Here in Australia, it is probably safe to say that the central element of the Federal Government’s business support package in response to the coronavirus outbreak was the JobKeeper scheme. This scheme is essentially a wage subsidy aimed at assisting employers to retain employees on their books during the COVID-19 crisis despite its economic consequences.

JobKeeper has recently been the topic of much debate in technical circles, which is unsurprising considering the relevance and possible significance (in dollar values) of this stimulus measure for many entities. This article considers the accounting treatment of JobKeeper payments for both for-profit and not-for-profit (NFP) entities.

JobKeeper in a nutshell

In order to assess the appropriate accounting treatment, it is necessary to understand the mechanics of the JobKeeper wage subsidy, particularly those features of the scheme that are relevant to the accounting considerations.

In short, the scheme is a wage subsidy that entitles eligible entities that have suffered a specified decline in turnover to a payment of $1,500 per fortnight for wages paid to eligible employees.

The scheme is not mandatory for employers. Instead, employers elect to participate in the scheme. Importantly, participating employers must first make wage payments to their employees and are then reimbursed in arrears by the Government per eligible employee per fortnight. Each eligible employee must be paid at least $1,500 per fortnight before tax by the employer, even if the employee usually earns less than $1,500 per fortnight (i.e. where employers choose to pay employees less than $1,500 per fortnight, they will not be eligible for JobKeeper payments). Employers cannot keep the difference between the subsidy and employees’ normal wages.

Apart from the criteria discussed in the preceding paragraph, employers have other eligibility criteria to meet to be entitled to participate in JobKeeper. One such criterion is that employees subject to the scheme must be eligible for JobKeeper payments. The onus is on the employer to establish that all eligibility requirements are met before applying for JobKeeper payments.

Accounting for JobKeeper

For-profit entities

It is our view that AASB 120 Accounting for Government Grants and Disclosure of Government Assistance is the appropriate standard to consider for for-profit entities.

This is on the basis that JobKeeper payments meet the definition of ‘government grants’ since they are assistance by Government (in the form of cash payments) in return for compliance with certain conditions (the JobKeeper eligibility criteria) relating to the operating activities of entities (in this case, the employment of staff).

The requirements of AASB 120 paragraph 7 are such that government grants are only recognised when there is reasonable assurance that:

  • the entity will comply with the conditions attaching to them; and
  • the grants will be received.

This means, that in terms of timing, JobKeeper payments are recognised when the entity (as employer) has reasonable assurance that the entity:

  • meets all the eligibility criteria attached to the JobKeeper payments; and
  • has paid the minimum $1,500 per fortnight to all eligible employees.

This implies that, as soon as the employer pays salaries for a particular period, a receivable and related income for that specific payroll period can be recognised (assuming all eligibility criteria are met). It would not be correct to raise a receivable for future payroll periods that have not yet been paid as payment of the salaries is one of the eligibility criteria attached to JobKeeper. In the absence of the payment of salaries, AASB 120.7(a) above is not met.

When it comes to presentation of JobKeeper payments in the financial statements, AASB 120 allows entities a policy choice. Income from government grants can either be presented:

  • gross, as ‘other income’, in the statement of comprehensive income; or
  • on a net basis, with the income being set off against the related salary expense.

Both presentation options will result in a nil impact in profit or loss. While AASB 120 clearly provides an accounting policy choice, it is our view that the gross basis of presentation may be more transparent and useful to users of the financial statements.

Where entities have already elected an accounting policy choice in this regard (for other government grants recognised in previous financial periods), that policy choice will have to be applied consistently to JobKeeper. Any change would constitute a change in accounting policy which would have to be accounted for under AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

Not-for-profit entities
The first thing to note is that AASB 120 does not apply to NFP entities. When it comes to income recognition, NFPs have two standards to consider, namely AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities. One of the requirements to be in AASB 15 is the existence of sufficiently specific performance obligations, otherwise income is generally recognised immediately in profit and loss under AASB 1058.

It is our view that the JobKeeper subsidy program with Government does not contain any sufficiently specific performance obligations. The reason for this is that, under the arrangement, there is no transfer of goods or services to a customer, as required by AASB 15.

AASB 1058 applies to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable a NFP entity to further its objectives. Considering the nature of JobKeeper, these payments received from Government would appear to fall within the scope of AASB 1058.

Under AASB 1058, the asset side of the entry is recognised and measured in accordance with applicable Australian Accounting Standards at fair value. Where there are no ‘related amounts’ to recognise as a credit (for other financial statement elements), the credit leg of the entry would be to income.

Applying the above principles to JobKeeper, the receivable that arises is not specifically dealt with in any accounting standard. Therefore, the principles of AASB 120 could be applied by analogy in a NFP context, meaning the timing of recognition of the JobKeeper receivable and associated income would also be when there is reasonable assurance that the NFP:

  • meets all the eligibility criteria attached to the JobKeeper payments; and
  • has paid the minimum $1,500 per fortnight to all eligible employees.

In terms of presentation, AASB 1058 paragraph 10 states that “…an entity shall recognise income immediately in profit or loss…” which implies that the JobKeeper payments must be recognised as other income in the financial statements. That is, there is no option to offset the JobKeeper payments against the related salary expense.