BC11. The amendments in the proposed Update would have applied to entities that entered into a legally enforceable agreement with a government to receive value. Under the agreement, the government would determine whether an entity would receive assistance and/or how much assistance the entity would receive if it met applicable eligibility requirements. The proposed amendments also stated that Topic 832 would not apply to transactions in which the government is either of the following:
- Legally required to provide a nondiscretionary level of assistance to an entity simply because the entity meets eligibility requirements that are broadly available without a specific agreement between the entity and the government. In those transactions, the government would not have discretion over whether an entity would receive assistance or how much assistance the entity would receive.
- A customer.
BC12. During initial deliberations, the Board concluded that a legally enforceable agreement that requires a government to determine whether an entity would receive assistance or the amount of assistance received distinguishes government assistance programs from other types of transactions between an entity and a government. In addition, a legally enforceable agreement identifies the most prevalent forms of government assistance for which the Board concluded investors and other financial statement users would benefit from additional disclosures. The Board emphasized that it would be necessary for entities to consider the facts and circumstances to determine whether an agreement is within the scope of the disclosures.
BC13. The Board concluded that such an agreement may include unusual or unique terms and conditions not readily apparent or otherwise known to investors and other financial statement users. In addition, disclosure about such government assistance would add transparency about assistance that might differentially affect cash flows in current and future periods.
BC14. Many respondents to the proposed Update agreed that the proposed scope would be operable but requested that the Board clarify certain terms, such as value, nondiscretionary, discretion, and broadly available. Other respondents indicated that the proposed scope was too broad and would not be operable. For example, some questioned whether tax settlements and transfer pricing agreements would be within the scope. Some respondents suggested that the Board limit the scope to specific types of assistance, such as loan guarantees, grants, and tax abatements.
BC15. Many stakeholders expressed concern about including assistance within the scope of Topic 740, Income Taxes, which the amendments in the proposed Update did not exclude. Respondents raised concerns about the cost and complexity involved in determining whether a transaction is within the scope of both Topic 740 and Topic 832. To address those concerns, the Board decided to exclude transactions that are within the scope of Topic 740 from the scope of the amendments in this Update.
BC16. The Board decided to exclude transactions in which a government is a customer from the scope of the amendments in this Update. The Board concluded that transactions in which a government is a customer do not create the need for additional disclosure requirements because other Topics within the Codification (for example, transactions within the scope of Topic 606, Revenue from Contracts with Customers) include the relevant disclosure requirements.
BC17. In an effort to provide decision-useful information to investors and other financial statement users and to further reduce the cost and complexity of the guidance, at its May 26, 2021 meeting, the Board decided to limit the scope of the amendments in this Update further to transactions with a government in which a business entity accounts for that transaction by applying a grant or contribution accounting model (for example, IAS 20 or Subtopic 958-605) by analogy. If a transaction with a government is accounted for in accordance with existing authoritative guidance in GAAP (for example, Topic 450, Contingencies, Topic 606, or Topic 740), that transaction is not within the scope of the amendments in this Update.
BC18. The following are examples of transactions with a government that would require disclosure under the amendments in this Update:
- A forgivable loan from a government that an entity accounts for as a grant by applying IAS 20 by analogy
- A receipt of cash or other assets from a government that the entity accounts for as a contribution by applying Subtopic 958-605 by analogy.
BC19. Because of the government assistance provided to entities during the COVID-19 pandemic, more entities have entered into transactions with a government and have had to determine how to account for those transactions. As a result, more entities have established accounting policies for transactions with a government and have gained a better understanding of how to account for those transactions.
BC20. The Board acknowledges that the revised scope in this Update is narrower than the scope of the proposed Update. However, the Board concluded that this revised approach should (a) be cost beneficial by requiring disclosure for many transactions with a government in which no Topic in the Codification provides specific guidance and (b) provide improved transparency and decision-useful information to investors and other financial statement users.
BC21. The Board concluded that finalizing disclosures for a subset of transactions with a government for which there is no specific topical authoritative guidance in GAAP would help to address user concerns about a lack of transparency about government assistance. The revised scope of the disclosures also should result in information about the transactions that are being accounted for under a grant or contribution model, which should increase transparency of those transactions. The disclosures required by the amendments in this Update could provide useful information that could help determine the scope of a potential future project on recognition and measurement.
BC22. The Board decided to exclude NFP entities from the scope of the amendments in this Update because guidance exists in Topic 958 for those entities for government assistance that meets the definition of a contribution. The Board concluded that users of NFP entity financial statements do not have a significant need for additional information. Some stakeholders indicated that Topic 958 provides limited disclosure requirements and that there is diversity in practice among NFP entities when distinguishing contributions from exchange transactions. Nevertheless, stakeholder feedback on the proposed amendments generally supported the exclusion of NFP entities.
BC23. During redeliberations, the Board decided to exclude employee benefit plans within the scope of Topics 960, 962, and 965 on plan accounting from the scope of the amendments in this Update. Research indicated that employee benefit plans generally do not receive a significant amount of government assistance.
BC24. The Board decided that, in the amendments in this Update, transactions with a government include assistance that is administered by domestic, foreign, local (for example, city, town, county, and municipal), regional (for example, state, provincial, and territorial), and national (federal) governments, including entities related to those governments (for example, departments, independent agencies, boards, commissions, and component units), and intergovernmental organizations. Generally, intergovernmental organizations are formed by multiple governments, and the goals and scopes of those organizations can vary. Examples of intergovernmental organizations include global organizations (for example, the United Nations), regional organizations (for example, the European Union), and economic organizations (for example, the World Trade Organization).
BC25. Government assistance can be administered through other types of organizations such as nongovernmental organizations or government-sponsored enterprises that have authority from a government. Information about government assistance received by an entity could be relevant to an investor or other financial statement user regardless of which type of governmental entity or other related organization is providing the assistance. The Board concluded that the scope of the amendments in this Update is broad enough to ensure that assistance received from most types of governmental entities or other related organizations that are within the scope of the amendments should be disclosed. Stakeholder feedback did not indicate significant concerns about the description of the types of governments and related entities that can administer assistance on behalf of a government.