, if particular aspects of a ‘sufficiently specific’ promise were to be mandatorily present, a not-for-profit entity’s promise to provide a service of standing ready to provide an unspecified good or service might be treated as ‘insufficiently specific’ to qualify as a performance obligation. This outcome would be inconsistent with the Board’s policy of transaction neutrality.
BC43 One of the aspects to consider in assessing whether a promise is ‘sufficiently specific’ to qualify as a performance obligation is a specified period over which promised goods or services must be transferred. In relation to that aspect, the Board concluded that a condition that a transfer of assets to a not-for-profit entity relates to a particular time period does not, of itself, meet the ‘sufficiently specific’ criterion – the nature or type of goods or services to be transferred by that entity over that time period must also be specified. This is because time does not require an outflow of resources embodying economic benefits (the definition of a liability in the AASB Framework for the Preparation and Presentation of Financial Statements requires an outflow of resources in settlement of the obligation). Rather, the Board considers that such a condition is, in substance, an indication that the transferor does not intend to make similar future transfers to the entity for a defined period of time.
BC44 The Board considered whether its view above is consistent with treating as ‘sufficiently specific’ a not-for-profit entity’s promise to provide a service of standing ready to provide an unspecified good or service. The Board concluded that a promise to provide a service of standing ready to provide an unspecified good or service is substantially different from a condition that a transfer of assets to a not-for-profit entity relates to a particular time period, without any other conditions. This is because:
(a) standing ready to transfer a specified underlying good or service (eg to make a good available for a customer to use as and when the customer decides) is, of itself, a specifically identifiable service transferred to the customer, even if the underlying good or service is sometimes difficult to identify; and
(b) promises to use transferred assets consistently with the entity’s general objectives are not promises to transfer a good or a service.
BC45 The Board noted the majority of feedback on ED 260 indicated support for the principle described in paragraph BC39. Some constituents raised concerns about:
(a) linking ‘enforceability’ with ‘sufficiently specific’ for grant arrangements could mean many grants do not fall within the scope of AASB 15;
(b) measuring progress toward satisfying a performance obligation would be difficult in many of the arrangements not-for-profit entities enter into;
(c) how to determine whether goods or services are transferred, and if so how to determine when a transfer occurs. For example, when research is undertaken as part of a research grant, it may be unclear whether, or when, or what type of, a transfer of goods or services occurs; and
BC46 In regard to research grants, the Board noted that such grants typically:
(a) require the recipient to undertake a specified research activity, usually on the basis of a proposal in the grant application;
(b) require the researcher to publicly publish their research findings, either in a government report, a research journal or a similar format;
(c) identify the owner of the intellectual property generated by the research activity; and
(d) may involve the licensing of the intellectual property to the grantor, another entity or the general public.
BC47 The Board observed that the above features of research grants would typically be sufficiently specific but may cause difficulty in measuring progress toward the satisfaction of a performance obligation that is satisfied over time. The Board noted that paragraphs 39–45 of AASB 15 focus on measuring progress toward satisfying a performance obligation with reference to input methods and output methods. The Board observed that either of these methods could be problematic to apply in the context of performing research as required by a research grant. Accordingly, the Board decided to clarify that the undertaking of the research, which may be seen as an activity undertaken on behalf of another party, could constitute a service for the purposes of AASB 15. For example, the Board noted that the transfer of the intellectual property created by the research to the grantor could represent the transfer of a good or service in satisfaction of a performance obligation. The Board also decided to add illustrative examples addressing the application of AASB 15 in the case of research grants, considering issues that might arise when the researcher retains the intellectual property, provides a licence to the grantor or other parties, or provides or publishes research findings, such as the recognition of revenue over time or at a point in time.
BC48 In response to further feedback received on the Exposure Draft, the Board included additional guidance on both ‘enforceability’ and ‘performance obligations’. In particular the Board clarified:
(b) the effect of time-period conditions on whether a performance obligation exists;
(c) whether a grant made to a ‘single purpose’ entity to be used for its sole purpose constituted a performance obligation; and
BC49 Consequently, the Board retained in the final Standard the principle that a performance obligation only exists if it is sufficiently specific to enable the entity to determine when it has satisfied that obligation. In response to the feedback on ED 260 the Board finalised its proposals with the additional guidance noted above.
Allocating the transaction price to performance obligations
BC50 A customer may enter into a contract with a not-for-profit entity with a dual purpose of obtaining goods or services and helping the not-for-profit entity achieve its objectives. The Board considered that, to represent faithfully the substantially different components of such a contract of a not-for-profit entity, in principle it is important that the amount of consideration that is not attributable to the goods or services promised by the entity to its customer should be:
(a) measured and disclosed separately from the revenue arising from transferring a good or service to the customer; and
(b) recognised when the entity recognises the transferred asset(s) – which might be a different time from when the entity transfers the promised good or service to the customer.
BC51 Accordingly, the Board proposed in ED 260 to require a separately identifiable “donation” component in a contract with a customer to be accounted for as income immediately. ED 260 proposed that such a component should be identified in a two-step model:
(a) determine whether the customer intended to make a donation to the entity; and
(b) separately identify the component from the goods or services promised in the contract.
BC52 Feedback on the ED 260 model indicated significant concern in relation to implementing the two-step process. The primary concern raised was that assessing the customer’s intent when making the donation would be highly subjective and, for many transactions, such an assessment could not be made due to a lack of evidence. Despite these concerns, the majority of respondents agreed that any “donation” component included in a contract with a customer should be separated from the contract and accounted for in accordance with AASB 1058.
BC53 To address constituent concerns the Board decided to replace the two-step model with a rebuttable presumption. The presumption is that the total transaction price in a contract with a customer is related to the transfer of the promised goods or services. That is, the entire transaction price is presumed to compensate the entity for the goods or services. Where the transaction price is only partially related to the transfer of the promised goods or services the presumption is rebutted and the transaction price split into its component parts.
BC54 The Board noted, however, that requiring entities to rebut the presumption solely based on whether a component of the transaction price is not related to the transfer of promised goods or services might be difficult to apply in practice. The Board considered that such an approach would impose undue cost and effort to require entities to assess the nature of component parts of the transaction price for every contract with a customer. Such a requirement would be particularly difficult in the case of research grants, as discussed in paragraphs BC46 and BC47. To address this concern, the Board decided to require that the presumption be rebutted only when the transaction is partially refundable in the event the entity does not deliver the promised goods or services.
BC55 The Board observed that a partially refundable transaction price usually indicates that some part of the transaction price might not relate to the transfer of the promised goods or services. A non-refundable component of the transaction price might represent a donation or grant to the entity. However, the Board also noted the guidance in paragraphs B48–B51 of AASB 15 which relate to non-refundable upfront fees. That guidance illustrates that in some cases a non-refundable upfront fee could still relate to the transfer of promised goods or services, in which case the non-refundable upfront fee could form part of a performance obligation and be recognised as revenue when the obligation is satisfied. The Board noted that donations very rarely relate to the transfer of promised goods or services and therefore concluded that its guidance attached to AASB 15 does not override the guidance of paragraphs B48–B51.
