The Financial Accounting Standards Board issued an accounting standards update Thursday providing authoritative guidance on the accounting for government grants received by business entities.
The amendments in the ASU build on earlier guidance from 2021 on business assistance disclosures to address requests from investors for increased transparency about government grants. However, FASB’s stakeholders had complained that they still needed more specific guidance on recognition, measurement and presentation.
The amendments in the update include disclosure requirements about the nature of government grants, the accounting policies applied to them, along with significant terms and conditions. The amendments also define government grants and clarify their scope, as well as establish recognition criteria.
“During the more than 50 years that the FASB has existed, there has been a lack of authoritative GAAP guidance on how to account for government grants received by business entities,” said FASB chair Richard Jones in a statement Thursday. “The new ASU adds guidance in an area where stakeholders have consistently highlighted a need for it, benefitting both preparers and investors.”
The amendments provide recognition, measurement and presentation guidance for government grants received by business entities and apply to all entities except for not-for-profits and employee benefit plans that receive a government grant. A government grant is defined as a transfer of a monetary asset or a tangible nonmonetary asset, other than in an exchange transaction (including an exchange transaction that may be at a significant discount to fair value), from a government to a business entity. The amendments don’t apply to income taxes, the benefit of below-market interest rate loans, and government guarantees.
For public business entities, the amendments take effect for annual reporting periods starting after Dec. 15, 2028, and interim reporting periods within those annual reporting periods. For entities other than public business entities, the amendments are effective for annual reporting periods starting after Dec. 15, 2029, and interim reporting periods within those annual reporting periods.
