Electronic gaming machines play a significant role in the operations of many Queensland community clubs – but their use is tightly regulated through the allocation of gaming entitlements. Navin Prasad, Audit Partner, explains how these entitlements are defined and treated under Australian accounting standards, and discusses the key considerations and challenges clubs should be aware of.
What Are Gaming Entitlements?
Gaming entitlements are government-issued authorisations that permit clubs to operate electronic gaming machines (EGMs). In Queensland, these are governed by the Gaming Machine Act 1991 and administered by the Office of Liquor and Gaming Regulation (OLGR). Clubs must hold one entitlement per EGM.
Entitlements can be:
- Granted directly by the government, typically at low or nil cost; or
- Acquired through the open market, via government-facilitated auctions or transfers.
They are valuable, finite, and subject to strict rules.
Accounting Treatment: Key Considerations
1. Recognition as an Intangible Asset
Under AASB 138 Intangible Assets (issued by the Australian Accounting Standards Board), gaming entitlements meet the definition of an intangible asset because they:
- Are identifiable
- Are non-monetary and lack physical substance
- Provide future economic benefits.
They should be recognised only when:
- It is probable that expected future economic benefits will flow to the club, and
- The cost can be reliably measured.
Purchased entitlements should be recorded at cost, while those granted for free may be recorded at nil cost unless a fair value can be determined.
2. Amortisation and Useful Life
Clubs must assess whether entitlements have:
- A finite life – in which case they are amortised over the expected usage period, or
- An indefinite life – meaning they are not amortised but are subject to annual testing for impairment
Most Queensland clubs treat entitlements as indefinite life assets due to their ongoing legal validity, provided compliance requirements are met.
3. Impairment Testing
Even if a gaming entitlement is classified as indefinite life, AASB 136 Impairment of Assets requires clubs to conduct annual impairment testing. Triggers for potential impairment may include:
- Changes in regulatory frameworks (e.g. caps on entitlements)
- Declines in gaming revenue
- Lower-than-expected utilisation of EGMs.
Any impairment losses must be recognised in profit and loss.
4. Revaluation Option
Clubs can choose to apply either:
- The cost model – carrying entitlements at cost less impairment
- The revaluation model – carrying at fair value less subsequent amortisation and impairment.
However, to apply the revaluation model, there must be an active market, which is rare and difficult to evidence consistently for entitlements. Most clubs default to the cost model for simplicity and compliance.
5. Disclosure Requirements
Full disclosure in the financial statements should include:
- The carrying amount of entitlements
- Assessment of useful life
- Impairment losses (if applicable)
- Valuation methods used (if revalued).
Clear and transparent disclosure is particularly important when gaming income represents a material portion of club revenue.
Valuation Complexity
Gaming entitlements do not change hands frequently, and their value can vary significantly based on location, demand, and regulation. Independent valuations or recent auction data are often used to support fair value estimates for acquisition or impairment testing.
Audit Scrutiny
Due to the judgement and materiality involved, external auditors typically require robust documentation to support:
- Impairment assumptions
- Management forecasts
- Valuation methodologies.
Risk of Deregistration or Forfeiture
Failure to comply with OLGR conditions can result in forfeiture of entitlements, leading to a total loss of their accounting value. Clubs should incorporate this regulatory risk into their accounting policies.
Best Practice Tips for Clubs
To stay on top of compliance and reporting requirements, clubs should:
- Maintain a detailed asset register of all entitlements
- Document and review impairment tests regularly
- Revisit useful life assumptions annually
- Engage qualified valuers when significant value changes are anticipated
- Ensure disclosures are clear and complete in audited financials
Staying Compliant and Informed
Gaming entitlements are high-value, strategic assets for many Queensland community clubs – but they come with accounting intricacies that demand diligence. Getting the accounting right not only ensures compliance with Australian Accounting Standards but also supports financial sustainability and audit integrity.
If you’re unsure how to treat gaming entitlements on your balance sheet, seek professional advice. Accurate accounting safeguards both the club’s future and the trust of its members and stakeholders.
Need Assistance?
At SRJ Walker Wayland, we specialise in the club sector and understand the importance of staying compliant with gaming entitlement obligations. For tailored advice and assistance, please contact:
Navin Prasad
SRJ Walker Wayland – Audit Partner
📞 (07) 3490 9988 | 0488 023 218
✉️ navin.prasad@srjww.com.au
🌐 www.srjww.com.au