BC56 The Board noted that the transaction price allocated to a performance obligation should adhere to the allocation objective in paragraph 73 of AASB 15. Moreover, the Board observed the IASB’s discussion on this topic as documented in paragraphs BC270–BC273 of IFRS 15, in particular that any stand-alone selling price estimated using the residual approach should be considered for appropriateness. Where the estimated stand-alone selling price is either nil, or a nominal amount, the entity should consider whether such an outcome is appropriate. Similarly, the Board is of the view that a donation element included in a contract with a customer and allocated to a performance obligation using the residual approach should be considered for appropriateness in the context of the allocation objective. If a donation element is allocated to a performance obligation in this manner it might result in the transaction price being inappropriately overestimated.
BC57 The Board concluded the revised approach addressed constituent feedback on the two-step model it proposed in ED 260. In particular, the rebuttable presumption does not require entities to consider the customer’s intent when entering into a contract with the entity. To help ensure the rebuttable presumption was practicable, the Board sought feedback on this approach from its Project Advisory Panel. The Panel supported the revised approach, and consequently the Board decided to finalise the rebuttable presumption. The presumption ultimately applies the Board’s view exposed in ED 260 that separate components of a contract should be accounted for in accordance with the applicable Standard using the revised guidance.
Materiality
BC58 The Board proposed in ED 260 that an assessment of whether a component not attributable to the goods or services promised by the entity in its contract with a customer is material should be made at a contract level and not reassessed at another unit of account, such as for a portfolio of similar contracts. The Board considered this approach would likely achieve a better balance of costs and benefits than if the materiality of such components were to be assessed at the portfolio level of similar contracts. In its redeliberations, the Board decided to confirm its approach to assessing the materiality of such components within contracts with customers because of the balance between costs and benefits that it provides.
Disclosures
BC59 As part of the Board’s review of AASB 15 it also considered whether not-for-profit entities should be exempted from any disclosure requirements in AASB 15. The Board considered those disclosures in the context of the Tiers of Australian Accounting Standards. Specifically, not-for-profit entities (other than the Australian Government and State, Territory and Local Governments) are not required to comply with Tier 1 reporting requirements in their general purpose financial statements in accordance with AASB 1053 Application of Tiers of Australian Accounting Standards. Those entities may choose to apply Tier 1 reporting requirements but are otherwise required to only comply with Tier 2 reporting requirements in their general purpose financial statements. The Board observed its policy for developing Tier 2 reporting requirements specifically considers the nature and characteristics of not-for-profit entities. Consequently, the Board decided it had already considered any not-for-profit entity-specific disclosure issues in AASB 15 as part of its process for developing Tier 2 reporting requirements for that Standard. Accordingly, the Board decided not to make any amendments to the disclosure requirements in AASB 15 for not-for-profit entities.
Effective date
BC60 The Board proposed in ED 260 that AASB 1058 and this Standard apply when AASB 15 is applied or operative, which is from 1 January 2018. Constituents raised concerns on that proposal, noting (among others):
(a) general uncertainty in the not-for-profit sector about the accounting requirements that would apply given the Board’s work on this project and the various proposals made over the lifetime of the project;
(b) when AASB 1058 is issued not-for-profit entities will need to determine its interaction with AASB 15 and other Australian Accounting Standards. With a proposed effective date of 1 January 2018, not-for-profit entities were concerned that their lead-time to apply the requirements would be significantly less than that provided to for-profit entities to apply AASB 15; and
(c) AASB 1058 permits a greater number of other Australian Accounting Standards to apply to transactions that were previously solely in scope of AASB 1004. Not-for-profit entities commented that they needed further time to understand the interaction of those Standards with their transactions that previously were solely accounted for under AASB 1004.
BC61 The Board agreed with constituents and decided to defer the application date of AASB 1058 by one year to 1 January 2019. In making this decision the Board also considered whether it should defer the application date of AASB 15, including the application guidance in this Standard, by one year for not-for-profit entities. The Board noted that having different application dates for AASB 1058 and AASB 15 would, among other issues:
(a) introduce a period where entities recognise revenue in accordance with AASB 15 and apply AASB 1004 to other transactions outside the scope of AASB 15; and
(b) potentially require entities to re-evaluate their contracts with customers for donation elements when applying AASB 1058 in a later period, thereby lengthening the transition process.
BC62 Consequently, the Board also deferred the application date of AASB 15 to 1 January 2019 for not-for-profit entities. In deferring the application date of AASB 15 the additional guidance for not-for-profit entities will also be deferred. However, the Board decided to retain the ability for entities to apply AASB 15, including the additional guidance for not-for-profit entities in this Standard, and AASB 1058 to an earlier reporting period, so long as they are applied together.
Illustrative examples
BC63 The Board proposed a number of illustrative examples in ED 260 while noting that it was yet to determine where to locate each example; either to accompany AASB 1058 or as part of the guidance to AASB 15. The Board noted it would decide on the location of the respective examples after it had received feedback on the ED.
BC64 When reviewing the feedback on ED 260, the Board noted the majority of concerns were related to the ‘enforceability’ and ‘sufficiently specific’ guidance in the ED. Consequently, the Board agreed that the examples accompanying the guidance should illustrate:
(a) enforceability;
(b) the application of the ‘sufficiently specific’ requirement; and
(c) separating a component not attributable to the goods or services promised by the entity to its customer in a contract with a customer.
BC65 The Board decided to add an example to those accompanying AASB 1058 that illustrates a transaction that includes a contract with a customer. The example is intended to highlight when a transaction could include a contract with a customer and then direct users to the guidance accompanying AASB 15. The Board decided the remaining topics covered by illustrative examples in ED 260 should accompany AASB 1058.
BC66 When the Board developed the requirements in AASB 1058 for transfers of financial assets that enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity, the Board initially did not limit the scope of the requirements only to recognisable assets. Upon redeliberating the issue, the Board decided to limit the scope of the requirements to only those non-financial assets that could be recognised under another Australian Accounting Standard once acquired or constructed.
BC67 As a consequence, the Board noted that some research grants would not necessarily be recognised as income over time as the research was performed. Accordingly, the Board decided to develop further illustrative examples to those proposed in ED 260 to assist entities apply the requirements of AASB 15 to research grants.
BC68 In its redeliberations, the Board identified three scenarios that could apply to research grants, depending on the terms and conditions of the grant, where the entity:
(a) is required to transfer the intellectual property it develops to the grantor;
(b) is required to provide a licence to the grantor for the intellectual property it develops; or
(c) transfers benefits to the grantor that may or may not be immediately consumed.
BC69 The Board decided to illustrate each of the above scenarios as examples, identifying the effect that various terms and conditions could have on whether revenue arising from the grant is recognised over time, or at a point in time when a performance obligation is satisfied.
Comparison with International Public Sector Accounting Standards
(a) IPSAS 9 Revenue from Exchange Transactions;
(b) IPSAS 11 Construction Contracts; and
(c) IPSAS 23 Revenue from Non-exchange Transactions (Taxes and Transfers).
