FASB Issues Guidance on the Accounting for Government Grants (December 4, 2025)

FASB Issues Guidance on the Accounting for Government Grants

Background

On December 4, 2025, the FASB issued ASU 2025-10,1 which adds guidance to ASC 8322 on the recognition, measurement, and presentation of government grants. In the absence of such guidance, many for-profit entities historically have analogized to other GAAP, including IAS 203 or ASC 958-605, when accounting for government grants. In developing the ASU’s recognition and measurement framework, the FASB largely leveraged the guidance in IAS 20.

Scope

ASU 2025-10 defines a government grant 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 an entity except for a not-for-profit entity and an employee benefit plan within the scope of Topics 960, 962, and 965 on plan accounting.” All business entities other than not-for-profit entities or certain employee benefit plans will be subject to the guidance in the ASU, but the new guidance will not apply to the following transaction types:

“Transactions within the scope of Topic 740 on income taxes (for example, nonrefundable, nontransferable income tax credits).”
“The benefit of below-market interest rate loans.”
“Government guarantees.”
“The transfer of an intangible asset or provision of a service.”
“A reduction of an entity’s liabilities (for example, sales, property, payroll, or other tax abatement).”
“Government participation in the ownership of an entity.”
“A contribution to a business entity from a nongovernmental source within the scope of Subtopic 958-605 on not-for-profit entities — revenue recognition.”
“A transaction within the scope of Topic 606 on revenue from contracts with customers or Subtopic 610-20 on other income — gains and losses from the derecognition of nonfinancial assets.”

The scope of ASU 2025-10 is consistent with that of the exposure draft issued in November 2024. Stakeholder feedback on the exposure draft asked the FASB to clarify whether transferable tax credits and leases would be specifically excluded from the final ASU. Paragraph BC29 of ASU 2025-10 states, in part, that “the Board decided not to expand the scope of the amendments in this Update to include intangible assets or a subset of intangible assets such as nonrefundable, transferable tax credits.”

Connecting the Dots

In the absence of authoritative guidance, business entities that generate transferable tax credits have established various practices. These credits may be transferred to an unrelated third party in an exchange transaction, and business entities may have already made an accounting policy election to account for such credits under ASC 740 or other GAAP. An entity generating the credits does not need taxable income to obtain an economic benefit from them. Many entities that elect to account for the transferable tax credits outside the scope of ASC 740 currently apply IAS 20 by analogy because the receiving entity is obtaining an asset (i.e., a transferable tax credit) from the government. This is similar to the manner in which entities account for refundable tax credits (which are effectively a monetary grant from the government). ASC 832-10-55-4 (added by ASU 2025-10) states, in part, that a “refundable tax credit that is not within the scope of Topic 740 on income taxes” should be accounted for as a government grant.

As noted above, the FASB decided not to expand the scope of ASU 2025-10 to include any intangible assets, including nonrefundable, transferable tax credits. Therefore, entities that account for nonrefundable, transferable tax credits outside the scope of ASC 740 will need to consider the appropriateness of their accounting policy upon adopting the ASU. We believe that upon adopting the ASU, entities may analogize to ASC 832 when accounting for nonrefundable, transferable tax credits. Entities should consider consulting with their accounting advisers if they currently analogize to IAS 20 or ASC 958-605 to account for nonrefundable, transferable tax credits. See additional discussion below.

Recognition, Measurement, and Presentation

Under ASU 2025-10, the recognition, measurement, and presentation of a government grant depends on whether the grant is related to an asset or to income. The ASU defines a grant related to an asset and a grant related to income as follows:

Grant related to an asset — “A government grant, or part of a government grant, that is conditioned on the purchase, construction, or acquisition of an asset (for example, a long-lived asset or inventory). Other conditions also may be attached, such as restricting the type or location of the asset, the periods during which the asset is to be acquired or held, or the disposal of the asset.”
Grant related to income — “A government grant, or part of a government grant, other than a grant related to an asset (for example, a grant that reimburses an entity for operating expenses).”

Regardless of whether a government grant is related to an asset or to income, an entity will not be able to recognize the grant until it is probable that both of the following criteria in ASC 832-10-25-1(a) (added by the ASU) will be met:

“The entity will comply with the conditions attached to the government grant.”
“The government grant will be received.”

In addition to the above, the ASU provides that an entity should not recognize on its balance sheet a grant related to an asset (e.g., as a receivable) until it “incurs the related costs for which the grant is intended to compensate” (see the Grant Related to an Asset section for a discussion of subsequent measurement). A grant of a nonmonetary asset is subject to the same recognition and subsequent measurement principles as a grant of a monetary asset. The ASU further provides that “[a] grant related to income shall be recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the grant is intended to compensate.”

Connecting the Dots

ASU 2025-10 clarifies that receipt of the grant does not, by itself, indicate that the recognition criteria are met. For example, the ASU includes within its scope forgivable loans issued by the government. Some entities currently account for forgivable loans from the government under ASC 470 and therefore recognize income related to the forgiveness of a loan only when the liability is extinguished in accordance with ASC 470-50. However, after the ASU is adopted, ASC 832 will apply to forgivable loans issued by the government. To recognize a forgivable loan as a government grant after adoption of the ASU, an entity will have to conclude that it is probable that the loan will be forgiven (i.e., it is probable that the entity will meet the conditions required for the loan to be forgiven). The entity will thus need to consider the conditions associated with the forgivable loan in determining the timing of recognition of the government grant in the income statement.

