Financial Reporting for ACT Government Agencies: AASB 15 and AASB 1058 Compliance, Study Guides, Projects, Research of Accounting

Download Financial Reporting for ACT Government Agencies: AASB 15 and AASB 1058 Compliance and more Study Guides, Projects, Research Accounting in PDF only on Docsity! 1 GUIDANCE PAPER: REVENUE DISCLOSURES AND WORKPAPERS Chief Minister, Treasury and Economic Development Directorate Policy start date: June 2021 2 TABLE OF CONTENTS 1. INTRODUCTION ....................................................................... 3 1.1 APPLICATION ............................................................................................. 3 1.1.1 Background ........................................................................................................... 3 1.1.2 Agencies Covered by this Policy ........................................................................... 3 1.1.3 Contact ................................................................................................................. 4 2. DOCUMENTATION OF REVENUE ASSESSMENT AND WORKING PAPERS .......................................................................................... 4 2.1 Question 1 – Identifying a Contracts ......................................................... 6 2.2 Question 2 – Enforceable Contracts .......................................................... 7 2.3 Question 3 – Performance Obligations ...................................................... 8 2.4 Question 4 – Retention of Goods and Services .......................................... 9 2.5 Question 5 – Donation Component ......................................................... 10 3. ADDITIONAL DISCLOSURE GUIDANCE .................................... 10 3.1 Disclosure Requirments included in AASB 15 ....................................... 10 3.2 Disclosure Requirments included in AASB 1058 ................................... 11 ATTACHMENT A – 2020-21 MODEL FINANCIAL STATEMENT DISCLOSURES FOR REVENUE ......................................................... 14 5 Sections 2.1 to 2.5 outline more questions that the Finance Team can ask contract managers and business units in their agencies so they can get the relevant information they need to appropriately disclose the nature of their revenue in the financial statements. It is important that the contract managers and business units are asked the right questions in relation to the contracts they look after because these staff will generally not have the necessary Accounting Standard knowledge to provide the required information. Checklists are included at Attachment B and Attachment C which agencies can use when contacting contract managers and business units to assist in gathering information to assess revenue and make the relevant disclosures. It is important to note that a checklist will need to be completed for each material type of contract/agreements or revenue. For example, if an agency has 25 contracts/agreements with varying terms and conditions that could result in different revenue recognition, agencies will need to assess all 25 contracts (or related groups) and have checklists for all of them. Use of a singular checklist will only be applicable if the different revenue or contracts/agreements have the same terms of recognition, which will need to be demonstrated. In future years the checklists should be used to ascertain whether there are new contracts/ agreements/legislation, or changes to these from prior years, which may result in different revenue recognition. An assessment of contracts should be done annually, in this respect. 6 CHART 1: Decision Tree for whether to apply AASB 15 or AASB 1058 to a transaction (other than volunteer services) Enforceable Contract? Entity retains specified goods or services for own use (i.e. no customer)? Material donation component (i.e. consideration significantly less than the fair value of the asset principally to enable entity to further its objectives)? Note: there may still be a component in the contract for AASB 15 and therefore both standards can apply Apply AASB 15 Recognise revenue as the performance obligations are satisfied. Apply AASB 1058 Recognise asset and credit entry per relevant accounting standards. Yes No No Yes No No Enables entity to acquire or construct a non-financial asset? Recognise as income. Recognise as liability; Recognise as income as the performance obligations are satisfied. Yes No Performance Obligations sufficiently specific? Yes Yes 7 2.1 QUESTION 1 – IDENTIFYING A CONTRACT It is important all relevant contracts are identified so that a thorough assessment can then be undertaken so that agencies are not understating their revenue. Where relevant contracts are not identified then revenue is not recognised appropriately. The identification of all contracts can be difficult, but by engaging with relevant contract managers and business units within your agency, the Finance Team will be able to put together a comprehensive list of contracts/agreements the agency has with its customers. The Finance Team should write to business units at least annually requesting information about the contracts/agreements with customers they hold. The Finance Team needs to assess whether there is a contract with a customer or is the revenue a result of a charge under legislation. The Finance Team should also look at any new contracts and changes to existing contract terms and conditions each year to assess the impact on existing revenue or whether this results in new revenue. 