BC71 The Board observed IPSAS 9 and IPSAS 11 are based on the principles of superseded IAS 18 Revenue (incorporated into AASB 118 Revenue) and IAS 11 Construction Contracts (incorporated into AASB 111 Construction Contracts), rather than those of IFRS 15 Revenue from Contracts with Customers (incorporated into AASB 15). In addition, it noted that IPSAS 23 was issued prior to the issue of IFRS 15. The requirements of IPSAS 23 were therefore not necessarily developed with reference to similar principles to IFRS 15. The Board concluded these IPSASB Standards do not provide an appropriate basis for financial reporting in the Australian environment, particularly because they require different income recognition depending on whether the transaction is an exchange transaction or a non-exchange transaction, and IPSAS 9 and IPSAS 11 adopt a ‘risks and rewards’ approach that is not consistent with the performance obligation approach in IFRS 15.
BC72 The Board further noted the IPSASB is currently developing proposals for the accounting for non-exchange expenses. The IPSASB is also developing a related project on revenue, which uses IFRS 15 as a starting point and looks at the type of modifications that would be required for IFRS 15 to be suitable for application to a wide range of revenue transactions in the public sector. This may result in revisions to, or a replacement of, the existing IPSASB revenue recognition requirements. The IPSASB expects to complete these projects in 2019. The Board noted that it would consider undertaking a project to review the guidance to AASB 15 following the completion of these projects.
Basis for Conclusions on AASB 2018-4
This Basis for Conclusions accompanies, but is not part of, AASB 15. The Basis for Conclusions was originally published with AASB 2018-4 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Public Sector Licensors.
Introduction
BC1 This Basis for Conclusions summarises the Australian Accounting Standards Board’s considerations in reaching the conclusions in this Standard. It sets out the reasons why the Board developed the Standard, the approach taken to developing the Standard and the key decisions made. In making decisions, individual Board members gave greater weight to some factors than to others.
Reasons for issuing this Standard
BC2 Constituents’ feedback received during the AASB’s Service Concession Arrangements: Grantors project (which addressed some public sector licences) identified there was a risk that revenue from licences issued by not-for-profit (NFP) public sector licensors could be materially understated (revenue is deferred when it should be recognised immediately) or overstated (revenue is recognised immediately when it should be recognised over time) in the absence of guidance on how AASB 15 Revenue from Contracts with Customers applies.
BC3 AASB 15 provides specific guidance on accounting for revenue arising from the issuance of intellectual property (IP) licences. However, as AASB 15 is generally expressed from the perspective of for-profit entities in the private sector, the Board received feedback that it is unclear whether the guidance in AASB 15 could be applied to account for revenue from licences issued by not-for-profit public sector licensors, particularly in the case of non-IP licences and non-contractual licences arising from statutory requirements.
BC5 The Board had previously considered the accounting for revenue from licences issued by not-for-profit public sector licensors as part of its projects relating to:
(a) AASB 1059 Service Concession Arrangements: Grantors (see paragraphs BC38–BC39); and
(b) AASB 1058 Income of Not-for-Profit Entities (see paragraph BC40).
BC6 In both instances, the Board deferred its deliberations pending a specific project to research the extent to which these types of licences exist, as well as the current and potential accounting treatment.
BC7 Consequently, the Board decided to add to its 2017-2019 Work Program a project to clarify the accounting for revenue from licences issued by not-for-profit public sector licensors. The Board decided the project should address:
(a) the nature of the right created by a licence – whether the licence confers the right to use or access a licensor’s asset, or confers a right to perform an activity where there is no licensor asset involved, and whether different accounting treatments for revenue from such licences are appropriate;
(b) whether the scope of AASB 15 should be expanded to encompass non-contractual licences issued under statute and/or non-IP licences; and
(c) whether the guidance in AASB 15 specifically for IP licences is appropriate for all licences issued by not-for-profit public sector entities.
Issue of ED 283 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Public Sector Licensors
BC8 The Board’s proposals were exposed for public comment in December 2017 as part of ED 283 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Public Sector Licensors. In developing the proposals, the Board considered past research undertaken as part of its AASB 1058 and AASB 1059 projects, as well as a number of public AASB meeting Agenda Papers that considered the application of existing accounting Standards (see paragraphs BC31–BC52). ED 283 proposed guidance that would clarify the application of AASB 15 to licences that did not fall within the scope of any other Australian Accounting Standard.
BC9 Between issuing ED 283 and finalising the Standard, the Board held targeted outreach with key stakeholders in the NFP public sector, including state and national treasuries, audit offices, accounting firms, the Australian Bureau of Statistics (ABS), credit rating agencies, and representatives of the Australasian Council of Public Accounts Committees (users of NFP public sector financial statements). The ED proposals were also presented at various forums, workshops and discussion groups.
(a) the majority of respondents agreed revenue from non-IP licences should be accounted for in accordance with the general principles of AASB 15 (but not the specific guidance provided for IP licences). However, despite support in principle, numerous respondents raised concern with the outcome of applying the principles in AASB 15, in particular for high-value long-term licences such as casino licences (discussed further in BC84);
(b) some respondents sought clarification of the distinction between licences and taxes, and recommended aligning the distinction between a licence and tax more closely with the definitions of the ABS’s Government Finance Statistics (GFS) Manual to allow for the harmonisation of the two frameworks; and
(c) some respondents raised concerns with the proposal to allocate the transaction wholly to a promise to issue a licence where the arrangement has a dual purpose of issuing a licence and imposing a tax. The respondents were especially concerned with the practical consequences when having to account for any variable consideration, noting that it is possible for an arrangement to demonstrate both elements of licensing and taxation.
BC11 The Board considered these issues as well as a range of other issues identified by constituents in developing this Standard following the ED 283 exposure process.
BC12 In May, June and August 2018, the Board considered issues papers and draft wording for paragraphs of the Standard which were published as Board agenda papers for the public. This gave constituents the opportunity to follow the debate and to provide comments on the issues and drafting contemporaneously.
BC13 In August 2018 the Board decided to finalise its decisions to address issues raised by constituent in the form of a Pre-Ballot Draft of the Standard. The Board felt it unnecessary to issue a fatal-flaw version of the Standard in light of the Board deciding not to make any major changes to the proposals in ED 283. Instead, the Board decided that the final Standard would provide clarification and additional guidance and examples to assist NFP public sector licensors distinguish licences from taxes (and other arrangements within the scope of other Standards), and how the principles of AASB 15 would apply to non-IP licences.
Scope
BC14 The Board decided the scope of the amendments to AASB 15 effected through this Standard should be restricted to NFP public sector licensors. The Board identified a small number of non-IP licences issued by for-profit public sector entities, however consistent with The AASB’s For-Profit Entity Standard-Setting Framework the Board decided not to expand the scope of the guidance as:
(a) the prevalence and magnitude of the transactions in the for-profit public sector are not such that users would be likely to make inappropriate decisions based on the financial statements prepared without regard to the guidance in this Standard; and
(b) in light of the above, the Board preferred to not risk precluding for-profit public sector entities from being able to claim IFRS compliance.
