AASB 15 Revenue from Contracts with Customers – Revenue Recognition for Schools.
School fees usually consist of tuition fees, resource fees, levies, application fees, enrolment fees, waiting list fees and other miscellaneous charges.
Under the previous Accounting Standard for revenue, AASB 118, the recognition for revenue was a straightforward proposition. Tuition/term fees, resource fees and levies were recorded as income in the period when services are provided. Non-refundable enrolment fees and application fees were treated as income on receipt.
Under AASB 15 Revenue from Contracts with Customers, using the new 5-step process, a school needs to recognise revenue to represent the transfer of promised services to students in an amount that reflects the consideration to which the school expects to be entitled in exchange for those services. The changes in revenue recognition requirements are likely to cause changes to the timing and amount of school fee revenue recorded in the financial statements as well as additional disclosure.
We have summarised the potential impact on each main fee category below:
- We do not expect any significant change to the treatment of tuition/term fees, resource fees and levies when applying the new Standard for schools. The customer is easily identifiable as the families and the performance obligation is to provide education and related services to the students. The transaction price is set via a standard fee schedule and is only allocated to the one service. Therefore, the fees are recognised when the services are provided.
- Accounting for the non-refundable and non-transferable enrolment fees will generally be impacted on adoption of AASB 15. One of the 5-steps of revenue recognition under AASB15 is identification of performance obligations. If there are performance obligations that require fulfilling, then revenue needs to be recognised on a pro-rata basis upon satisfaction of the identified performance obligations. Whether receipt of an enrolment fee constitutes a performance obligation is dependent on the school’s terms and conditions. In general, schools will be required to recognise revenue from enrolment deposits over the attendance period of the student, for example from year 7 to year 12. This will require an initial opening balance entry to recognise the deferred income amount on adoption of the Standard, being the remaining unearned income from current and future students.
- Accounting for waiting list fees applies the same principle, the performance obligation is to keep the student on the waiting list until enrolment. Therefore, it should not be recognised as income whilst the student’s name is on the list.
The new Standard applies for annual reporting periods beginning on or after 1 January 2018 for for-profit entities and 1 January 2019 for not-for-profit entities. The first year-end that schools with a December year-end will be reporting under AASB 15 is 31 December 2019. As it is a retrospective Standard the prior year comparatives need to be adjusted to represent the position as if this Standard had always been applicable.
We recommend Finance Committees discuss the implication of the Standard internally as well as with the auditors before the application date so that the school is well prepared for any potential impact on its accounts and the financial budget. The school should consider materiality during the initial assessment process. It should also consider updating the relevant accounting policies to reflect the accounting practice.