2.2 QUESTION 2 – ENFORCEABLE CONTRACTS The term ‘contract’ refers to an agreement with another party that creates enforceable rights and obligations. An agreement may be enforceable ‘through legal or equivalent means’. For an agreement to be enforceable by the other party 'through equivalent means', there must be a mechanism outside the legal system that establishes the right of a separate party to oblige the agency to act in a particular way or be subject to consequences. Not every requirement in an agreement needs to be enforceable by legal or equivalent means for the agreement to be enforceable, as long as some enforceable obligations of the entity arise from the agreement. The enforceability of agreements does not depend on their form. For example, documents such as Memoranda of Understanding, Heads of Agreement, Letters of Intent or an email confirmation can constitute enforceable contracts regardless of clauses in the agreement stating that they are not legally enforceable. Oral agreements may also be enforceable, and as such there does not necessarily need to be a written documented contract or agreement for there to be an enforceable contract. A contract could still be enforceable despite a lack of history of enforcement and despite the customer’s intention not to enforce. The customer’s intent not to enforce is at its discretion and does not affect their right to enforce. Enforceability depends on the customer’s capacity to enforce. For example, a number of Commonwealth National Partnership Agreements explicitly state that the parties do not intend for the provisions of the agreement to be legally binding. These agreements may nonetheless be deemed to be enforceable given the parties’ commitment to the terms and conditions of the agreements. For agencies enforceability mechanisms may arise from administrative arrangements or statutory provisions such as a directive from a Minister to an ACT government agency. The arrangement does not need commercial substance, instead only economic substance is required (for example the arrangement gives rise to substantive rights and obligations for the parties). Where the contract does not contain explicit enforcement rights, then asking the following questions can assist in the determination of enforcement rights: • Is there agreement between 2 or more specifically identified parties? • Is the contract an enforceable agreement? 10 2.5 QUESTION 5 – DONATION COMPONENT Customers may enter into contracts/agreements with agencies with a dual purpose of obtaining goods and services from the agency as well as assisting the agency to achieve its objectives by providing a donation. In such circumstances, the transaction price needs to be split and: • The portion that relates to the transfer of the promised goods and/or services be accounted for as a contract with a customer in accordance with AASB 15; and • The balance of the transaction price (donation component) be accounted for in accordance with AASB 1058, which normally requires such amounts to be recognised as income immediately. These are some questions that the Finance Team can ask contract manages and business units in order to determine whether a component of the transaction price is not related to the promised goods or services, and therefore may be in the nature of a donation: • Is the component non-refundable? • Is the consideration promised as part of a fund-raising event? • Is the consideration increased specifically for the purpose of making a donation? • Is there a substantial difference between the consideration and stand-alone selling price of the delivered good/service? If the donation component is not material at the individual contract level, agencies need not account for it separately. 3. ADDITIONAL DISCLOSURE GUIDANCE The objective of disclosures is to provide sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows (AASB 15 para 110), or where entities acquire an asset for consideration that is significantly less than fair value (AASB 1058 para 23). Disclosures should include (AASB 101 para 122): • The fact that significant assumptions, judgements and estimates were made; • The nature of the significant assumptions, judgements and estimates; and • How these were made. 3.1 DISCLOSURE REQUIRMENTS INCLUDED IN AASB 15 The disclosure requirements under AASB 15 Revenue from Contracts with Customers are outlined in paragraphs 110 to 129. Agencies should review these paragraphs in AASB 15 to ensure that they are complying with all these disclosure requirements. Both quantitative and qualitative information should be disclosed about: • Contracts with customers (AASB 15 para 113 to 122); • Significant judgements and changes in those judgements (AASB 15 para 123 to 126); and 11 • Any asset recognised from the costs to obtain or fulfil a contract with customers (AASB 15 para 127 and 128) Information regarding contracts with customers information should include: • Revenue recognised from contracts with customers separately from other sources of revenue; and • Any impairment losses recognised (AASB 9) on any receivables or contract assets arising from contracts with customers. The revenue from contacts should be disaggregated into categories depicting the nature, amount, timing and uncertainty of revenue and cash flows. Examples of categories that might be appropriate may include (AASB 15 para B89): • Types