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Audit
Reciprocal verses
non-reciprocal
Determining whether a transfer is
reciprocal or non-reciprocal can be
highly judgmental, especially where the
outcomes of a grant or programme are
assessed using non-financial measures.
A non-reciprocal transfer often involves a
three party relationship: a transferee (the
not-for-profit entity), the contributor (or
group of contributors), and a third party
that will benefit from the arrangement.
A common mistake is to conclude
that a transfer is reciprocal because
there are conditions attached to the
arrangement. In order to be reciprocal,
the entitys obligation is to provide goods
or services directly to the contributors of
approximately equal value to the funds or
contribution received.
Example 1
A not-for-profit entity receives a grant
from a charitable foundation to help
alleviate poverty in its local area. Other
than a general responsibility to spend
the funds on its charitable purposes
for the benefit of those in need, there
are no specific instructions on how
the money should be spent, or what
outcomes should be achieved.
The entitys obligations are not
provided directly to the charitable
foundation (i.e. the benefits to the
charitable foundation are only nominal).
This is a non-reciprocal transfer the
contribution is recognised in terms of
AASB 1004.
Audit
Example 2
A not-for-profit entity receives funding
from the Department of Correctional
Services to run the departments
mental health programme. The entity
delivers mental health services to
prisoners in line with departments
guidelines at two state prisons.
If the value of the services
provided directly to the department
approximately equals the funding
received, this would be a reciprocal
transfer. Such an exchange for services
would usually include an obligation
to refund some or all of the fees if the
entity is unable to provide the services.
Income is not recognised in terms of
AASB 1004.
Example 3
A not-for-profit charity receives
a grant to implement the health
departments state-wide vaccination
and screening programme for
children in schools and playgroups.
The funding agreement specifies
that any portion of the grant not
spent on the programme must be
returned.
The existence of a condition attached
to a funding agreement does not, by
itself, create a reciprocal transfer. The
determination is made considering
the value of the services provided
directly to the department of health
together with a consideration of the
obligation to repay funds not spent
for the purpose of the grant. Similar to
Example 2, the terms and conditions
suggests the existence of a reciprocal
transfer.
Accounting for
contributions
Income arising from contributions in terms
of AASB 1004 is recognised when all of
the following conditions are met:
1. The entity obtains control of the
contribution or the right to receive the
contribution,
2. It is probable that the economic
benefits comprising the contribution
will flow to the entity, and
3. The amount of the contribution can be
reliably measured.
Determining whether control has been
gained can be problematic. It depends on
the terms and conditions related to the
contribution.
Control may be obtained before the actual
receipt of funds, for example when a
binding contract or funding agreement is
signed. In other situations, an entity may
have received the contribution in cash, but
might not obtain control until the funds are
applied for the required purpose.
The timing of the recognition of income
is separate and unrelated to the point
at which expenditure related to that
contribution occurs. For the not-for-profit
sector, the matching principle does not
necessarily apply.
Example 4
Example 6
Future developments
The IASB is currently in the process of
developing a new accounting standard for
revenue that will replace AASB 118 and
AASB 120. The standard will introduce a
new model where revenue is recognised
when the entity satisfies a performance
obligation.
The new standard will result in the
replacement of AASB 1004 and is likely
to reduce the inconsistency between
for-profit and not-for-profit entities. An
exposure draft is anticipated in 2014.
Example 5
A medical research charity signs
a funding contract with the state
government. There are no conditions
attaching to the contribution, other than
a general expectation to spend money
in line with the charitys objectives. The
grant is paid in monthly instalments
over 18 months.
The entity controls the right to receive
the contribution and therefore the full
amount of the grant is recognised as
income when the contract is signed.
Any amount not yet received from the
state government is recognised as a
receivable.
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