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19RU-016 Research grant deferral for NFPs

19RU-016 Research grant deferral for NFPs

The AASB has decided to defer the application of AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities to research grants by not-for-profit entities by 6 months from periods beginning on or after 1 January 2019 to periods beginning on or after 1 July 2019, with earlier application permitted.

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What is being deferred?

At its November 2019 board meeting, the Australian Accounting Standards Board (AASB) decided to defer the application of AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities to research grants for all not-for-profit (NFP) entities to 1 July 2019, with earlier application permitted.

NFPs are required to apply the new revenue and income standards, AASB 15 and AASB 1058, for financial years beginning on or after 1 January 2019. 

This deferral means that NFP entities having a 31 December 2019 financial year end will not apply AASB 15 and AASB 1058 to research grants. NFPs will still need to apply the standards to other relevant arrangements for 31 December 2019. An NFP can elect to early adopt the standards to research grants.

It is expected that entities with 30 June year ends will be required to apply the standards to all transactions and arrangements in their 30 June 2020 financial statements.

Expected timing of the amending standard

The amending standard is expected to be issued by the end of the year.

Why the deferral?

There are continuing divergent views on revenue recognition for research grants by NFP entities. The deferral has been provided to allow time for further education to address this issue.

There is no intention to change the standards. This is evidenced by the AASB deciding, in the same November 2019 meeting, to proceed with the amendments to the illustrative examples (Examples 4A and 4B) proposed in the Fatal-Flaw Review draft, and to add Example 4D (previously Scenario 2A in the Staff FAQs) to illustrate additional contract features to help entities in implementing AASB 15.

Practical considerations

How is research grant defined?

We understand that no definition of “research grants” will be provided. There will therefore be judgement around arrangements that this deferral will apply.

 “We recommend entities be transparent in disclosing how it identifies and assesses the research grant arrangements to which they apply this deferral.” 

Kim Heng
Partner, Department of Professional Practice

What accounting policies should be applied?

Where an NFP does not apply the requirements of AASB 15 and AASB 1058 to research grants it will continue to apply AASB 1004 Contributions or AASB 118 Revenue, depending on whether the research grant is reciprocal or non-reciprocal in nature. That is, it will continue to apply its existing accounting policies for research grants.

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