IFRS 15 Revenue for Nonprofits, NGOs & Grant Income

Step 1: Identify the Contract

IFRS 15.9–21All five criteria must be met for a contract to exist

Have the parties approved the contract and are committed to perform their respective obligations?

IFRS 15.9(a)

Approval can be written, oral, or implied by customary business practice. Commitment means the parties intend to enforce their respective rights. Consider whether there is a signed agreement, purchase order, or established pattern of dealing that evidences approval.

Can the entity identify each party's rights regarding the goods or services to be transferred?

IFRS 15.9(b)

The contract must establish enforceable rights for each party. This includes identifying what goods or services the entity will transfer and what the customer is entitled to receive. Even if terms are implicit or established by customary business practice, rights must be identifiable.

Can the entity identify the payment terms for the goods or services to be transferred?

IFRS 15.9(c)

Payment terms include the amount, timing, and form of consideration. The terms need not be explicitly stated if they can be determined from customary business practices or the contract's terms and conditions. Consider fixed prices, variable elements, milestone payments, and credit terms.

Does the contract have commercial substance — that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract?

IFRS 15.9(d)

A contract has commercial substance when it is expected to change the entity's future cash flows. This criterion prevents entities from recognising revenue on reciprocal exchanges of goods or services of similar nature and value (e.g., barter transactions between oil companies to fulfil demand in different locations). Most arm's-length commercial transactions have commercial substance.

Is it probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer?

IFRS 15.9(e)

Assess the customer's ability and intention to pay. Consider the customer's credit history, financial condition, collateral or guarantees, and the entity's past experience with similar classes of customers. 'Probable' means more likely than not under IFRS. If the entity offers a price concession, assess collectability on the reduced (expected) amount, not the stated contract price (IFRS 15.9.A1).

Contract Combination Assessment

(Optional)

Are there multiple contracts with the same customer (or related parties) entered at or near the same time that should be combined?

Contract Modification Assessment

(Optional)

Scope Consideration

Many nonprofit revenue streams — unconditional donations, government grants without performance conditions, and membership dues — may not meet the definition of contracts with customers under IFRS 15.9. Entities must assess whether the arrangement creates enforceable rights and obligations and whether the funder is a 'customer' receiving goods or services.

IFRS 15 Revenue Recognition for Nonprofits & NGOs

IFRS 15 for Nonprofits applies to the extent that arrangements constitute contracts with customers — parties receiving goods or services in exchange for consideration.

The Threshold Question: Is the funder a 'customer' (IFRS 15.6)? Government contracts with enforceable deliverables: likely yes. Unconditional donations: no. The customer test is paramount.

Performance Conditions vs Restrictions: Performance conditions require delivery of specific outputs — potential POs under IFRS 15. Restrictions merely limit fund use without requiring deliverables — not POs. Condition-based grants are recognised as POs are satisfied; restricted grants may be recognised immediately under IAS 20.

Programme Delivery POs: Integrated programmes (curriculum + training + delivery + evaluation) may be a single PO if activities are highly interrelated (IFRS 15.29). Standalone training workshops may be separate.

Variable Consideration: Cost-reimbursement depends on audits. Milestone-based disbursements tied to outcomes are constrained until highly probable. Co-funding requirements are separate arrangements.

Common Audit Pitfalls:

Assuming all grants are outside IFRS 15.
Confusing restrictions with performance obligations.
Recognising milestone income before constraint is satisfied.
Not recognising contract liabilities for advance funding.

Typical Contract Structures

Government service contracts, restricted project grants with milestones, cost-reimbursement agreements, performance-based contracts (social impact bonds), and earned revenue from training/consulting. Multi-funder programmes are common.

Common Performance Obligations in Nonprofits & NGOs

Programme delivery Training & capacity building Monitoring & evaluation Research deliverables Publication & dissemination

Regulatory Context

Many jurisdictions have sector-specific frameworks (UK Charities SORP, US ASC 958, AASB 1058). IPSAS 47 addresses exchange transactions similarly to IFRS 15 for public sector entities.

Worked Example: NGO Receiving Restricted Grant for Education Programme

EduAction receives a 3-year, $3M grant from the Ministry of Education to design and deliver a literacy programme. Deliverables: customised curriculum, 500 teachers trained, delivery in 200 schools, evaluations, and publication. Milestone payments with clawback provisions.

Step 1: Identify the Contract

The Ministry receives specific deliverables in exchange for consideration — it's a customer. The clawback creates enforceable obligations. All IFRS 15.9 criteria met.

Step 2: Identify Performance Obligations

Three POs: (1) Integrated literacy programme (curriculum + training + delivery — highly interrelated); (2) Impact evaluations — distinct; (3) Publication — distinct.

Step 3: Determine the Transaction Price

$3M. Milestone payments are fixed given deliverables are met. Clawback assessed — highly probable full amount won't reverse (strong track record). No significant financing.

Step 4: Allocate the Transaction Price

SSPs: Programme $2.6M; Evaluations $300K; Publication $100K. Total $3M. Direct allocation.

Step 5: Recognise Revenue

Programme: over-time (IFRS 15.35(c)) using cost-to-cost. Evaluations: on delivery. Publication: on delivery. Advance payments create contract liabilities.

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

Complete audit toolkit: IFRS 15 five-step decision flowchart poster, contract assessment template, PO identification checklist, SSP allocation worksheet, and industry-specific application notes.

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Frequently Asked Questions

When does a grant fall within IFRS 15?

When the funder is a 'customer' receiving goods/services in exchange for consideration, and the arrangement creates enforceable obligations (performance conditions). Otherwise, IAS 20 or other standards apply.

Performance conditions vs restrictions?

Conditions require specific deliverables — potential POs. Restrictions limit fund use without requiring deliverables — not POs under IFRS 15.

Should donated goods/services be under IFRS 15?

No. They're not consideration from a customer. Apply IAS 20 or local nonprofit frameworks.

How to handle advance grant funding?

Recognise contract liability (deferred revenue) under IFRS 15.105. Release to revenue as POs are satisfied.

What if grants must be returned for non-performance?

Clawback reduces the transaction price as variable consideration. Apply the constraint. If non-performance was foreseeable, the amount should have been excluded at inception.

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