of goods and services; • Markets or types of customers; • Types of contracts; • Contract duration; • Timing of transfer of goods; and • Sales channels. When determining which of these categories are most appropriate, agencies should consider the information that is released in the annual report, information reviewed by chief decision makers when they evaluate the financial performance of the Agency and any other information that the agency has made public throughout the year (AASB 15 para B88). Model disclosures have been included at Attachment A within Note 5 Sales of Goods and Services from Contracts with Customers, to give agencies an example regarding how they could disclosure their categories of revenue from contracts. Note that Note 7 Investment Revenue and Note 8 Other Revenue generally also contain revenue recognised under AASB 15. 3.2 DISCLOSURE REQUIRMENTS INCLUDED IN AASB 1058 The disclosure requirements under AASB 1058 Income of Not-for-Profit Entities are outlined in paragraphs 23 to 41. Agencies should review these paragraphs in AASB 1058 to ensure that they are complying with all these disclosure requirements. Agencies are required, under this standard, to disclose sufficient information to enable users of financial statements to understand the effects of volunteer services and other transactions where an agency acquires an asset for consideration that is significantly less than fair value principally to enable the agency to further its objectives (AASB 1058 para 23). AASB 1058 also includes income arising from statutory requirements (such as taxes, rates and fines) and agencies are required to disclose categories of income that reflect how the nature and amount of income (and the resultant cash flow) are affected by economic factors. For each class of taxation income that cannot be measured reliability, taxation revenue disclosures should include (AASB 1058 para 30): • Information about the nature of the tax; • The reason(s) why the income cannot be reliably measured; and • When the uncertainty might be resolved. 12 AASB 1058 para 24 encourages agencies to only highlight the most useful information so that it is - aggregated where there is a large volume of insignificant detail, and - disaggregated when substantially different characteristics exist Income categories shall be disaggregated into categories reflecting significant income streams including: • Appropriations o Controlled Recurrent Payment • Grants and contributions, including: o Resources Received Free of Charge; o Volunteer Services; o Donations of Cash; o Donations of Property, Plant and Equipment; and o Capital Grants. Specific Disclosures for Appropriation There are a number of specific disclosure requirements relating to appropriation that are required to be included in the financial statements. In the Model these disclosures are included in the Statement of Appropriation. These disclosure requirements include: • Summary of controlled recurrent payments (CRP), capital injection (CI) and expenses on behalf for the territory (EBT) authorised for expenditure disclosing separately; o The original amounts appropriated; o The total of any supplementary amounts appropriated; o Amounts authorised other than by way of appropriation (e.g. by the Treasurer, other Minister or other legislative authority including financial instruments); • The expenditures in respect of each of the above items; and • Reasons for any material variances between the amounts appropriated and the resulting associated expenditures, and any financial consequences of unauthorised expenditure (AASB 1058 para 39). Specific Disclosures for Grants and Contributions Qualitative information should be provided by major class of transaction, about the nature of the agency’s dependence arising from volunteer services including those not recognised and inventories held but not recognised as assets during the period (AASB 1058 para 27). Capital grant disclosures should include: • Opening and closing balances of financial assets received and associated liabilities arising from capital grants; • Income recognised during the year from reduction of the associated liability; • Information about obligations under the capital grants, including a description of when the obligations are typically satisfied; 15 Territorial Statements Statement Details Statement of Appropriation This Statement is not included in the Paper. - Not included as there is no additional wording required. - Agencies should follow disclosures in the 2019-20 Model Financial Statements. Territorial Notes Note No. Note Name Details Note 51 Payment for Expenses on Behalf of the Territory – Territorial This Note is included in this Paper. - See additional wording below in orange text. Note 52 Taxes, Licenses, Fees and Fines – Territorial This Note is included in this Paper. - See additional wording below in orange text. It is anticipated that these disclosures will be incorporated into the ACT 2021-22 Model Financial Statements. It is important to note that agencies need to assess the disclosure requirements contained in AASB 15 as these Model revenue disclosures are indicative and agencies need to make their own assessment. Model revenue disclosures should only be included in an agency’s financial statements if they are applicable and material. For example, Service Revenue has been included in this Model disclosure, however where an agency does not have this type of revenue then it should