How should Not-for-profits recognise income in financial reporting?

When should the money received from grants be formally recognised as organisational income? There are at least two sides to the debate about proposed reform of the Australian Accounting Standards AASB 1004. Should such funding be recognised as income immediately, ‘regardless of any terms or conditions that are attached’?  Or should deferred part-payment only be recognised when it is actually received?

Some charities and NFPs understand that compliance with proposals in the Exposure Draft (ED) 260 would add to the cost of financial reporting and may even require outlays for more technical accounting skill than currently resides within small NPFs.

Lena Caneva’s article Reporting Change a Big Burden for Small Charities supports this interpretation. Kris Peach, AAS Board Chair, argues back in NFP Financial Reporting Changes Not a ‘Burden’. She explains that the proposed changes are a response to the ‘operational reality’ of the type of grant agreements which can defer payment to the organisation until certain performance obligations are fulfilled. She writes:

‘As with all new accounting standards there will be implementation costs. Once entities have established initial processes, identifying performance obligations on an ongoing basis should be relatively straight forward unless the funding arrangements change.’