AASB – Recognising The Financial Impact Of Voluntary Services
Non-public sector Australian not-for-profit (NFP) entities will soon have the option to recognise the benefit of voluntary services received in their profit or loss account. What does this mean for those in the sector, and should boards be considering implementation of this choice?
Following on from Hayley article on Peppercorn Leases in the Summer 2019 edition of Clarity, we look to explore another aspect of AASB 1058, that of voluntary services received. The standard applies to annual reporting periods beginning on or after 1 January 2019 but can be early adopted so long as AASB 15 is also implemented for the same period.
What does the new standard allow?
One of the key provisions that the standard brings is to allow entities to account for the fair value of volunteer services as income within profit or loss. This becomes an accounting policy choice and entities can account for all services or just particular classes of service in this way. Entities need to consider both those services that they have received for free and those for which they have paid significantly less than fair value.
These voluntary services can only be recognised if the fair value of the service received can be measured reliably. It should be noted that while this is an accounting choice for most NFPs, it will remain mandatory for certain public sector entities in line with the existing requirements of AASB 1004.
Some voluntary services will be clearly identifiable, such as pro bono accounting or legal advice received. But entities will have to consider all of the other services they receive and for some entities, this is expected to be quite difficult.
How are these accounted for?
It is anticipated that in most cases, the economic benefit of these volunteered services would be consumed as the services are acquired and so an equal charge would be shown in profit or loss which would negate any profit impact for a given period. However, in some circumstances, entities may be led to recognising additional assets where relevant recognition criteria are met.
As many NFP entities rely heavily on donated services to achieve their goals and objectives, it is thought that the provisions of this standard will result in more useful and relevant financial information for users. However, boards must carefully weigh the costs and burden of recording and calculating the required information with the benefits to be received.
What should entities be doing?
For entities with the greatest number of donated services, the burden of keeping track and performing appropriate fair value assessments will also be great.
Ultimately the additional information provided by these optional disclosures is expected to benefit users of financial statements and where there is little cost in obtaining that information, it would seem reasonable for boards to provide the additional disclosure. Where boards are less sure of the burden of providing the additional information, they may wish to consider discussing the voluntary services received in the trustees’ report whereby more information can be provided to stakeholders but perhaps under a less strict framework.
Should you wish to explore the options above further, please contact your local PKF office.