Australian Accounting Standards are changing!

A few key Australian Accounting Standards are changing and are mandatory for NFPs for reporting periods beginning on or after 1 January 2019. This is a year later than for other entities but NFPs can choose to ‘early adopt’ and Accounting For Good has already done our first implementation for a client. The Standards are:

I won’t bore you with the detail - more to the point, there is an awful lot of detail that isn’t possible to condense into a short article - but I will share a few links to some documents that might be helpful as you explore how and when to apply the new Standards:

  • The Australian Accounting Standards Board and BDO have collaborated on an FAQ that provides some guidance on which standard to apply in particular circumstances.

  • CPA Australia has a helpful Q&A document which provides some examples along with reference to specific examples in the Standards.

  • BDO have a series of webinars, many presented in a very accessible way by Aletta Boshoff.

One of our clients has opted to adopt early so we’ve had our first effort at reclassifying the accounts to meet the new Standards. In this case, the effort related to the organisation’s office lease and AASB 16’s requirement to recognise a “right of use asset”.

AFG Account Manager, Carol Tran, described what was involved below: 

“In this client’s case, we needed to create a “right of use asset” for their office lease. To calculate this you need to have your lease contract handy, know the full term of the lease and the rate of increase built into the lease each year. You then calculate the full amount of rent payable over the full term of the lease and then discount back to today’s value to give you the value of the right of use asset. While this creates a big increase in assets, it is offset by liabilities (current and non-current) so while the bottom line of your Balance Sheet doesn’t change, some of the ratios you use in reporting might. Note that accounting for the lease in this way does not change the actual rent expense you will record. Our client was paying a commercial rent at market value but “peppercorn” leases will be an issue for many NFPs under AASB 1058. BDO has an article on this here."

If you are paying below-market rent, you will need to first get a valuation of the market value of your lease and then determine the length of the contract so that you can go through the exercise Carol described above. In some cases the lease term might be explicit but we imagine others may have less formalised arrangements where this may not be clear. The other piece of information you’ll need is a rate of increase, which might completely absent from any agreement you have in which case it would be best to consult your auditor.

We didn’t need to adjust revenue for our client as the requirements of the new Standards are largely in line with how we have always treated revenue, especially in relation to grants - the unspent portion of the grant is held as a liability until the work is done/performance obligation is met and then the matching portion is recognised as revenue. AFG doesn’t anticipate much change for organisations that have treated grants on an accruals basis.

Mandatory application starts next financial year - for calendar year financial periods it applies in the period 1 January 2019 to 31 December 2019, and if you have a June balance date it applies in the period 1 July 2019 to 30 June 2020.

If you need help sorting through the detail or kickstarting the process, please give us a call on 02 9370 6200 or email support@accountingforgood.com.au.