not be included in the agency’s financial statement disclosures. These Model disclosures are fictitious and have only been used for the purposes of illustrating the financial reporting requirements for ACT Government agencies. ‘EXAMPLE AGENCY’ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 16 Reference NOTE 4. CONTROLLED RECURRENT PAYMENTS Controlled Recurrent Payments (CRP) are revenue received from the ACT Government to fund the costs of delivering outputs. Community Service Obligations (CSO) are received by the Agency for the provision of waste management services to the public at subsidised rates. Appropriations are recognised when the Agency gains control over the funding which is normally obtained upon the receipt of cash, given they do not contain enforceable and sufficiently specific performance obligations as defined by AASB 15. Capital injection appropriations are not recognised as income, but instead are recognised as a cash inflow which is used to purchase/build an asset(s) or to reduce a liability(s). 2021 $’000 2020 $’000 ACT Disclosure Policy Revenue from the ACT Government AASB 1058 26(c) Controlled Recurrent Payments ACT Disclosure Policy Community Service Obligations Total Controlled Recurrent Payments a) The increase in CRP was due to the transfer of the Heritage and Environment function from ABC to ‘Example Agency’. Please refer to Note 39 Restructure of Administrative Arrangements for further details. Commentary – Note 4: Controlled Recurrent Payments For additional information pertaining to territory authorities – please refer to TAS 9 Note 4: Controlled Recurrent Payments. FMA Section 8 The FMA requires an Appropriation Act make separate appropriations in relation to each directorate for: • any controlled recurrent payments (CRP) to be provided to the directorate; • any capital injection to be provided to the directorate; and • any payments to be made by a directorate on behalf of the Territory. Controlled Recurrent Payments are recognised as revenue when a directorate gains control over the funding. Control over appropriated funds is normally obtained upon the receipt of cash. ACT Disclosure Policy Although CSO revenue is not separately identified in the Appropriation Act, CSO revenue is an identifiable sub-category of CRP revenue and is separately disclosed in the CRP note. ‘EXAMPLE AGENCY’ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 17 Reference NOTE 5. SALES OF GOODS AND SERVICES FROM CONTRACTS WITH CUSTOMERS AASB 15.9-90 Revenue is recognised either over time or at a point in time. Any distinct goods or services are separately identified and any discounts or rebates in the contract price are allocated to the separate elements. ‘Example Agency’ earns revenue from providing goods and services to other ACT Government agencies and to the public. ‘Example Agency’ has undertaken a review to determine whether the goods and services it provides need to be classified as revenue from contracts with customers in accordance with AASB 15. This review involved contacting business units across ‘Example Agency’ to obtain information about contracts and other arrangements in order to make an assessment about whether any of these arrangements fall within the scope of AASB 15. ‘Example Agency’ then assessed its revenue from contracts with customers to determine the timing and nature of the satisfaction of performance obligations. As a result, ‘Example Agency’ determined the goods and services to be classified as revenue from contracts with customers which have been included in this note as outlined below: • User Charges – Property Management Services – This major revenue stream relates to property management services and includes the management of government owned commercial buildings, government office accommodation, multi-purpose buildings and leases of commercial buildings on behalf of the Territory. The property management services contracts are generally for 3 years, are with other ACT Government Agencies, and the total charge for these services is based on a percentage of the rent. All these contracts have the same or similar terms and conditions. The contracts outline that the property management service revenue stream is made up of a number of activities comprising maintenance, cleaning, security and landscaping. ‘Example Agency’ concluded that these activities are not distinct within the context of the contract because the performance obligation is to ensure the property is open and operating as intended each month over the term of the contract. The other ACT Government agencies that are obtaining these property management services receive and consume the benefits of each activity when they are provided on a monthly basis, and as such, revenue is recognised on a monthly basis. • Sale of Goods – ‘Example Agency’ sells various ACT merchandising to tourists visiting Canberra and to the ACT community. Revenue is recognised at the transaction price when ‘Example Agency’ transfers control of the goods to customers. This occurs when the merchandising is sold to the customer and the transfer of physical possession to the customer occurs. No volume discount are provided. Merchandising sold comes with the ability to return it within a 7-day period. Therefore, the amount of revenue recognised is adjusted for the expected returns, which are estimated based on historical data. However, given historical data shows that there is an immaterial amount of refunds