How does ED 71 on Revenue without Performance Obligations change the disclosure of “non-exchange” revenue?

How does ED 71 on Revenue without Performance Obligations change the disclosure of “non-exchange” revenue?

The International Public Sector Accounting Standards Board (IPSASB) issued three Exposure Drafts in February 2020 on revenue and expenses. ED 71 on Revenue without Performance Obligations updates IPSAS 23 on Revenue from Non-exchange Transactions (Taxes and Transfers). This article explores the proposed disclosure requirements in ED 71 compared to IPSAS 23.

What changes are proposed from IPSAS 23 to ED 71?

In the article on A performance obligation approach to recognising revenue and expenses [https://www.asb.co.za/ipsasb-exposure-draft-on-revenue-with-performance-obligations-ed181-part-2/] we discussed the change in approach for revenue transactions. Revenue transactions are no longer distinguished as “exchange” or “non-exchange”, but rather as transactions “with performance obligations” or “without performance obligations”.

IPSAS 23 deals with non-exchange transactions while ED 71 is a residual revenue standard that includes in its scope all revenue transactions without performance obligations. ED 71 deals separately with the following categories of revenue:

• Revenue from binding arrangements with present obligations.
• Revenue without binding arrangements.
• Taxes.

Although ED 71 is an update of IPSAS 23, the change in approach means it may not include the same transactions as IPSAS 23.

In both IPSAS 23 and ED 71 revenue recognition is driven by an entity obtaining control of resources and therefore recognising an asset. Depending on if a present obligation exists, an entity recognises revenue to the extent that a liability is not recognised. The revenue recognition for taxes is driven by when the taxable event occurs. At first glance, these requirements may seem similar. However, the change in approach, and a change in what is a “present obligation” result in potentially significant changes in accounting for certain categories of transactions without performance obligations [see the article on What is a present obligation in the context of recognising revenue? https://www.asb.co.za/ipsasb-exposure-draft-on-revenue-without-performance-obligations-ed-71-2/].

How do the changes proposed from IPSAS 23 to ED 71 impact disclosure requirements?

As a result of the changes discussed above, the IPSASB has updated the disclosure requirements in ED 71. Many of the disclosure requirements for revenue transactions from binding arrangements with performance obligations (from ED 70 on Revenue with Performance Obligations) have been replicated for revenue transactions from binding arrangements with present obligations. This means that users can expect to see much more information on these transactions in financial statements in future.

The Secretariat of the ASB has prepared a summary of the disclosures, which maps differences between the current and proposed disclosures required. The summary further compares the proposed disclosure requirements in ED 70 to ED 71. The summary can be accessed by following this link: https://www.asb.co.za/wp-content/uploads/2020/08/Summary-of-presentation-and-disclosure-requirements-Revenue-cleaned.pdf.

Where can the EDs be accessed and how can you provide comment?

The EDs have been published on the ASB’s website and can be accessed here: https://www.asb.co.za/comment-on-proposals/. The EDs are as follows:

• ED 181 on IPSASB Exposure Draft on Revenue with Performance Obligations (ED 70)
• ED 182 on IPSASB Exposure Draft on Revenue without Performance Obligations (ED 71)
• ED 183 on IPSASB Exposure Draft on Transfer Expenses (ED 72)

Comment can be submitted to the Secretariat of the ASB at info@asb.co.za or via the website.