BC15 The Board noted that its decision regarding to apply AASB 1059 to all public sector entities including for-profit entities was the result of a decision made specifically in the context of that project.
Features of licences
BC16 The Board noted that AASB 15 provides some examples of IP licences but none of the Australian Accounting Standards (including AASB 15) describe what a licence is. The Board considered that it would be helpful for licensors in the NFP public sector for the Board to provide guidance in the Standard on identifying the features of a licence. This would help distinguish revenue arising from licences, accounted for in accordance with this Standard, and revenue arising from taxes, accounted for in accordance with AASB 1058.
BC17 In identifying the features of a licence, the Board considered:
(a) the extent to which current Australian Accounting Standards define or infer features of licences, in particular AASB 1058;
(b) the features of a licence considered by the International Public Sector Accounting Standards Board (IPSASB) in its projects; and
(c) other resources, including the ABS GFS Manual, commonly accepted definitions, law and other common features of licences issued by NFP public sector licensors.
AASB 1058 Income of Not-For-Profit Entities: distinguishing a licence from a tax
Economic benefits compulsorily paid or payable to public sector entities in accordance with laws and/or regulations to provide income to the government. Taxes exclude fines.
BC19 The Board noted this definition of ‘taxes’ identifies two points of distinction, being:
(a) the notion of compulsion; and
(b) the purpose of the payment.
BC20 In relation to compulsion, the Board observed that, in contrast to a tax, although a licence fee may be compulsorily payable upon issue, a prospective licensee has discretion over whether to seek a licence. For example, an entity would generally have discretion over whether to perform an activity that requires a licence, whereas a tax would arise generally from activities that are necessary for the entity to operate, for example earning revenue. The Board also observed that the notion of compulsion could be supported by the consequences of evading a licence fee or tax. For example, if an entity were found to have evaded a licence fee, it would not be compulsory for the entity to retrospectively obtain the licence. Any consequence for undertaking unlicensed activities would be in the nature of a fine or other penalty (ie the entity would not be compelled to obtain a licence). In contrast, an entity found to have evaded a tax would be compelled to pay the tax in addition to any fine or other penalty. The Board decided that, in distinguishing a licence from a tax, the notion of compulsion by reference to whether an entity would have discretion over whether to obtain a licence or not would be useful as a primary or singular point of distinction between a licence and tax.
Other Australian Accounting Standards
BC22 The Board considered, but did not identify any features of licences implicit in the following Australian Accounting Standards:
(a) AASB 15;
(b) AASB 16;
(c) AASB 138 Intangible Assets; and
(d) AASB 1059.
The IPSASB
BC23 In identifying other features distinguishing licences from taxes, the Board considered the IPSASB’s project work regarding the accounting for revenue transactions. The Board noted the IPSASB, at the time this Standard was issued, had not specifically considered the accounting for revenue from licences issued by NFP public sector entities, nor defined the term ‘licence’ in any IPSAS.
ABS GFS Manual
BC25 Despite this, some respondents to ED 283 (including the ABS) preferred that the Board align with the ABS’s definition of a licence for distinguishing licences from taxes. However, the Board reaffirmed its decision to not use proportionality of level of work to transaction price as a primary distinguishing feature as:
(a) the Board observed that determining whether the revenue recognised is proportionate to the cost of a licensor’s obligations is a difficult and subjective assessment that, based on feedback from preparers, might not be applied consistently in the preparation of general purpose financial statements;
(b) adopting the ABS GFS Manual approach could result in the majority of the arrangements in question being classified as a tax and accounted for in accordance with AASB 1058. AASB 1058 paragraph B28 specifically precludes taxes from giving rise to a contract liability or revenue recognised in accordance with AASB 15, as they do not promise to provide a good or service in an agreement that creates enforceable obligations. However, the Board noted that a proportion of the arrangements that would be classified as a licence under the guidance in this Standard are different in substance to taxes as:
(i) they do create direct rights for the licensee (most commonly a right to perform) and obligations for the licensor to provide a good or service (also, most commonly, a right to perform); and
(ii) the discretionary nature of licences indicates that the economic purpose of the transaction is to obtain the goods and services (most commonly a right to perform) from the licensor, and therefore it would be counter intuitive to the Board’s policy of transaction neutrality to preclude a NFP public sector licensor from accounting for its revenue when (or as) it transfers control of the good or service, consistent with for-profit entities providing goods or services.
Other resources
BC26 The Board noted, based on common law and other commonly accepted definitions of the term ‘licence’, the following features are also useful in distinguishing licences from taxes:
(a) whether the arrangement creates direct rights of a payer to use (not within the scope of AASB 16) or access the payee’s asset, or perform an activity, and, depending on the type of arrangement, direct obligations of a payee. The Board noted that licences would generally confer direct rights to a licensee, and could, in some instances, create direct obligations for a licensor. The Board considered whether a tax could confer rights (and create obligations), but concluded that the nexus between any right or obligation as a result of a tax and the tax itself would not be sufficiently direct;
(b) based on common law principles, the Board observed that licence arrangements confer a specific permission to perform an activity or to use or access an asset that would otherwise be unlawful; and
(c) also based on common law principles, the Board observed that licences do not transfer control of a payee’s underlying asset. The transfer of control of assets would fall within the scope of other Australian Accounting Standards (eg AASB 116 Property, Plant and Equipment and AASB 138), and therefore would not be within the scope of AASB 15.
(a) the existence of an underlying asset;
(b) refundability;
(c) transferability; and
(d) the term of the arrangement.
Terminology
BC28 In considering the features that would be helpful in distinguishing a licence from a tax, the Board noted the substance of some arrangements might be contradictory to the term used to describe them. For example, an arrangement that is referred to as a ‘tax’ might in fact be a licence in substance, based on the Board’s guidance. Alternatively, an arrangement might not be referred to as either a licence or a tax, but instead, for example, as a ‘permit’. The Board noted that, notwithstanding the term used to describe an arrangement, a licensor should consider its substance in accordance with the guidance provided in this Standard and account for that arrangement accordingly.
Application of Australian Accounting Standards
BC29 The Board considered the applicability of the existing suite of Australian Accounting Standards to licences. The Board also considered the suitability of the scoping principles in AASB 15 in the context of whether its application could be extrapolated to appropriately reflect the economic substance of transactions in accounting for revenue from licences issued under statute. The Board identified the following Australian Accounting Standards as possibly applicable:
(a) AASB 16;
(b) AASB 1058; and
(c) AASB 1059.
BC30 The Board’s views with respect to the application of these Australian Accounting Standards are set out in paragraphs BC31–BC52.
AASB 16 Leases
BC32 In considering whether a licence could satisfy the definition of a lease, and therefore be accounted for in accordance with AASB 16, the Board noted the licence would need to be a contract (see the discussion in paragraphs BC43 for the Board’s deliberations on whether all licences are contracts) conveying a ‘right to use’ an asset for a period of time in exchange for consideration. The asset would also need to be an identified asset with no substantive right of substitution.