for returned goods, the full selling price is recognised as revenue. • Services Revenue – ‘Example Agency’ has two main Service Revenue streams which are: o Facilities Management Services Revenue – ‘Example Agency’ provides facilities management services to private sector clients. From a review of the contracts, facilities management services involve building and equipment maintenance. Control of the performance obligation is transferred at a point in time when the work is complete. o Event Revenue – ‘Example Agency’ earns revenue from the promotion and management of major sporting events at venues including ‘Example Stadium’ and ‘Example Oval’. A major event is considered to be a match or feature that is a national or international fixture. Major sporting events promoted and managed by ‘Example Agency’ include rugby, cricket and soccer matches. All contracts for these three sporting events have similar terms and conditions and involve ‘Example Agency’ providing ticketing services, negotiating advertising signage at the ground, advertising the event through various types of media, and providing game day logistics, catering and cleaning. Each contract generally contains four performance obligations, each of which are satisfied at a point in time upon completion. The first performance obligation is upon signing the contract to run a major event and at this point 10% of the contract revenue is payable to ‘Example Agency’ so this revenue is recognised at this point. The second performance obligation is upon the completion of signage negotiations which is required to be completed two weeks before the event. At this point a further 20% of contract revenue is recognised. The third performance obligation relates to ticketing and advertising and is required to commence one month from the event and finish the day before the event. At this point a further 30% of contract revenue is recognised evenly over this one-month period. The fourth performance obligation relates to the game day logistics, catering and cleaning. The final 40% of the contract revenue is recognised on the day of the event. ‘EXAMPLE AGENCY’ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 20 Reference NOTE 6. GRANTS AND CONTRIBUTION Resources Received Free of Charge Contributions of services are recognised only if their fair value can be measured reliably, and the services would have been purchased if they had not been donated. Legal Services were received free of charge from the ACT Government Solicitor’s Office (GSO) due to legal action resulting from ‘Example Agency’ burying waste material in landfill which then leaked and contaminated the area and nearby farmland. The GSO provided ‘Example Agency’ with the fair value of the services provided and given ‘Example Agency’ had to defend this action in court would have had to pay for these services had they not been provided free of charge. ‘Example Agency’ is required by the ACT Government to use Shared Services for its financial and HR processing. Given Shared Services is directly appropriated by the ACT Government to provide certain services at a fixed cost to ‘Example Agency’, it means that ‘Example Agency’ does not have to pay for these services. The fixed costs for financial and HR services are known and ‘Example Agency’ would have had to purchase these services if they were not provided by Shared Services. As such, these amounts have been recognised as resources provided free of charge. Each financial year ‘Example Agency’ runs ‘Example Multicultural Festival’. As part of the festival approximately 130 staff from within the ACT Government volunteered to help out and undertake tasks such as Area Wardens, Reception Assistances, Festival Information Tent Officers, VIP Welcome Assistants and Logistics Radio Officers. The amount these staff are usually paid is known and the number of hours each worked are included on a staff roster so the value of the volunteer services is known. In addition, approximately 40 volunteers external to the ACT Government also assisted in the running of the festival. The value of these volunteers’ time can be reliably measured by ‘Example Agency’ as a number of quotes were obtained from the private sector to provide certain services for the festival, however these services were ultimately undertaken by volunteers. If ACT Government staff and external volunteers did not assist at the festival then ‘Example Agency’ would have had to purchase these services from a relevant provider. Other Grants and Contributions ACT Disclosure Policy ‘Example Agency’ has determined that the agreements/arrangements relating to ‘Other Grants and Contributions’ line items included in this note are not enforceable and they do not contain sufficiently specific performance obligations for recognising revenue from contracts with customers under AASB 15. This is because none of the arrangements require ‘Example Agency’ to provide an equal amount in return for the consideration received. As such, AASB 1058 has been applied for recognising this revenue. This revenue is recognised upon receipt of the donation, the grant funding or restructure fund receipts, with the exception of the ‘Grants to Acquire or Construct Assets to be Controlled by the Agency’ line item. This line item is recognised progressively as revenue as ‘Example Agency’ satisfies its obligations under the grant through construction of the asset. 