Note 3. Significant accounting policies
New account standard
AITSL has adopted the new accounting standards AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities effective 1 July 2019.
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance including AASB 118 Revenue, AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
AASB 1058 is relevant in circumstances where AASB 15 does not apply. AASB 1058 replaces most of the not-for-profit (NFP) provisions of AASB 1004 Contributions.
AITSL adopted AASB 15 and AASB 1058 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated. That is, it is presented as previously reported under the various applicable AASBs and related interpretations.
Under the new income recognition model AITSL shall first determine whether an enforceable agreement exists and whether the promises to transfer goods or services are sufficiently specific. If an enforceable agreement exists and the promises are sufficiently specific (to a transaction or part of a transaction), AITSL applies AASB 15 to determine the appropriate revenue recognition. If these criteria are not met, AITSL shall consider whether AASB 1058 applies.
In relation to AASB 15, AITSL elected to apply the new standard to all new and uncompleted contracts from the date of initial application. AITSL is required to aggregate the effect of all of the contract modifications that occur before the date of initial application.
Application of the new accounting standards to AITSL revenue sources is as follows:
Provisions of the grant agreement do not meet the criteria required by AASB 15. Revenue is therefore recognised in accordance with AASB 1058. The full amount of funding received during the period is recognised as revenue.
Provisions of the funding agreement do not meet the criteria required by AASB 15. Revenue is therefore recognised in accordance with AASB 1058. The full amount of funding received during the period is recognised as revenue.
Services provided to non-government customers are subject to commercial terms and in accordance with an agreement with the customer. The agreements meet the criteria required by AASB 15. Income is recognised progressively as services are provided. Income received in advance of the service being provided is included as a liability in the Statement of Financial Position.
Set out below are the amounts by which each financial statement line item is affected for the year ended 30 June 2020 as a result of the adoption of AASB 15 and AASB 1058.The first column shows the amounts prepared under AASB 15 and AASB 1058 and the second column shows what the amounts would have been had AASB 15 and AASB 1058 not been adopted.
Sales of services
Impact on transition
On transition to AASB 15 and AASB 1058 AITSL has recognised an additional liability for unearned income that existed in the opening financial report at 1 July 2019. This has been adjusted against the opening retained earnings at 1 July 2019. The impact on transition is summarised below.
Equity – opening balance adjustment for AASB 15
Liability – unearned income at 30 June 2019
Interest revenue is recognised on an accrual basis using the effective interest method.
New accounting standard
AITSL has adopted the new accounting standard, AASB 16 Leases effective 1 July 2019.
AASB 16 Leases replaces AASB 117 Leases along with Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases – Incentives and Interpretation 117 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
AITSL has only one lease, which is for the office premises it occupies in Melbourne. The adoption of this new standard has resulted in the recognition of a right-of-use asset and related lease liability for the lease of the office premises, which had previously been classified as an operating lease.
The new standard has been applied using the modified retrospective approach, with the cumulative effect of adopting AASB 16 being recognised in the equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.
AITSL has elected not to include indirect costs in the measurement of the right-of-use asset for the operating lease in existence at the date of initial application being 1 July 2019. At this date, AITSL has also elected to measure the right-of-use asset at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.
Instead of performing an impairment review on the right-of-use asset at the date of initial application, AITSL has relied on its historic assessment as to whether the lease was onerous immediately before the date of initial application of AASB 16.
On transition to AASB 16 the weighted average incremental borrowing rate applied to the lease liability recognised under AASB 16 was 1.85%.
The lease liability recognised at 1 July 2019 is reconciled to the lease commitments disclosed in the financial report at 30 June 2019 as follows:
Commitment - operating leases at 30 June 2019
Less: effect of discounting using the incremental borrowing rate at the date
Lease liability adjustment at 1 July 2019
Impact on transition
On transition to AASB 16, AITSL has recognised an additional right-of-use asset and an additional lease liability with the difference adjusted to retained earnings. The impact on the opening financial figures at 1 July 2019 is summarised below:
Building – right-of-use asset
Equity – opening balance adjustment
At each reporting date AITSL reviews the carrying value of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the Statement of Comprehensive Income.
AITSL is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).
Revenues, expenses, assets and liabilities are recognised net of GST except:
- where the amount of GST incurred is not recoverable from the Australian Tax Office
- for receivables and payables.