Jul 07, 2020 / News

COVID-19

Accounting for government COVID-19 support packages

Many companies have accessed JobKeeper and other government support packages which has raised questions regarding their accounting treatment. 

For for-profit entities, the relevant accounting standard is AASB 120 Accounting for Government Grants and Assistance.  Not-for-profit (NFP) entities are not permitted to apply AASB 120 and so they should apply AASB 1058 Income of Not-for-profit Entities.  

It is important to note that AASB 15 does not apply for either for-profit or NFP entities to JobKeeper and CashBoost as they do not represent contracts with a customer.

In relation to JobKeeper and CashBoost grants:

• A for-profit entity needs to determine whether it satisfies the conditions in paragraph 7 of AASB 120 for recognition.  Namely, “there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received”.  A government grant is not recognised until there is reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received.  Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfilled. 
  
  This will involve assessing the entity’s compliance with the grant conditions and its eligibility to be entitled to the grant.
   
• A NFP entity needs to determine whether it has an asset by applying the requirements of other accounting Standards, such as AASB 9 Financial Instruments.  Where the eligibility requirements are met and the entity has a right to receive the grant, it would recognise that grant as an asset (either cosh or receivable). Otherwise, it would not recognise an asset until that right is established.

Presentation of grant income net or gross

AASB 120 paragraph 29 allows a for-profit entity to present grants that are related to income in profit or loss either separately as ‘Other income’ (gross) or as a deduction against the related expense (net).  A for-profit entity is required to elect its accounting policy and apply that policy consistently to all government grants.

AASB 101 prohibits an entity from offsetting income and expenses, unless required or permitted by an Australian Accounting Standard. Paragraph 10 of AASB 1058 requires a NFP entity to recognise income in profit or loss without offsetting (ie, gross).

JobKeeper

The ATO website sets out the Jobkeeper eligibility rules.  Eligible entities claim JobKeeper by lodging a business monthly declaration to the ATO based on eligible employee payments made in the preceding period. 

In our view, where the entity meets the Jobkeeper eligibility rules the amounts received at balance date should be recognised in profit and loss in accordance with either AASB 120 for for-profit entities or AASB 1058 for not-for-profit entities.  In addition, we believe that eligible entities are entitled to accrue JobKeeper receipts under both AASB 120 and AASB 1058 for eligible wages paid or accrued at 30 June.

Second CashBoost instalment

Eligible entities who received the initial cash flow boost will automatically receive an additional cash flow boost when they lodge their activity statements for each monthly or quarterly period from June to September 2020.

The ATO requires the entity lodge an activity statement even if those amounts are zero in order to receive the second cash flow boost.  As the ATO website states: “An additional cash flow boost will be applied when activity statements for each monthly or quarterly period from June to September 2020 are lodged. These credits are equal to the total boosts credited for March to June 2020.”  Cash boost entitlements are refundable if insufficient PAYG/BAS liabilities exist to offset in the relevant period. 

“If you haven't made payments to employees subject to withholding from June onwards, report '0' for PAYG withholding when lodging your activity statement to ensure your business still receives the additional cash flow boost. It's important you don't cancel your PAYG withholding registration until you have received the additional cash flow boost.”

There are two parts to the question: 1) can an asset be recognised at 30 June in relation to the second CashBoost instalment receivable in July-Oct; and 2) if so, in which period is the grant recognised as income?

1.    For a for-profit entity, whether there is ‘reasonable assurance’ that the entity will lodge an activity statement and therefore comply with the CashBoost eligibility conditions, (even if the entity is not expected to be in business or paying employees but is reasonably assured of lodging a zero activity statement)?  If so, the entity recognises a receivable at 30 June. Because the second CashBoost instalment is not conditional on (or a reimbursement of) future (payroll or other) costs, under paragraph 20 of AASB 120, the grant would be recognised as income at 30 June 2020.

2.    For a not-for-profit entity applying AASB 1058, if the eligibility requirements are met and the entity has a right to receive the grant, it would recognise an asset for the second CashBoost at 30 June 2020.  Because no other ’related amounts’ are recognised in accordance with paragraph 9 of AASB 1058, the grant would be recognised as income at 30 June.

If either Jobkeeper or CashBoost becomes refundable, paragraph 32 of AASB 120 requires a government grant that becomes repayable to be accounted for prospectively as a change in accounting estimate.

KMP remuneration disclosures

Normally, the amounts disclosed as remuneration of Key Management Personnel in the notes to the financial statements and a company’s Remuneration Report would mirror those amounts recognised in the entity’s profit and loss statement.

However, where a for-profit entity elects to offset the grants against the related expenses in profit and loss in accordance with AASB 120, there will be a disconnect between the two amounts disclosed.  Where a for-profit entity receives JobKeeper payments we believe it is appropriate that the remuneration disclosures required by AASB 124 and a company’s Remuneration Report show the actual amounts paid or payable by the company even if the entity offsets the JobKeeper grants against the related remuneration expense in its profit and loss statement as permitted by AASB 120. 

Where there is an inconsistency between the two amounts disclosed the entity should describe the existence of JobKeeper grants and the effects of the accounting policy adopted. 

Disclosures

In all cases above, entities should apply the respective disclosure requirements of AASB 120, AASB 1058 and AASB 101 (in relation to significant judgements and estimates, and information to enable users to understand the impact of particular transactions, other events and conditions).

More detailed discussion and information is available in the AASB’s Staff FAQ - Accounting for Government Support.

If you have any questions on the contents of this update, please do not hesitate to contact your local Nexia Edwards Marshall Advisor.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.