2021 2020 Resources Received Free of Charge from ACT Government Entities $’000 $’000 Legal Servicesa Shared Services Finance - Fixed Costs Shared Services Human Resources - Fixed Costs Volunteer Services – ACT Government employees AASB 1058.22 Total Resources Received Free of Charge Other Grants and Contributions Grants without Sufficient Performance Obligations Grants to Acquire or Construct Assets to be Controlled by the Agency Donations Donations of Property, Plant and Equipment Restructure Fund Receipts Volunteer Services – External Volunteers Total Other Grants and Contributions AASB 1058.22 Total Grants and Contributions ‘EXAMPLE AGENCY’ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 21 a) The Agency disposed of waste material by burying it in landfill, however, it was discovered that the waste had leaked and contaminated the area and nearby farmland. The increase in legal services was due to the litigation arising from contamination caused by ‘Example Agency’. related claims. These legal services were provided free of charge by the ACT Government Solicitor’s Office. Commentary – Note 6: Grants and Contributions AASB 1058.18&22 ACT Disclosure Policy ACT Disclosure Policy AASB 1058.27 AASB 1058 Income of Not-for-Profit Entities requires contribution of services (resources received free of charge) to be recognised at their fair value if: • the fair value can be reliably measured, and • the services would have been purchased if not received free of charge. Resources received free of charge comprise resources received from other ACT Government agencies. It does not include resources received from external parties. ACT Government agencies are agencies that form part of the ACT Government or which the ACT Government controls. A list of these agencies is contained in the Australian Capital Territory Government Consolidated Annual Financial Statements, which can be found at the Treasury website under publications (http://apps.treasury.act.gov.au/publications). Where revenue is recognised through a contract which is not enforceable or does not contain sufficiently specific performance obligations then it is within the scope of AASB 1058 and should be included within this note. Disclosure should be included regarding the extent of volunteer services used regardless of whether the value of the services has been recognised. Where Agencies receive capital grants that meet the following: • the contract is enforceable • the financial assets is to be used to acquire or construct a non-financial asset which will be recognised on the agency’s books, and • the asset is not required to be transferred to any other party then this transaction is separately identified as the revenue is recognised as the asset is constructed or acquired rather than on receipt of the funds. Restructure Fund Receipts should be classified as Contributions and should be shown gross rather than netted off against the related termination expense. ‘EXAMPLE AGENCY’ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 22 Reference NOTE 51. PAYMENT FOR EXPENSES ON BEHALF OF THE TERRITORY – TERRITORIAL Under the Financial Management Act 1996, the Agency receives this appropriation to fund a number of expenses incurred on behalf of the Territory, the main one being the payment of grants to various non-government organisations (See Note 53 Grants and Purchased Services - Territorial). Payment for Expenses on behalf of the Territory are recognised as revenue upon the receipt of cash. Appropriations are recognised on this basis given they do not contain enforceable and sufficiently specific performance obligations as defined by AASB 15. 2021 $’000 2020 $’000 Payment for Expenses on Behalf of the Territory Total Payment for Expenses on Behalf of the Territory APPENDIX D- CHANGE IN ACCOUNTING POLICY AND ACCOUNTING ESTIMATES, AND CORRECTION PRIOR PERIOD ERROR 25 APPENDIX D – CHANGE IN ACCOUNTING POLICY, ACCOUNTING ESTIMATES, AND CORRECTION OF A PRIOR PERIOD ERROR Appendix D the change in accounting policy, accounting estimates and correction of prior period error applies to both the Controlled and Territorial financial statements. CHANGE IN ACCOUNTING ESTIMATES ‘Example Agency’ had the following changes in accounting estimates during the reporting period. REVISION OF USEFUL LIVES AND RESIDUAL VALUES ‘Example Agency’ reviewed the useful lives and residual values of its property, plant and equipment at the end of the reporting period. This review resulted in the adjustment to the useful lives of some community and heritage assets and the increase of the residual value of some plant and equipment, for details see Note 14 Depreciation and Amortisation. Reference : AASB 108.34 & 39 REVISION OF RESTRUCTURING PROVISION ‘Example Agency reviewed its provision for the restructuring of a maintenance division at the end of the reporting period. It was determined that the initial amount estimated for the dismantling and disposing of plant and equipment was overstated and as such has been reduced, for details see Note 37 Other Provisions. Appendix D the change in accounting policy, accounting estimates and correction of prior period error applies to both the Controlled and Territorial financial statements. CHANGE IN ACCOUNTING ESTIMATES ‘Example Agency’ had the following changes in accounting estimates during the reporting period. REVISION OF USEFUL LIVES AND RESIDUAL VALUES ‘Example Agency’ reviewed the useful lives and residual values of its property, plant and equipment at the end of the reporting