BC33 The Board considered the meaning of ‘right to use’ in the context of the Application Guidance in AASB 16, which requires the contract to convey the right to control the use of the identified asset for a period of time. In doing so, an entity is required to assess whether a customer has:
(a) the right to obtain substantially all of the economic benefits from the use of the identified asset, such that the customer has rights to direct how and for what purpose the asset is used; and
(b) the right to direct the use of the identified asset, such that relevant decisions about how and for what purpose the asset is used are predetermined. The customer must also have the right to operate the asset without the supplier having rights to change operating instructions, or the customer designed the asset in a way that predetermines how and for what purpose the asset will be used.
BC34 Accordingly, the Board observed that AASB 16 could only apply to ‘right to use’ identified assets under contractual licences outside the scope of AASB 15, but that the term ‘right to use’ in the context of AASB 16, as outlined in the Application Guidance of that Standard, is used in a different context to the term ‘right to use’ when accounting for revenue from the issue of IP licences addressed in AASB 15.
BC35 In this regard, the Board noted that it would expect most non-IP licences issued by NFP public sector licensors would not constitute ‘right to use’ identified asset type licences, and therefore would not fall within the scope of AASB 16 because:
(a) in most cases there would not be an underlying licensor’s asset involved in the arrangement (for example ‘right to perform’ type licences); or
(b) where a licensor’s asset is involved, it would be in the nature of ‘a capacity portion of an asset that is not physically distinct’ (a phrase used in AASB 16) and not an identified asset.
BC37 The Board decided to amend the scope paragraph of AASB 16 to ensure the interaction of AASB 15 and 16 is clear.
AASB 1059 Service Concession Arrangements: Grantors
AASB 1058 Income of Not-for-Profit Entities
AASB 15 Revenue from Contracts with Customers
BC41 AASB 15 applies to the accounting for revenue from contracts with customers, where the customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. Paragraph 26(i) of AASB 15 explicitly identifies licences as a possible good or service. The Board notes that although paragraph B52 states that a licence establishes a customer’s rights to the IP of an entity, and paragraphs B52 and B62 are written in the context of IP licences, paragraph 26(i)’s reference to ‘licences’ is not limited to IP licences.
BC42 The Board observed that in assessing whether non-IP licences could fall within the scope of AASB 15, non-IP licence arrangements would need to:
(a) constitute a contract with a customer;
(b) constitute goods or services; and
(c) be an output of the licensor’s ordinary activities.
The scope of ‘contract’
BC44 A key legal feature in distinguishing between rights and obligations created by contract versus those created under a statute is the assessment of whether the parties entered into the arrangement voluntarily. Arrangements imposed by statute (for example, taxation) are not contractual given that mutual voluntariness is lacking. However not all relationships prescribed by statute are this conclusive. The Board noted that for significant licences there is likely to be a specific contract put in place between the payer and payee that may operate in parallel with rights and obligations imposed by statute (eg gaming licences), however for other licences it is less clear whether they are contractual or statutory in nature.
BC45 The Board noted that regardless of whether an arrangement or relationship in question arises from a contractual or statutory basis, that arrangement only needs to create enforceable rights and obligations between the relevant parties for it to be appropriately considered within AASB 15. Provided that a NFP public sector licence is sufficiently enforceable, it should be within the scope of AASB 15. This is in line with the Board’s previous decisions in Appendix F to AASB 15, which states in paragraph F13 that the enforceability of agreements does not depend solely on their form.
BC46 The Board also noted that judgement may be needed to determine whether a licence is contractual or statutory in nature and that if the substance is the same, then similar accounting outcomes would be most consistent with the Conceptual Framework. This is also consistent to the approach in Appendix C of AASB 9 Financial Instruments where the scope of AASB 9 is extended to apply to statutory receivables of public sector entities on initial recognition.
The scope of ‘goods and services’
BC48 The Board also considered, in relation to a licence granting a right to perform an activity, whether the absence of a right to an asset of the licensor could preclude the right to perform an activity from constituting goods or services. In its deliberations, the Board noted that the legal meaning of ‘goods and services’, both under statute and general legal definitions, does not exclude the issuing of rights, whether related to an asset or otherwise, from constituting goods or services.
BC49 The Board also acknowledged the Canadian Public Sector Accounting Standards Board’s view that issuing of licences and permits would constitute goods or services, as proposed in Exposure Draft Revenue, Proposed Section 2400 in May 2017, as they could constitute exchange transactions.
The scope of ‘ordinary activities’
BC51 The Board considered whether the issue of a licence would be an output of the public sector entity’s ordinary activities. As AASB 15 does not define the meaning of the term ‘ordinary activities’, the Board noted the term is derived from the definition of revenue in the Conceptual Framework, particularly as distinct from other activities an entity may engage in. The Board regarded the activity of issuing licences as being within the ambit of ordinary activities carried out by a NFP public sector entity that is an issuing authority because issuing licences is a key responsibility of issuing authorities. Accordingly, the Board concluded that the issue of licences would be within the ordinary activities of a NFP public sector entity that issues such licences.
The Board’s conclusion on AASB 15
(a) it is conceivable that some licences are not outputs of ordinary activities; and
(b) future licencing arrangements might be developed that do not have the character of a ‘contract’, ‘goods or services’ or ‘ordinary activities’ in accordance with the Board’s current views.
Allocating a transaction between licences and taxes
BC54 Paragraphs F28–F32 of Appendix F of AASB 15 set out implementation guidance for NFP entities in allocating a transaction price where NFP entities enter into transactions with a dual purpose of:
(a) obtaining goods or services, which, in the context of this Standard, could be a licence element (accounted for under AASB 15); and
(b) to help the NFP entity achieve its objectives, which, again in the context of this Standard, could be a tax element (accounted for under AASB 1058).
BC55 Appendix F of AASB 15 requires the allocation be based on a rebuttable presumption that the transaction price is treated as wholly related to the transfer of promised goods or service (in the context of this Standard, the licence), where the rebuttal is premised on the arrangement being partially refundable in the event the entity does not deliver the promised goods or services (most commonly, a right to perform).
BC56 The Board noted the views that:
(a) if the price of a licence far exceeds the cost of the level of work required to satisfy the performance obligation, consistent with GFS accounting for licences (see paragraph BC24 above), the ‘excess’ over a reasonable price for the performance obligation may be a tax in certain circumstances; and
(b) if an arrangement contains variable consideration (eg a sales-based or usage-based royalty to provide the licensor with additional revenue where the licensee makes a ‘super-profit’), this component of the transaction price may be considered to be a tax in certain circumstances.
BC58 Accordingly, the Board decided that a transaction price should only be allocated between a licence and a tax when the rebuttable presumption in paragraph F29 of Appendix F is met, and the licence fee is partially refundable in the event that the licence conditions are not satisfied, indicative that there is an element that is a tax component as it is not refundable. In that instance the licensor should apply the guidance in paragraphs F28–F32 to disaggregate the transaction price and account for the component that relates to the transfer of a licence in accordance with AASB 15 (and any additional guidance contained in this Standard). The remainder of the transaction price, being the non-refundable component, is accounted for in accordance with AASB 1058.
