Published on 9 May 2026 by Ramy Hanna
Primary keyword: AASB 1058 not for profit
AASB 1058 and AASB 15 for NFPs: A Plain-English Guide for Boards
Most board members don't lose sleep over accounting standards. But when your auditor mentions "AASB 1058" or "AASB 15," and your finance team starts talking about "performance obligations" and "timing of revenue recognition," you should pay attention. These two standards determine how your charity records income—and getting them wrong can distort your financial position and trigger audit queries.
The good news: you don't need to be an accountant to understand them. This guide breaks down what these standards mean, why they matter, and what your board needs to ask.
Quick Summary
- **AASB 1058** applies to grants, donations, and contributions without performance conditions
- **AASB 15** applies to revenue from contracts with customers (fees, services, conditional grants)
- **The key difference**: AASB 1058 revenue is recognised when received; AASB 15 revenue is recognised when performance obligations are met
- **Common mistakes**: Recognising grant income too early, misclassifying conditional grants, not tracking performance conditions
- **Board responsibility**: Ensure your finance team has documented policies for revenue recognition and that auditors review them annually
What Are AASB 1058 and AASB 15?
The Australian Accounting Standards Board (AASB) sets the rules for how organisations record financial transactions. For not-for-profits, two standards govern revenue recognition: AASB 1058 and AASB 15 [1].
AASB 1058: Income of Not-for-Profit Entities applies to income that doesn't involve a contract with a customer. This includes grants from government, donations from individuals and corporations, and bequests.
AASB 15: Revenue from Contracts with Customers applies to income from contracts—when someone pays you to deliver a service or product. For charities, this might include school fees, aged care resident fees, training course fees, or conditional grants where the grantor specifies what you must deliver.
The distinction matters because the timing of revenue recognition is different. Get it wrong, and your financial statements misrepresent your financial position.
AASB 1058: Grants, Donations, and Contributions
When to Recognise Revenue
Under AASB 1058, you recognise revenue when you receive (or become entitled to receive) an unconditional contribution. The key word is unconditional.
An unconditional grant is one where the grantor has no right to take the money back if you don't meet specific conditions. For example:
- A government grant to support your general operations (no specific deliverables)
- A donation from a supporter with no strings attached
- A bequest from a deceased supporter's estate
You recognise this revenue when you receive the cash or when you become legally entitled to it (e.g., when the grant letter is signed).
Conditional vs. Unconditional Grants
Many grants come with conditions. A condition is a requirement that you must do something specific—deliver a service, achieve an outcome, or spend the money in a particular way.
If a grant is conditional, it falls under AASB 15, not AASB 1058. You don't recognise the revenue upfront. Instead, you recognise it as you meet the performance obligations.
Example: A government grants your charity $100,000 to run a youth mentoring program over 12 months. The grant letter specifies that you must deliver 500 mentoring hours and report on outcomes. This is a conditional grant. You recognise the revenue monthly as you deliver the mentoring hours, not when you receive the cheque.
Practical Implications for Your Board
Many charities make the mistake of recognising all grant income when received, regardless of conditions. This inflates your revenue in the year of receipt and creates a mismatch between cash and profit.
Your finance team should maintain a grants register that documents:
- Grant name and amount
- Grantor (government, foundation, corporate)
- Conditions attached (if any)
- Performance obligations (what you must deliver)
- Revenue recognition policy (AASB 1058 or AASB 15)
- Timing of revenue recognition
This register becomes your audit trail and helps your auditor verify that revenue is recognised correctly.
AASB 15: Revenue from Contracts with Customers
The Five-Step Model
AASB 15 uses a five-step model to determine when to recognise revenue from contracts:
1. Identify the contract with a customer 2. Identify the performance obligations (what you must deliver) 3. Determine the transaction price (what the customer pays) 4. Allocate the transaction price to each performance obligation 5. Recognise revenue when each performance obligation is satisfied
This sounds complex, but it's designed to match revenue recognition to the delivery of services.
Performance Obligations
A performance obligation is a promise to deliver a good or service to the customer. For not-for-profits, this might include:
- Delivering training or education (school fees, course fees)
- Providing aged care or disability services (resident fees, service fees)
- Delivering a contracted program (conditional grant with deliverables)
You recognise revenue as you satisfy each obligation. If you deliver a service over time, you recognise revenue over that time period. If you deliver a service at a point in time, you recognise revenue at that point.
Example: Your charity runs a training course. Students pay $500 per person. The course runs over 8 weeks. You recognise revenue as you deliver the course—roughly $62.50 per week per student—not when you receive the payment upfront.
