The volume of grants made by federal and state governments (and even some foreign governments) to business entities has increased in recent years. In particular, there has been significant federal government grant activity involving for-profit as well as not-for-profit health care providers.

ASC 958-605, Not-for-Profit Entities — Revenue Recognition, provides guidance on accounting for contributions made or received by business entities and NFP organizations, with one specific exception – it does not apply to “transfers of assets from governments to business entities” (e.g., government grants to business entities). Transfers of assets from governments to business entities can take many forms, such as grants, contracts, and cooperative agreements. If government assistance is determined to be an exchange transaction, business entities should follow the applicable guidance governing the transaction (e.g., ASC 606). However, there is no specific FASB guidance that addresses the accounting for non-exchange assistance from governments to business entities. Because of this, determining the proper accounting treatment can be challenging and will likely depend on an analysis of the nature of the assistance and the conditions on which it is predicated.

When selecting the appropriate accounting model to apply to government assistance received that is nonexchange in nature (see NP 12.2 for assessing whether it is an exchange transaction), a for-profit health care entity should consider the following:

ASC 105 describes the decision-making framework when no guidance exists for a particular transaction. Specifically, ASC 105-10-05-2 instructs entities to first look within the FASB codification for guidance for a similar transaction or event to apply by analogy. If no guidance for similar transactions is identified, an entity may consider analogizing to nonauthoritative guidance from other sources (for example, guidance issued by other standard setters, such as the International Accounting Standards Board (IASB)).

While government assistance provided to business entities is outside the scope of ASC 958-605, the FASB staff has stated in various public meetings that there is no prohibition on applying that guidance by analogy under ASC 105-10-05-2. See NP 6 and NP 7 for a comprehensive discussion of the ASC 958-605 accounting model.

In certain circumstances, business entities might also consider applying the guidance in ASC 450-30, Gain Contingencies, to government assistance received. Under that model, the earnings impact of a gain contingency is recognized when all the contingencies related to receipt of the assistance have been met and the gain is realized or realizable. Payments received in advance of meeting the contingencies (e.g., the conditions contained in the grant) would be recorded as a liability (e.g., a refundable advance).

Alternatively, business entities might look outside US GAAP. In this context, an IASB standard (IAS 20, Accounting for Government Grants and Disclosures of Government Assistance) may be relevant. IAS 20 provides guidance for two types of grants—grants related to income (e.g., grants to cover specific types of costs or expenses), and grants related to assets (e.g., subsidies for acquisition of capital assets).

See FSP 3.10.3 for additional discussion of IAS 20, including a comparison to ASC 958-605, as well as a discussion of disclosures requirements for certain government assistance transactions for business entities.