BC60 Respondents to ED 283 agreed with the Board’s proposal to utilise the rebuttable presumption in Appendix F of AASB 15, however some raised concerns that the proposals did not always allow for the allocation between a licence and a tax where there is variable consideration. The Board was made aware of two scenarios where respondents believed that the variable component was not a sales-based or usage-based royalty, but instead a tax that should be eligible for disaggregation:
BC61 In the scenario noted in paragraph BC60(a), the Board noted that in accordance with the requirements in paragraph 17 of AASB 15, although there may be two agreements entered into by the licensor with the licensee (one for the licence and another labelled as ‘tax’), these agreements should be combined and considered as one ‘contract’ or arrangement (ie licencing arrangement) if they are entered into at or near the same time with the same customer and negotiated as a package with a single commercial (or regulatory) objective.
BC62 However, in the scenario noted in paragraph BC60(b), the Board observed there was an identifiable element that is a tax that can be readily separated. Noting that the rebuttable presumption is intended to make the accounting simpler for preparers (reducing the burden of determining how to split the elements of the transaction), the Board decided that where there is a readily identifiable generic tax element, it would not be onerous for an entity to disaggregate it. To give effect to this decision, the Board added an additional circumstance rebutting the presumption that the transaction price should not be allocated in paragraph G5(b) when there is other evidence supporting similar transactions effected through different structures are taxed.
Accounting for revenue from licences in accordance with AASB 15 – alternatives considered
BC63 The above has outlined the bases for the Board’s decisions about the types of arrangements entered into by NFP public sector entities that could be subject to the principles in AASB 15. The following outlines the bases for the Board’s decisions about how to give effect to those decisions.
What are the types of public sector licences?
(a) IP licences (which would be either a right to use or a right to access intellectual property);
(b) Non-IP licences involving rights over an asset or assets of the licensor; and
(c) Non-IP licences involving the right to perform an activity.
Applying specific guidance for IP licences in AASB 15 to various examples of licences
BC65 In ED 283 the Board considered whether the specific guidance for private sector IP licences in paragraphs B52–B63B of AASB 15 could be easily applied by analogy to examples of non-IP licences (that both involve a licensor’s assets and that involve a right to perform an activity). The Board noted that application of those paragraphs to IP licences appears relatively straight-forward because IP licences issued by NFP public sector licensors appear to align with those IP licences issued by for-profit entities. However, in relation to non-IP licences, the Board observed application of many of the requirements was more challenging. Challenges were particularly notable where the licence did not involve an asset of the licensor. In particular:
(a) many of the requirements (eg AASB 15 paragraphs B58–B59A, which are used to determine whether an IP licence transfers over time) require an assessment of whether the licensor’s activities significantly affect the IP (ie the underlying asset); and
(b) in the case of some NFP public sector non-IP licences, the licensor may conduct a number of actions throughout the licence period, such as monitoring licensees and their activities under their licences. However, the actions are performed more generally in the public interest. It is not clear whether these activities are undertaken to significantly affect the licensee’s rights granted by the licence. The specific guidance in Appendix B of AASB 15 for IP licences does not explicitly address this matter as it is not written from a NFP public sector perspective.
Example: fibre-optic cable
BC68 The Board considered whether the right to utilise a specified capacity within a fibre-optic cable connecting two cities was an example of a licence that provides a licensee a right to access or use a licensor’s asset. The scenario considered was based on Implementation Example 3 – Fibre-optic cable from IFRS 16 Leases (which was determined not to be a lease as it is not an identified asset), where a customer is provided with specified capacity equivalent to them having the use of three fibre strands within a cable. In that example, the supplier makes decisions about the transmission of data (eg lights the fibres, makes decisions about which fibres are used to direct the customer’s traffic and makes decisions about the electronic equipment that it owns and connects to the fibres). The Board concluded that the nature and extent of activities performed by the supplier meant that the supplier is effectively transmitting data for the customer. Therefore, the supplier is providing the customer with a service and the customer can benefit from the licence only in conjunction with that related service. Therefore, in accordance with paragraph 30, the licence is combined with the other goods or services and accounted for as a bundle of goods or services that is a single performance obligation.
Example: abalone/fish
BC71 The Board also observed that despite an arrangement being referred to as a licence, it might be in substance a ‘take or pay’ arrangement, and should be accounted for in accordance with the principles of AASB 15, with consideration of paragraphs B44–B47, which address customers’ unexercised rights. An example of this would be where a NFP public sector licensor issues a ‘licence’ that requires the licensee to pay for a specified quota of a good, regardless of whether or not the licensee subsequently chooses or manages to take the specified quota.
BC72 The Board asked a specific question in ED 283 to understand whether there were any examples of distinct non-IP licences involving an asset of the licensor. Respondents to ED 283 noted a small number, such as mooring licences and road occupancy licences, however the Board noted that the licences identified are not common examples, and would not represent a significant amount of an NFP public sector entity’s overall revenue from licences. The Board therefore decided that Standard-setting activities were not warranted, and that if a NFP public sector entity did happen to have a material amount of revenue from these licences, the guidance for non-IP licences involving a right to perform would be sufficient.
Options for amending AASB 15 to account for revenue from licences
BC73 The Board concluded that most licences issued by NFP public sector licensors are either IP licences or non-IP licences involving the right to perform an activity. Based on this, the Board observed that it would not be appropriate to simply apply the guidance for IP licences by analogy (due to the challenges for non-IP licences involving the right to perform an activity noted in BC65, but instead analysed four possible options for prescribing the accounting for revenue from licences issued by NFP public sector licensors. A summary of the options considered by the Board is detailed below:
| Option 1 | Option 2 | Option 3 | Option 4 |
What is it? | All licences: (i) Apply (unamended) principles from paragraphs B52 to B63B in AASB 15 (ii) Add implementation guidance and examples to help licensors apply (i) to all licences | (i) IP licences: Apply principles from paragraphs B52 to B63B in AASB 15; (ii) Non-IP licences: Develop guidance based on general principles from AASB 15; and (iii) IP and non-IP licences: Add implementation examples to help licensors apply (i) and (ii). | All licences: Practical expedients, being any one, or a combination of the following: (i) Recognise revenue for all licences (IP and non-IP) at a point in time (upfront when licence is issued); (ii) Recognise revenue for all licences (IP and non-IP) over time[2]; (iii) Recognise revenue for all short-term licences (≤1 year) at a point in time (upfront) and all long-term licences (>1 year) over time2; or (iv) Recognise revenue for all low-value licences at a point in time (upfront) and all high-value licences over time.2 | All licences: Split all licence transactions between a licence and a tax (consistent with GFS accounting for licences and taxes), where the reasonable price for the performance obligation is considered a licence and accounted for under AASB 15 (which may need specific guidance) and the ‘excess’ over the reasonable price for the performance obligation is considered a tax and accounted for under AASB 1058. |
Likely revenue recognition outcome |
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Accounting for revenue from licences under AASB 15 – the chosen option
BC75 The discussion below sets out the Board’s rationale in effecting the chosen option, including the principles of AASB 15 for which the Board decided to develop guidance.