period. This review resulted in the adjustment to the useful lives of some community and heritage assets and the increase of the residual value of some plant and equipment, for details see Note 14 Depreciation and Amortisation. Reference : AASB 108.34 & 39 REVISION OF RESTRUCTURING PROVISION ‘Example Agency reviewed its provision for the restructuring of a maintenance division at the end of the reporting period. It was determined that the initial amount estimated for the dismantling and disposing of plant and equipment was overstated and as such has been reduced, for details see Note 37 Other Provisions. CHANGE IN ACCOUNTING POLICY Information provided below explains the impact of the adoption of [Insert relevant information here]. AASB 15 Revenue from Contracts with Customers, AASB 1058 Income of Not-for-Profit Entities and AASB 16 Leases on ‘Example Agency’s’ financial statements. Initial Application of AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not- for-Profit Entities APPENDIX D- CHANGE IN ACCOUNTING POLICY AND ACCOUNTING ESTIMATES, AND CORRECTION PRIOR PERIOD ERROR 26 AASB 15 Revenue from Contracts with Customers replaces AASB 118 Revenue, AASB 111 Construction Contracts, AASB 1004 Contributions and related interpretations for annual reporting periods beginning on or after 1 January 2019 for not-for-profit entities. ‘Example Agency’ will adopt the modified retrospective approach on transition to AASB 15 and AASB 1058. No comparative information will be restated under this approach, and ‘Example Agency’ will recognise the cumulative effect of initially applying the standard as an adjustment to the opening balance of Equity as at the date of initial application (1 July 2019). Under this transition method, agencies may elect to apply the Standard retrospectively only to contracts and transactions that are not completed contracts at the date of initial application. Revenue Recognition under AASB 15 Under AASB 15 agencies recognise revenue when (or as) they satisfy a performance obligation by transferring a promised good or service and it is based on the transfer of control rather than the transfer of risks or rewards. AASB 15 focuses on providing sufficient information to the users of financial statements about the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. Revenue is recognised by applying the following five steps: 1. identifying contracts with customers; 2. identifying separate performance obligations; 3. determining the transaction price of the contract; 4. allocating the transaction price to each of the performance obligations; and 5. recognising revenue as each performance obligation is satisfied. Revenue is recognised either over time or at a point in time. Any distinct goods or services are separately identified and any discounts or rebates in the contract price are allocated to the separate elements. Revenue Recognition under AASB 1058 ’Example Agency’ receives income from appropriations and other agreements which are recognised under AASB 1058. AASB 1058 is applied to Not-for-Profit agencies for recognising income that either does not arise from an enforceable contract with customers or which do not have sufficiently specific performance obligations. The timing of income recognition under AASB 1058 depends upon whether such a transaction gives rise to a liability or a contribution by owners, related to an asset (such as cash or another asset recognised by an agency). Contract Balances When either party to the contract has performed the obligation, an agency must present the contract in the balance sheet as a contract asset or contract liability. Any unconditional rights to consideration are presented separately as a receivable. Reference: AASB 15.C7 To clarify: • a contract asset is recognised if an agency transfers goods or services to a customer before the customer pays consideration or the payment is due; • a contract liability is recognised if a customer pays consideration before the agency transfers a good or service to the customer; and • a receivable is an agency’s right to consideration that is unconditional and only passage of time is required before payment of the consideration is due. Reference: AASB 1058.C6 This has resulted in an increase in the contract liability of $xxx at 1 July 2019 due to [insert reason for change]. APPENDIX D- CHANGE IN ACCOUNTING POLICY AND ACCOUNTING ESTIMATES, AND CORRECTION PRIOR PERIOD ERROR 27 Significant Changes to Accounting for Revenue on Adoption of AASB 15 and AASB 1058 The significant changes to accounting policies arising from adoption of AASB 15 and AASB 1058 are described below and the impacts of these changes at 1 July 2019 and for the year ended 30 June 2020 are shown in the tables below. Comparison of Financial Statement Line Items under AASB 15 and AASB 1058 Compared to Previous Standards for the Current Year The table below shows for comparability purposes the operating statement and balance sheet for the year ended 30 June 2020 under AASB 15 / AASB 1058 and the previous revenue standards as if AASB 15 and AASB 1058 had not been adopted. Reference: ACT Disclosure Policy and AASB 15.C8a Balance Sheet as at 30 June 2020 [Note – only include line items which are affected by the adoption of AASB 15 and AASB 1058] Notes to table AASB 15 and AASB 1058 carrying amount per Balance sheet Adjustments if AASB 15 and AASB 1058 had not been applied1 Carrying amount if AASB 15 and AASB 1058 had not been