The Core Question: Is There a Contract With a Customer?

AASB 15 and AASB 1058 are not alternative ways of accounting for the same transaction — they apply to two different kinds of inflow, and an entity that receives both government grants and customer payments, as most not-for-profits and many public sector entities do, has to sort every material inflow into one or the other before revenue recognition can even begin. The dividing line is not “who paid” or “was it called a grant” — it is whether the arrangement meets the AASB 15 definition of a contract with a customer.

AASB 15 applies when there is an agreement between two or more parties that creates enforceable rights and obligations, and the counterparty has contracted to obtain goods or services that are an output of the entity’s ordinary activities, in exchange for consideration. A local council that pays a community organisation a fixed fee to deliver 500 hours of aged-care home visits, with the fee reduced if fewer hours are delivered, has contracted for an output — home-visit hours — in exchange for consideration. That is a contract with a customer, and AASB 15’s five-step model applies in full: identify the contract, identify the performance obligations (the visit hours), determine and allocate the transaction price, and recognise revenue as the visits are delivered.

AASB 1058 applies to everything that falls outside that definition — most importantly, transactions where the consideration received is significantly less than the fair value of the asset received (principally to enable the entity to further its objectives), and transactions that do not have sufficiently specific performance obligations for AASB 15 to apply even though a promise of some kind exists. A philanthropic donation with no conditions, a government grant that simply supplements an NFP’s general operations, and volunteer services recognised at fair value all sit outside AASB 15 and are accounted for under AASB 1058 — typically recognised as income immediately on receipt or control, unless a genuine liability (a performance obligation under AASB 15 for a related enforceable contract, or a separately identifiable AASB 1058 “obligation” that is not itself an AASB 15 promise) requires deferral.

The “Sufficiently Specific” Test for Grants and Donations

The test that trips up the most preparers is not enforceability — most government grant agreements and many donation agreements are legally enforceable documents. It is whether the promises inside the agreement are “sufficiently specific” to be accounted for as performance obligations under AASB 15. A promise is sufficiently specific when the nature, timing, and quantity of the goods or services to be transferred is identifiable, so that the entity — and an outside observer — could determine when the promise has been satisfied.

“We will use this $500,000 grant to support our youth mental health program” is a statement of purpose, not a performance obligation — there is no identifiable unit of goods or services whose delivery can be objectively verified, so this grant is accounted for under AASB 1058 and recognised as income on receipt (subject to any genuine AASB 1058 liability for enforceable return conditions). “We will deliver 300 counselling sessions to referred clients over 12 months, reported quarterly against session logs” is sufficiently specific — a customer (the funder) has contracted for a measurable, verifiable output, so AASB 15 applies and revenue is recognised as sessions are delivered, not on receipt of the cash.

The distinction matters enormously for the shape of the income statement. Money that meets the AASB 1058 threshold hits income in full as soon as the entity gets control of it (often immediately on receipt for an unconditional grant), which can create a large, front-loaded income spike relative to when the funded activity actually happens. Money that meets the AASB 15 threshold is deferred and recognised in line with delivery, which usually produces a smoother, more decision-useful matching between income and the cost of the funded activity — and generates a contract liability on the balance sheet for cash received ahead of delivery.

Worked Example: The Same $200,000, Two Different Answers

A not-for-profit receives $200,000 from a state government department in July, described in the funding agreement as support for “delivery of employment support services to eligible jobseekers in the region.” Case A: the agreement specifies the NFP must place a minimum of 80 jobseekers into sustained employment (defined as 13 consecutive weeks) within the funding year, with funding subject to clawback on a per-placement basis if the target is not met, and requires quarterly reporting against placement numbers. Case B: the agreement has no placement target, no clawback mechanism, and requires only an annual acquittal report on how the funds were spent.

Case A has a sufficiently specific, measurable, verifiable output — placements — with consideration tied to delivery through the clawback mechanism. This is a contract with a customer under AASB 15; the department is purchasing a defined outcome. The $200,000 (or the portion tied to placements actually expected to be achieved, applying the variable consideration constraint to any at-risk component) is recognised as revenue as placements are achieved and the 13-week sustainment period is met, with a contract liability held for any amount received but not yet earned at year end.

Case B has no measurable output the funder can point to and say “that is what we paid for” — only a general funding purpose and a spending acquittal obligation, which is a stewardship condition, not a performance obligation. This is AASB 1058 income, recognised in full in July when the NFP gains control of the cash (or receivable), because there is no enforceable, sufficiently specific promise that would require deferral. The near-identical dollar amount and near-identical program produce completely different accounting purely because of how the agreement specifies — or does not specify — what the funder is buying.

Practical Takeaway: A Three-Question Screen

Before applying either standard, run every material grant, donation, and government funding arrangement through three questions. One: is the agreement enforceable — can either party seek legal or equivalent recourse for non-performance? Two: does the agreement specify goods or services in enough detail (nature, timing, quantity) that satisfaction can be objectively determined, rather than just a broad purpose or a spending acquittal requirement? Three: is the counterparty obtaining those goods or services for itself, as a customer, rather than simply funding the entity’s own objectives?

A “yes” to all three points to AASB 15. A “no” on either of the last two points to AASB 1058. Document the answer at the time the agreement is signed, not at year end when the audit asks — the classification drives whether revenue lands in the year of receipt or is deferred across the delivery period, and a screen applied consistently across all funding agreements is the single best defence against a mixed bag of grants each accounted for on a different, ad hoc basis. For the mechanics of applying AASB 1058 once an arrangement has been screened out of AASB 15, see the AASB 1058 guide linked alongside this article.