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There are two new revenue standards to be applied in the financial report for 30 June 2020, AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of NFP Entities.

The issues arising from COVID-19 are unlikely to impact any revenue streams in the scope of AASB 1058, however there are some considerations for revenue streams in the scope of AASB 15.

AASB 15 has introduced a five-step process for recognising revenue.

COVID-19 issues may arise due to the following:

  • Step 1 – is a contract still enforceable? There has been a significant number of cancelled contracts and refunds being provided through a customary business practice rather than any statutory obligation.  Force majeure clauses in contracts may also mean they are no longer enforceable in the current environment and therefore, these contracts may be outside the scope of AASB 15.
  • Step 3 – revenue is recognised based on the best estimate of the consideration – where there are KPI’s in the contract, this best estimate may need to be changed which may cause adjustment to the revenue recognition model.
  • Step 5 – if revenue is being recognised over time and work performed is being delayed, this could affect the timing of transfer of control and therefore revenue recognition.
  • Capitalisation of costs or contract assets – the recoverability of these assets capitalised in accordance with AASB 15 will need to be considered. Refer to impairment discussion above.

When councils or their subsidiaries receive any stimulus payments from the State or Federal Governments, the terms and conditions of the payments need to be carefully considered to determine the appropriate accounting treatment.