A NFP entity can apply the new revenue and income standards in one of two ways, either:

• retrospectively, whereby comparative periods are adjusted to reflect recognising income as if the standard always applied (retrospective approach); or
• retrospectively with the cumulative effect of initially applying the standard recognised directly in equity at the date of initial application (DIA) (cumulative approach). 

The completed contracts practical expedient is available under both transition methods.

Under the retrospective approach the NFP does not restate contracts that are completed at the beginning of the first comparative period presented.

Under the cumulative approach, the NFP does not restate contracts that are completed at the DIA.

Under the NFP income standard, AASB 1058 Income of Not-for-Profit Entities, a completed contract is a contract or transaction for which the NFP has recognised all of the income in accordance with AASB 1004 Contributions.

Under the new revenue standard, AASB 15 Revenue from Contracts with Customers, a completed contract is a contract for which the entity has transferred all goods and services identified under AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations.

Consider an NFP entity with a 30 June financial year-end. On 1 October 2018 the NFP received a two-year grant to fund health initiatives – which are seen as furthering the NFP’s objectives. The initiative details are clearly specified – there are detailed requirements for the use of the funds. Funds are repayable if not expended as intended.

AASB 1004 required an assessment of whether the grant was reciprocal or non-reciprocal in nature, which determined when the income was recognised. This assessment would then impact whether or not a completed contract exists as follows.

Where a contract is not a completed contract, the NFP will need to reassess the contract to determine the standard to apply: the NFP income standard or the new revenue standard. This will include assessing whether the contract is enforceable, and if sufficiently specific performance obligations are able to be identified.

Have you decided which transition approach you will apply? Have you determined which of your contracts or transactions are completed contracts? If not, start now.

If you wish to discuss this further, or any other aspects of the implementation of NFP income and revenue, please contact your KPMG adviser or the contacts on this page.