Conditional Grants Under AASB 15
Many government and foundation grants come with performance conditions. These are treated as contracts under AASB 15.
The grantor is the "customer," and the performance obligation is the delivery of the specified outcomes or services. You recognise revenue as you meet those obligations.
Example: A foundation grants your charity $50,000 to conduct research on youth mental health over 18 months. The grant letter specifies deliverables: a literature review (month 3), an interim report (month 9), and a final report (month 18). You recognise revenue in three tranches as you deliver each deliverable.
Common Mistakes and How to Avoid Them
Mistake 1: Recognising All Grant Income Upfront
Many charities recognise the full grant amount when they receive the cheque, regardless of conditions. This inflates revenue in year one and creates a mismatch with cash flow.
How to avoid it: Classify each grant as AASB 1058 (unconditional) or AASB 15 (conditional). Only recognise AASB 1058 revenue upfront. Defer AASB 15 revenue and recognise it as you meet performance obligations.
Mistake 2: Misclassifying Conditional Grants
Some finance teams treat all grants as unconditional because the grantor has already given the money. But the presence of conditions means AASB 15 applies, regardless of whether the cash has been received.
How to avoid it: Review grant letters carefully. Look for words like "must deliver," "required to achieve," "contingent on," or "subject to." These signal conditions and AASB 15 treatment.
Mistake 3: Not Tracking Performance Obligations
If a grant has multiple deliverables (e.g., quarterly reports, annual outcomes), you need to track when each is delivered and recognise revenue accordingly.
How to avoid it: Create a performance obligation schedule for each conditional grant. Document when each deliverable is due and when revenue should be recognised.
Mistake 4: Ignoring Refund Obligations
Some grants come with a refund clause: if you don't meet the conditions, the grantor can demand the money back. This affects when you recognise revenue.
How to avoid it: Review grant terms for refund clauses. If they exist, defer revenue recognition until the refund risk has passed (i.e., you've met the conditions and the refund period has expired).
What Your Board Should Ask
1. Do we have a documented revenue recognition policy? Your finance team should have written policies that explain how you classify and recognise revenue under AASB 1058 and AASB 15.
2. Does our auditor review our revenue recognition annually? Your external auditor should specifically test revenue recognition as part of their audit. Ask them about their findings.
3. Do we maintain a grants register? This register should document each grant, its conditions, performance obligations, and revenue recognition timing.
4. Have we had any audit queries on revenue recognition? If yes, what were they, and how did we address them?
5. Do our financial statements disclose our revenue recognition policies? Your notes to the financial statements should explain how you apply AASB 1058 and AASB 15.
Frequently Asked Questions
Q: Does AASB 15 apply to all our income? A: No. AASB 15 applies only to contracts with customers (where you're delivering a service or product in exchange for payment). Unconditional grants and donations fall under AASB 1058.
Q: What if a grant has both conditional and unconditional components? A: Split the grant. Recognise the unconditional component under AASB 1058 when received. Recognise the conditional component under AASB 15 as you meet the performance obligations.
Q: Can we recognise revenue early if we've received the cash? A: Not under AASB 15. Cash receipt doesn't determine revenue recognition. Performance obligations do. If you've received cash but haven't yet delivered the service, you record a liability (unearned revenue), not revenue.
Q: What happens if we get revenue recognition wrong? A: Your auditor will identify the error and require you to correct it. This can result in a qualified audit opinion and may trigger questions from regulators or donors.
The Bottom Line
AASB 1058 and AASB 15 ensure that charities record revenue when it's actually earned, not just when cash arrives. This gives donors, regulators, and stakeholders a clearer picture of your financial position and sustainability.
Your board's job isn't to become an accounting expert. It's to ensure your finance team has clear policies, your auditor reviews them annually, and you ask the right questions. If revenue recognition feels murky, it probably is—and that's a sign to dig deeper.
Book a Free 30-Minute Board Briefing to discuss your revenue recognition policies and ensure your financial reporting is audit-ready. Book now →
References
[1] Australian Accounting Standards Board. (2026). AASB 1058 and AASB 15. https://www.aasb.gov.au/
Ramy Hanna
FIPA · FTIA · NTAA · Xero Certified Advisor
Principal & Virtual CFO, VCFO+ Not-for-Profit Australia
Ramy has worked with Australian charities, independent schools, foundations and faith-based organisations since 2003. As Principal of Trinity Accounting Practice and lead Virtual CFO at VCFO+, he helps boards translate financial data into governance decisions they can act on — clearer board packs, stronger reserves, audit-ready books and ACNC-confident compliance.