BC1
Recognition exemptions for low-value and short-term licences
BC76 As noted in paragraph BC74, the Board proposed practical expedients for low-value or short-term licences in ED 283 consistent with the precedent in AASB 16. This included providing guidance for applying the requirements to low-value licences, but not short-term licences (nor did the Board propose a definition of a ‘short-term licence’). The majority of respondents to ED 283 supported the provision of practical expedients for short-term and low-value licences. However, several respondents requested the Board provide more guidance and examples on:
Short-term licences
BC77 In considering the issue raised in paragraph BC76(a), respondents explained that ‘short-term’ is used in a number of Standards inconsistently. For example, AASB 16 refers to a ‘short-term lease’ as a lease term of 12 months or less at the commencement date, AASB 119 Employee Benefits refers to employee benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period and AASB 107 Statement of Cash Flows refers to a maturity period of three months or less. The Board therefore decided that adding a practical expedient to AASB 15 for NFP public sector licensors without a definition could result in application issues and disparate accounting outcomes. Consequently, consistent with the decision to use the recognition exemptions in AASB 16 as a precedent, the Board decided to define ‘short-term licences’ as a licence that has a term of 12 months or less.
BC78 The Board observed that, in accordance with AASB 16, the term of a lease would take into account a reasonably certain expectation that a lessee would exercise an option to extend or terminate the lease. The Board considered whether this principle should be reflected in this Standard. The Board noted its expectation that an option typically would modify the scope, or the consideration for, the licence, and therefore would be accounted for as a new licence in accordance with paragraph Aus8.4. Nonetheless, for the removal of doubt and to simplify the recognition exemption, the Board decided to specify that an entity need not consider options to renew a licence in determining the lease term.
Low-value licences
BC79 In considering the issue raised in paragraph BC76(a) the Board included examples of low-value licences in ED 283, including driver licences, marriage licences and working with children permits. The Board decided that it would not be appropriate for it to provide a more prescriptive list of examples, nor quantify when a licence would be of low-value, as the Board preferred to utilise a principle rather than a rule.
BC80 Noting the intended consistency with the principle for short-term leases in AASB 16, the Board considered IFRS 16 paragraphs BC98–BC104, which set out the IASB’s considerations in developing this type of recognition exemption. The Board took particular note of IFRS 16 paragraph BC100, which states “… at the time of reaching decisions about the exemption in 2015, the IASB had in mind leases of underlying assets with a value, when new, in the order of magnitude of US$5,000 or less ...”. The Board reaffirmed its decision that entities should apply the recognition exemption for low-value licences consistent with the precedent set in AASB 16, with the exception that licences with variable consideration could not be considered low value, given the possible fluctuations in value means it is uncertain that they ultimately will be low value.
Application to arrangements that are both short-term and low-value
BC81 In relation to paragraph BC76(b), the Board noted that, consistent with AASB 16, a licence only has to be one of either short-term or low-value (or both) to be eligible for the practical expedients, however decided not to amend the drafting of the exemption, noting it is presented in a manner consistent with the practical expedients in paragraph 5 of AASB 16. The Board noted that amending the wording of the exemption might cause inconsistency between Standards where the same outcome is intended, and might consequently lead to application issues.
Low-value licences that have a high volume of transactions
BC82 In relation to paragraph BC76(c), respondents raised concern that this might have led to inconsistency as the licensor is provided with a choice of the systematic basis upon which it will recognise revenue. However, the Board observed that because the licences in question would be expected to be issued at a high volume consistently over time, the recognition of revenue would also occur consistently over time, and the Board did not consider that the information provided to users of financial statements would be misleading.
Application to NFP public sector IP licences
(a) it preferred consistent treatment of all licences within the NFP public sector, noting that IFRS compliance is not a primary objective for the NFP public sector; and
(b) this would reduce the need for public sector preparers to apply judgement to determine whether their short-term and low-value licences are related to IP or non-IP (which would usually not be of great materiality, if at all).
Applying the principles of AASB 15 to non-IP licences
(a) serve to maintain confidence in the services, systems and operations of the licensee, upon which the commerciality of the arrangement is underpinned; and
(b) if not performed would substantially detract from the commerciality of the arrangement.
BC85 In considering this feedback, the Board observed its original decision to apply the principles of AASB 15 to non-IP licences, and specifically noted its decision that, when accounting for non-IP licences, the licensor should disregard the guidance for IP licences in paragraphs B52–B63B. Consequently, the Board analysed the requirements of paragraphs 22–30 to the examples of activities provided by the licensor in paragraph BC84 to determine whether those activities would be considered performance obligations to the customer in accordance with AASB 15.
Identifying performance obligations
Identifying the customer
BC86 The Board noted that the customer in the licensing arrangement is the licensee and activities undertaken for the benefit of the general public would not be a transfer of goods or services to the customer (ie not performance obligations to the customer) under the general principles of AASB 15. Accordingly, the Board decided it was not necessary to amend the proposals in ED 283 in respect of this issue.
Identifying what is a good or service
BC87 As noted in paragraphs BC47–BC50, the Board considered that issuing a right to perform would constitute a good or service for the purpose of AASB 15. The Board noted that a right to perform an activity might also have attributes attached, such as exclusivity. The Board noted that upholding the exclusivity of the right to perform that activity over the term of the licence would not be a separate good or service (and thus a performance obligation) as it does not transfer anything extra to the licensee than the original licence they received on day 1. In other words, exclusivity is an attribute and within the boundary of the licence (the good or service) that has been promised to the licensee. Therefore any activities to set up or maintain these exclusivity conditions are not performance obligations.
Satisfaction of performance obligations
BC90 The Board observed that an entity would be required to apply the requirements of paragraphs 31–45 to determine whether the control of the non-IP licence (most commonly a right to perform) is transferred at a point in time or over time. The Board considered that some non-IP licences might be structured such that the licensor has the right to change the rights issued in the licence at any time (ie change the right to perform at any time), which may indicate that the licensee does not control the same licence over the term of the licence, and hence control is transferred over time. The Board considered whether it should provide additional guidance to help licensors make this assessment, but decided it would not be necessary to do so as, in the Board’s view:
(a) the principles and existing guidance in AASB 15 are sufficient for NFP public sector licensors to apply the Standard;
(b) the quantitative magnitude of licences issued by NFP public sector entities do not appear to constitute a significant portion of public sector revenue for the Board to develop public sector specific guidance on this aspect of AASB 15 that, in the context of IFRS compliance and transaction neutrality, might have unintended implications for private sector entities applying AASB 15; and
(c) the facts and circumstances of NFP public sector licences differ significantly, and providing specific guidance on this aspect of AASB 15 might inadvertently encourage licensors to draw conclusions without considering their specific facts and circumstances sufficiently.
BC91 The Board also reaffirmed its view that in majority of instances, a right to perform a licenced activity would not change over the licence term, because as soon as the licensor has issued the licence, the licensee would be able to direct the use of and obtain substantially all of the remaining benefits from the right to perform the licenced activities (ie the licensee controls the same right to perform the licenced activities throughout the term of the licence). Hence, control would be passed on the day the licence is issued for the entire term of the licence, and revenue would generally be recognised at a point in time.
