3.10.1 Government assistance to not-for-profit entities

Accounting and presentation of government grants to not-for-profit entities within the scope of ASC 958 is addressed within NP 12.2.

3.10.2 Government assistance to business entities

A business entity may receive government assistance that provides financial assistance for certain eligible expenditures—for example, federal disaster assistance. Government assistance could take the form of tax credits, cash grants, or grants of other assets. There is no specific guidance in US GAAP that addresses the recognition and measurement of government assistance received by a business entity. Thus, determining the proper accounting treatment will depend on an analysis of the nature of the assistance and the conditions on which it is predicated.
A reporting entity should first assess whether the arrangement with the government is in the scope of specific US GAAP, such as:
  • Arrangements when the government is a customer (i.e., exchange transactions) are in the scope of ASC 606.
  • Assistance in the form of a tax credit may be subject to ASC 740, Income Taxes. Refer to TX 1.2.4 for guidance on determining when a credit is subject to ASC 740.
  • Assistance in the form of a below-market rate loan is accounted for under ASC 470, Debt. ASC 835-30, Imputation of interest, provides guidance for imputing interest when financing is provided or obtained at other-than-market terms. However, ASC 835-30-15-3(e) excludes from the scope of this guidance “transactions where interest rates are affected by the tax attributed or legal restrictions prescribed by a governmental agency (for example, industrial revenue bonds, tax exempt obligations, government guaranteed obligations, income tax settlements).” Thus, a reporting entity would not need to impute interest on a loan from the government with a below-market interest rate.
ASC 105, Generally Accepted Accounting Principles, describes the framework for developing an accounting policy when no guidance exists in US GAAP for a particular transaction. Specifically, ASC 105-10-05-2 instructs reporting entities to first look for guidance for a similar transaction or event within US GAAP and apply that guidance by analogy. If no guidance for similar transactions is identified, a reporting entity may consider nonauthoritative guidance from other sources (for example, guidance issued by other standard-setters).
ASC 958-605 contains the US GAAP on grant accounting, including guidance on evaluating whether government grants are exchange or nonexchange transactions. However, ASC 958-605 excludes from its scope transfers of assets from governments to business entities. As a result, forms of government assistance provided to business entities would not be in the scope of ASC 958-605, but it may be applied by analogy under ASC 105-10-05-2. Alternatively, IFRS includes a specific standard, IAS 20, Accounting for Government Grants and Disclosures of Government Assistance, that reporting entities may also analogize to. As illustrated in Figure FSP 3-2, ASC 958-605 and IAS 20 differ in a few key areas when it comes to accounting for government grants.
Figure FSP 3-2
Differences between ASC 958-605 and IAS 20
IAS 20
Recognition when conditions are present
When the conditions have been substantially met
When there is reasonable assurance that the entity will comply with the conditions and that the grant will be received
Timing and pattern of recognition
When grant is awarded or, if conditional, immediately once the condition is substantially met
Recipients should also consider whether grantor-imposed restrictions exist.
Using a systematic basis over the periods in which the entity recognizes the related expenses or losses that the grants are intended to compensate
When the grant becomes receivable if it compensates for expenses or losses already incurred
Presentation of grant income
Grant income is presented on a gross basis (i.e., grant revenue or other income)
May be reported separately as “other income” or deducted from the related expense
With regard to the evaluation of conditions, IAS 20 does not define “reasonable assurance” but it is generally considered to be similar to the notion of “probable” as used in ASC 450, Contingencies. ASC 958-605, however, does not permit an entity to consider probability or intent in evaluating whether a condition has been or will be achieved; instead, under ASC 958-605, grant income is recognized only when the condition has been substantially met.

3.10.3 Disclosure of government assistance

ASC 832, Government Assistance, requires business entities that account for transactions with a government by applying a grant or contribution model by analogy to disclose information about government assistance recorded during the period. ASC 832 is effective for all entities for annual reporting periods beginning after December 15, 2021.
ASC 832 outlines the disclosure requirements for certain transactions with a government. For purposes of applying ASC 832, ASC 832-10-15-5 describes entities that are considered a government.

ASC 832-10-15-5

Transactions with a government, as used in this Topic, 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 and entities related to those governments. Examples of entities related to governments include departments, independent agencies, boards, commissions, and component units. Government assistance also can be administered by intergovernmental organizations and other types of organizations such as nongovernmental organizations or government-sponsored enterprises that have authority from a government to administer assistance on its behalf.

The disclosure requirements in ASC 832 apply to transactions with a government that are accounted for by analogizing to a grant or contribution accounting model (e.g., ASC 958-605, IAS 20).
If the accounting for a transaction is specified in the scope of other US GAAP, it is not subject to the disclosure requirements in ASC 832. This would include:
  • tax credits accounted for under ASC 740;
  • gain contingencies accounted for under ASC 450;
  • revenue transactions accounted for under ASC 606; and
  • below-market loans or forgivable loans accounted for under ASC 470.
For transactions that are not in the scope of other US GAAP, a reporting entity should assess its accounting policy for that transaction to determine whether it is in the scope of ASC 832. Judgment may be required in the assessment of whether a reporting entity is analogizing to a grant or contribution accounting model.
If a transaction is in the scope of other US GAAP, reporting entities should apply the disclosure requirements within that guidance. Reporting entities should also consider the requirement in ASC 235 to disclose significant accounting policies (refer to FSP 1.1.4) for government assistance transactions that are determined to not be in the scope of ASC 832.
ASC 832-10-50-3 requires business entities to provide disclosures for annual periods that provide information about government assistance that will enable a user to better assess the overall nature of the transaction and its impact on the financial statements.

ASC 832-10-50-3

An entity shall disclose the following about government assistance transactions:
  1. The nature of the transactions, including a general description of the transactions and the form in which the assistance has been received (for example, cash or other assets)
  2. The accounting policies used to account for the transactions as required by paragraph 235-10-50-1
  3. The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item in the current reporting period.

As discussed in ASC 832-10-50-4, business entities should also disclose information about the significant terms and conditions of a government assistance transaction. Such disclosures may include the following:
  • The duration of the agreement
  • Commitments made by both the reporting entity and the government
  • Provisions for recapturing government assistance, including the conditions under which recapture is allowed
  • Other contingencies
There may be instances when an organization is prohibited by the government from disclosing certain information required by ASC 832-10-50-1 through ASC 832-10-50-4. In these circumstances, ASC 832-10-50-5 requires reporting entities to disclose a description of the general nature of the arrangement and indicate that the specific omitted disclosures are legally prohibited from being disclosed.
Note about ongoing standard setting
The FASB has an active project related to the accounting for government grants by business entities. Financial statement preparers and other users of this publication are therefore encouraged to monitor the status of the project, and if finalized, evaluate the effective date of the new guidance and the implementation on presentation and disclosure.
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