adopted Current Assets [Insert line items affected] Current Liabilities [Insert line items] Non-Current Assets [Insert line items] Non-Current Liabilities [Insert line items] Net Assets Equity Retained earnings [Insert line items] Total Equity 1 Where there are adjustments, Agencies should provide explanations Operating Statement for the year ended 30 June 2020 [Note – only include line items which are affected by the adoption of AASB 15 and AASB 1058] Notes to table AASB 15 / AASB 1058 balance per Operating Statement Adjustments if AASB 15 and AASB 1058 had not been applied1 Balances if AASB 15 and AASB 1058 had not been adopted Revenue [Insert line items] [Insert line items] [Insert line items] [Insert line items] Operating (deficit)/surplus Total Comprehensive Income 1 Where there are adjustments, Agencies should provide explanations Statement of Cash Flows for the year ended 30 June 2020 APPENDIX D- CHANGE IN ACCOUNTING POLICY AND ACCOUNTING ESTIMATES, AND CORRECTION PRIOR PERIOD ERROR 30 Financial Statement Impact of Adoption of AASB 16 At 1 July 2019, the Agency has recognised right of use assets of $xxx and lease liabilities of $xxx for leases previously classified as operating leases. The weighted average lessee’s incremental borrowing rate applied to lease liabilities at [beginning of current reporting period] was xx%. Reference: AASB 16.C12a The table below provides an explanation of the difference between the operating lease commitments note at 30 June 2019 and the recorded lease liability at 1 July 2019. $’000 Operating lease commitments at 30 June 2019 Discounted using the incremental borrowing rate at 1 July 2019 Add: Finance lease liabilities Extension options reasonably certain to be exercised not included in the commitments note Variable lease payments linked to an index [Other reconciling items] Less: Short-term leases included in commitments note Leases for low value assets included in commitments note Non-lease components included in the commitments note but excluded from the lease liability [Other reconciling items] Lease liabilities recognised at 1 July 2019 Reference: AASB 16.C12b Agency as a Lessor For the arrangements where the Agency is a lessor, there are no significant accounting policy changes on adoption of AASB 16 except for sub-leases which have now been classified in relation to the right-of-use asset under the head lease rather than the underlying asset. The Agency has applied AASB 15 Revenue from Contracts with Customers to allocate consideration in the contract to each lease and non-lease component. Reference: AASB 16.C14,15 APPENDIX D- CHANGE IN ACCOUNTING POLICY AND ACCOUNTING ESTIMATES, AND CORRECTION PRIOR PERIOD ERROR 31 APPENDIX D - COMMENTARY CHANGE IN ACCOUNTING POLICY For information concerning the treatment and disclosure of a Change in Accounting Policy please refer to the Model Supplement: Presenting Restatements of Comparatives. In relation to revenue changes, Agencies need to tailor this note for the specific impacts on their revenue recognition policies and provide explanations for changes. Only affected line items are included in the Operating Statement and Balance Sheet table. If the impact on the Statement of Cash Flows is material then a table showing the changes (similar to the operating statement and the balance sheet) should be included. CHANGES IN ACCOUNTING ESTIMATES The effect of a change in an accounting estimate shall be recognised prospectively in the Operating Statement in: • the period of the change, if the change affects that period only; or • the period of the change and future periods, if the change affects both. Reference: AASB 108.36 Except to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the reporting period of the change. Reference: AASB 108.37 Agencies are required to disclose the nature and amount of a change in an accounting estimate that has an effect in the current reporting period or is expected to have an effect in future reporting periods, except for the disclosure of the effect on future reporting periods when it is impracticable to estimate that effect. If the amount of the effect in future periods is not disclosed because estimating it is impracticable, that fact shall be disclosed. Reference: AASB 108.39, AASB 108.40 For property, plant and equipment, disclosure of a change in an accounting estimate may arise from changes in estimates with respect to: • residual values; • the estimated costs of dismantling, removing or restoring items of property, plant and equipment; • useful lives; and • depreciation methods. CORRECTION OF PRIOR PERIOD ERRORS For information concerning the treatment and disclosure of a correction of a prior period error, please refer to the Model Supplement: Presenting Restatements of Comparatives. MODIFICATION Agencies should modify this note to their particular requirements. For example, if an agency only has a change in accounting policy and no corrections of errors or change in accounting estimates, then only the section on changes in accounting policy is required. The note title should only reflect what the note contains. In the example above, there is only a Change in Accounting Estimates. In the event that an agency has none of the items to report, then the note should be omitted in its entirety. APPENDIX D- CHANGE IN ACCOUNTING POLICY AND ACCOUNTING ESTIMATES, AND CORRECTION PRIOR PERIOD ERROR 32 Chief Minister, Treasury and Economic Development Directorate June 2021