FASB Provides Guidance on Disclosures Regarding Government Assistance
Introduction
On November 17, 2021, the FASB issued ASU 2021-10,1 which requires business entities2 to provide certain disclosures when they (1) have received government
assistance and (2) use a grant or contribution accounting model by analogy to
other accounting guidance (e.g., a grant model under IAS 203 or ASC 958-6054).
Connecting the Dots
If government assistance received by an entity is within
the scope of ASC 740 (e.g., an income tax–based credit) or constitutes
an exchange transaction (e.g., a loan, equity transaction, or revenue
arrangement), entities should apply the disclosure requirements in
accordance with the appropriate U.S. GAAP. In addition, the ASU does not
apply to government assistance that is accounted for in accordance with
ASC 450.5
Not-for-profit entities should continue to apply ASC 958-605 to the
government grants they receive. However, government grants to business
entities are explicitly excluded from the scope of ASC 958. Other than
the guidance in ASC 905-605-25-1 on income replacement and subsidy
programs for certain entities in the agricultural industry, there is no
explicit U.S. GAAP guidance on recognizing or measuring government
grants to business entities. The ASU does not provide any additional
guidance on this topic. Rather, the ASU only provides guidance on
required disclosures for business entities that receive government
assistance and apply another grant or contribution accounting framework
by analogy. For more information on the models entities generally apply
by analogy to recognize and measure government grants, see Deloitte’s
April 9, 2020 (last updated September 18, 2020), Heads Up.
Key Provisions of the ASU
The ASU creates ASC 832 (on government assistance). Under ASC 832-10-50-3 and
50-4, a business entity that has received government assistance must provide the
following disclosures for annual periods about transactions that are within the
scope of ASC 832:
- 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)
- The accounting policies used to account for the transactions as required by paragraph 235-10-50-1
- 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. . . .
[T]he significant terms and conditions of transactions with a government
within the scope of this Topic. Terms and conditions that might be
appropriate to disclose include, but are not limited to, any of the
following:
- The duration or period of the agreement
- Commitments made by both the reporting entity and the government
- Provisions, if any, for recapture (for example, when the government can recapture amounts awarded), including the conditions under which recapture is allowed
- Other contingencies.
Further, ASC 832-10-50-5 notes that, in certain situations, the terms of the
government assistance may legally prohibit an entity from disclosing the
required information. In such circumstances, the entity must disclose a
description of the general nature of the information and indicate that it is
excluding the disclosures because of legal prohibitions.
Effective Date and Transition
The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning
after December 15, 2021. Entities may apply the ASU’s provisions either (1)
prospectively to all transactions within the scope of ASC 832 that are reflected in
the financial statements as of the adoption date and all new transactions entered
into after the date of adoption or (2) retrospectively. Early adoption is permitted.
Footnotes
1
FASB Accounting Standards Update (ASU) No. 2021-10,
Disclosures by Business Entities About Government
Assistance.
2
The ASU does not apply to not-for-profit entities or
employee benefit plans.
3
International Accounting Standard (IAS) 20,
Accounting for Government Grants and Disclosure of Government
Assistance.
4
For titles of FASB Accounting Standards Codification
(ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB
Accounting Standards Codification.”
5
See paragraph BC17 of the ASU.