Audit Lowe Down – Contracts often include price variations relating to bonuses / penalties / rebates – why do we need to consider these early?

Lowe Lippmann Chartered Accountants

Contracts often include price variations relating to bonuses / penalties / rebates – why do we need to consider these early?


Many revenue streams are covered by AASB 15 Revenue from Contracts with Customers. The core principle of this standard is ‘that an entity shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.’ [emphasis added].


To determine what we expect to receive, all elements of the contract that are not fixed need to be reviewed. We need to review contracts for:

  • Volume discounts
  • Rebates
  • Refunds
  • Performance bonuses
  • Penalties
  • Price concessions

Once we have identified variable consideration then we need to estimate the amount expected to be received using either:

  • the expected amount using a probability weighted average of the likely outcomes or
  • the most likely outcome.

The method chosen is the one deemed to be the best estimate of the expected consideration, and the amounts may be updated at each reporting date.


Once the consideration has been determined, the entity recognises only the revenue that is highly probable will occur – this is known as the constraint on revenue recognition.


Practically, the requirements discussed above for variable consideration are relevant only where an entity satisfies the requirements for revenue recognition over time and contract crosses a reporting date.


As the estimate of the variable consideration changes, there may need to be a catch-up adjustment on previous revenue recognition for that contract.


Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

Liability limited by a scheme approved under Professional Standards Legislation


Tax Alert - New Tax Agent Obligations from 1 July 2025

July 21, 2025
New Tax Agent Obligations from 1 July 2025 From 1 July 2025, “small” firms of tax practitioners (with 100 or less employees) must ensure they are complying with the eight new Code of Professional Conduct obligations from the Tax Practitioners Board ( TPB ). These new Code obligations were introduced by the Government under the Tax Agent Services (Code of Professional Conduct) Determination 2024. The new Code obligations have already commenced for large tax practitioners (with over 100 employees) from 1 January 2025. As tax agents, Lowe Lippmann Chartered Accountants are committed to upholding our professional and regulatory obligations, including with the Tax Agent Services Act 2009 which includes the Code of Professional Conduct as regulated by the TPB.

Audit Lowe Down – Related parties – what should I consider in identifying them?

July 16, 2025
Related parties – what should I consider in identifying them? Related party disclosures is an area that is receiving more scrutiny from stakeholders in both the for-profit and the not-for-profit space. Disclosure of transactions that have occurred with related parties are important since the terms and conditions are often different from those with unrelated parties, in some instances the transactions may have occurred for much lower or even nil consideration. Often one of the biggest challenges for compiling the disclosures is working out who is a related party of an entity. The definition of related parties in AASB 124 Related Party Disclosures is detailed, however we have summarised the definition into various elements below. a. Think about entities who might be related to the reporting entity i.e.: i. through control or significant influence, ii. by the existence of material transactions or iii. dependence on technical information or personnel provided by them. b. Think about people who might be related to the reporting entity, i.e.: i. Key management personnel, including all directors. ii. Close family members of key management personnel (e.g. spouse, child). c. Think about entities that the people identified in b. might control or significant influence, i.e.: i. Family businesses ii. Businesses which a close family member controls (i.e. senior partner in a legal or accounting firm). Once you have identified a complete list of who is potentially a related party, analysis can then be performed to confirm they meet the criteria in AASB 124 and then identify any transactions with these parties. Remember that transactions should be included whether or not a price was charged or whether the transaction was formally documented or not.

Practice Update – July 2025

July 4, 2025
Changes to car thresholds from 1 July The car limit for the 2026 income year is $69,674. This is the highest value that a taxpayer can use to calculate depreciation on a car where they use the car for work or business purposes and they first use or lease the car in the 2026 income year. If a taxpayer is buying a car and the price is more than the car limit, the highest input tax ( GST ) credit they can claim (except in certain circumstances) is one-eleventh of the car limit. For the 2026 income year, the highest input tax credit they can claim is $6,334 (i.e. one-eleventh of $69,674). The luxury car tax ( LCT ) threshold for the 2026 income year is $91,387 for fuel-efficient vehicles, and $80,567 for all other luxury vehicles. Input tax credits need to be claimed within the four-year time limit. A taxpayer cannot claim an input tax credit for luxury car tax when they buy a luxury car, even if they use it for business purposes.
More Posts