Providing a rule to recognise revenue over time
BC92 In progressing ED 283, the Board also gave consideration as to whether it should provide a specific rule for all licences to be recognised over time (ie revisiting option 3 from paragraph BC73).
BC93 Based on the analysis in paragraphs BC87–BC89, the Board decided that exclusivity and monitoring activities do not represent a performance obligation in accordance with AASB 15. Therefore, the Board observed that if it were to address comments from constituents that such activities should represent a performance obligation (and hence be satisfied over time), the Board would need to create a rule divergent from the principles of AASB 15.
BC94 The Board noted that in AASB 1059, under the ‘grant of a right to the operator’ (GORTO) model, the licensor is effectively licencing the operator to use the service concession asset. The Board noted its consideration of applying the IP licensing guidance in AASB 15 to account for these arrangements in the scope of AASB 1059, but instead decided to require revenue to be recognised over time under the GORTO method. The Board also observed that a licensor is required to perform certain monitoring activities in a service concession arrangement, such as identifying non-paying vehicles and in the collections of non-payment toll fares.
BC95 The Board considered whether this set a precedent to provide a rule for non-IP licences to be recognised over time. However, the Board noted fundamental differences between service concession arrangements and non-IP licences. A service concession arrangement provides an operator with a right to access an asset that is controlled by the public sector. A licence is a right to use IP or non-IP that is not captured by AASB 16, or a right to perform, which provides significantly more control of the asset or the right to perform to the licensee, than is provided in a service concession arrangement. In a service concession arrangement, the public sector grantor capitalises an asset as part of the arrangement as it is considered a financing transaction in substance, and not a licence. The Board considered that recognising revenue immediately (rather than a liability) on the recognition of a service concession asset at fair value being current replacement cost did not reflect the economic substance of the arrangement and would overstate current year financial performance and the financial position when the right to charge users of the asset has been transferred to the operator, as current replacement cost would not reflect that the future cash flows attributable to the asset had been given up by the grantor. This would not be the case for licensing arrangements as the licensor would not, in most cases, be recognising the asset giving rise to the licence in its financial statements. Accordingly, the Board does not consider it appropriate to analogise to service concession arrangements when considering the treatment of licences.
BC96 On balance, the Board decided that AASB 1059 had not set a precedent for a rule for licences, as revenue is recognised over time for reasons specific to service concession arrangements. The Board also noted that the majority of non-IP licences would be addressed by the practical expedients for short-term and low-value licences. Further, the Board noted that the disagreement with the application of AASB 15 (noted in paragraph BC84) related primarily to casino and gaming licences. The Board observed that the prevalence and magnitude of such types of licences did not require specific treatment, in accordance with The AASB’s Not-for-Profit Entity Standard-Setting Framework. The Board made this assessment at the jurisdictional level, observing that casino and gaming licences typically are issued by treasuries or departments of finance, with administering agencies accounting for such licences as administered items. In light of this the Board decided that the underlying principles of AASB 15 are appropriate for the recognition of revenue from non-IP licences, and it did not find a justifiable reason to diverge from its policy on transaction neutrality.
Variable consideration
BC98 Feedback from respondents on this question was mixed. A number of respondents supported the Board taking a transaction neutral approach to accounting for variable consideration (ie applying the general requirements in AASB 15). However many of these respondents also noted they did not issue licences that involved variable consideration. In contrast, some respondents that do issue licences with variable consideration noted the practical difficulties in applying the general requirements in AASB 15 (such as estimating the consideration and the significant adjustments that would be required) and therefore preferred applying the specific requirements in paragraphs B63–B63B for variable consideration of IP licences.
BC99 However, the Board observed that difficulties in estimating variable consideration was only brought to the Board’s attention in the context of long-term licences, such as casino licences. As noted in paragraph BC4, the Board observed that the quantitative magnitude of this type of licence is not of significant materiality. Additionally, outreach with users of NFP public sector financial statements confirmed that the variable component of these types of licences is not material to their decision-making.
BC100 On balance, the Board decided that it was not justifiable (given user needs were addressed), nor sufficiently significant (given the quantitative magnitude) to warrant departure from its policy of transaction neutrality, and reaffirmed its decision to require variable consideration in non-IP licences to be accounted for in accordance with the general principles of AASB 15.
Effective date and transition
BC101 In developing this Standard, the Board was cognisant that the accounting for revenue from licences issued by public sector licensors would preferably be clarified prior to 1 January 2019, which is the mandatory application date of AASB 15 and AASB 1058 for NFP entities. The Board considered whether the issue of this Standard would be too close to its effective date, and not provide preparers enough time to consider its requirements. However, the Board discussed this with various preparers during its outreach on ED 283, who confirmed that it would be more useful to apply AASB 15 and AASB 1058 for the first time with the guidance, rather than applying the Standard by analogy. Accordingly, the Board decided that the effective date of this Standard should be 1 January 2019 (consistent with AASB 15). The Board also decided that additional transitional relief was not required beyond that already provided in AASB 15.
GAAP/GFS convergence
BC102 The Board discussed implications of its decisions on generally accepted accounting principles (GAAP) and GFS harmonisation. As noted in paragraphs BC24 and BC25, the key difference between GAAP and GFS that may arise is where the cost of administrative activities related to the issue of a licence is clearly out of proportion to the revenue, the revenue would be classified as a tax (under GFS) instead of a licence (under GAAP). Therefore, where the cost to issue the licence is proportionate to the expenditure of the licensor, the licence would be classified as a licence, which is ultimately described as sales of goods and services under GFS. The Board noted (based on advice in the ABS’s comments on ED 283) licences that might be subject to different classification would include casino and taxi licences, for which the timing of income recognition under GFS and GAAP would likely be aligned.
BC103 The Board considered its policy on GAAP/GFS harmonisation. Consistent with the rationale provided in paragraph BC25, and consistent with AASB 1058, the Board considered that it was not appropriate to amend its decisions reflected in this Standard in order to achieve full GAAP/GFS harmonisation. The Board also noted that the key difference is caused by a difference in the Board’s view of a tax (and the definition of a tax in AASB 1058), and the underlying principles to distinguish licences from taxes in the GFS Manual. Further, some differences could only be addressed by making changes to the underlying principles in AASB 1058 and AASB 15. The Board noted that AASB 1049 Whole of Government and General Government Sector Financial Reporting requires entities to identify and explain any differences arising from different requirements in GAAP as compared to GFS.
[1] AASB 1058 defines taxes as “Economic benefits compulsorily paid or payable to public sector entities in accordance with laws and/or regulations established to provide income to the government. Taxes exclude fines.”
[2] As a further practical expedient, rather than requiring the licensor to apply paragraphs 39–45 of AASB 15 to select an appropriate method to measure its progress towards complete satisfaction of its performance obligation under the licence, revenue could be recognised using a systematic basis over the licencing period (eg on a straight-line basis).