Grant Related to an Asset

ASC 832-10-25-4 (added by ASU 2025-10) allows an entity to use either of the following approaches to recognize a grant related to an asset:

Deferred income approach — Under this approach, an entity will recognize deferred income (liability) as a separate financial statement line item on the balance sheet. For a monetary grant, the deferred income initially recognized will be the amount of the monetary asset received or expected to be received on the date the grant meets the recognition criteria in ASC 832-10-25-1(a), which are discussed above. For a nonmonetary grant of a tangible asset (e.g., equipment or land), deferred income will be initially measured at the fair value of the asset received as of the date the grant meets the same recognition criteria in ASC 832-10-25-1(a). As stated in the ASU, the deferred income “shall be recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the government grant is intended to compensate.” If the grant that is being recognized under the deferred income approach is related to a nondepreciable asset (e.g., land), the grant “shall be subsequently recognized in earnings on a systematic and rational basis over the periods in which the entity incurs the costs to which the grant relates.” Regardless of the specific type of asset, the grant should be presented “as part of earnings either (1) separately under a general heading such as other income or (2) deducted from the related expense.”

Connecting the Dots

ASC 832, as amended by ASU 2025-10, states, in part, that an entity may present a grant in earnings “[s]eparately under a general heading such as other income.” The term “other income” is not intended to convey the same meaning in ASC 832 that it does in SEC Regulation S-X, Rule 5-03, “Statements of Comprehensive Income.” Whereas “other income” as used in Rule 5-03 represents income presented outside of operating income, the term as used in ASC 832 after adoption of the ASU implies that an entity should record the income within an income account (other than revenue from contracts with customers in accordance with ASC 606). An entity may present this “other income” as a component of income from operations if it is appropriate to do so on the basis of the entity’s facts and circumstances.
Cost accumulation approach — Under this approach, an entity will reflect a grant as a reduction of “the cost basis in determining the carrying amount of the asset.” For a nonmonetary grant involving the transfer of a tangible asset (e.g., equipment or land) from the government (the grantor) to a business entity (the grantee), the carrying value of the asset received will be the cost to the entity, if any. In the case of a monetary grant, an entity should initially measure the asset on the basis of the cost incurred to acquire or construct the asset less the monetary government grant received or expected to be received when the grant meets the recognition criteria. Note that there may be timing differences between when the asset is acquired or constructed and when the criteria for recognizing the grant are met (see Example 1 for an illustration of this concept). In accordance with this approach, recognition of a monetary asset grant reduces the carrying value of the asset, and since the grant will not be separately identifiable (i.e., it forms part of the carrying value of the related asset), no separate subsequent measurement or presentation guidance will apply (i.e., the entity would depreciate the asset net of the grant). Application of the subsequent measurement and presentation guidance will depend on the nature of the asset. In other words, the cost basis (net of the grant) will be subject to depreciation, impairment, or other subsequent measurement and presentation guidance (e.g., ASC 360-10 or ASC 330) depending on the asset’s nature.

Connecting the Dots

In paragraph BC63 of ASU 2025-10, the Board clarifies that “a business entity must choose an accounting policy to be applied consistently for similar types of grants.” Entities must carefully consider what accounting policy to elect for each type of grant since the adoption of the ASU will allow them to change or modify their current policy (e.g., their accounting policy for types of grants when analogizing to IAS 20). Once an entity makes an accounting policy election, it must maintain that accounting policy in accordance with ASC 250 and cannot change the policy unless doing so is preferable in accordance with ASC 250-10-45-2(b).

We believe that an entity that currently analogizes to IAS 20 or ASC 958-605 when accounting for government grants, including transfers from a government that may not be within the scope of ASC 832, as amended by ASU 2025-10 (e.g., nonrefundable, transferable tax credits), could apply the transition guidance in the ASU and make an accounting policy election if it plans to analogize to the new guidance in ASC 832. The entity may reasonably conclude that ASC 832, as amended by the ASU, is the most applicable U.S. GAAP to which to analogize when accounting for transfers from a government that are not specifically included within the scope of amended ASC 832 or any other U.S. GAAP. Therefore, the entity may adopt a new accounting policy upon the adoption of the ASU.

The example below illustrates the application of the guidance in ASU 2025-10 to a grant related to an asset.

Example 1

Entity A applied for a monetary grant that was approved by a federal governmental agency. The grant will be for $20 million, which A must use to build a manufacturing facility that is capable of producing 5 million vaccines and making them available for purchase by third parties. Entity A and the federal governmental agency have not entered into any agreements related to the agency’s purchase of vaccines or any minimum capacity of vaccines that must be reserved for such agency. In addition, A has concluded that the grant does not represent an exchange transaction because A does not have a contract under ASC 606 or ASC 610-20 with the governmental agency. None of the other scope exceptions in ASU 2025-10 apply, and A concludes that the grant is within the scope of the guidance in ASC 832, as amended by the ASU. Entity A has elected to apply the cost accumulation approach to account for grants related to an asset and will reflect the grant as an adjustment to the cost basis of the constructed asset.

On January 1, 20X0, A receives the $20 million from the federal governmental agency. At this time, A has not engaged a construction company to build the manufacturing facility and has not obtained any of the requisite permits from the local authorities. When the cash is received, A does not believe that it is probable that it will comply with the government grant’s conditions since it does not believe that it is probable that the local government will approve the project. As a result, A recognizes cash with a corresponding liability representing A’s contingent obligation to repay the federal government $20 million because the recognition criteria in amended ASC 832 have not been met.

As of June 30, 20X0, A has entered into a contract with a construction company to build the manufacturing facility and has incurred $15 million in costs. While the construction is not complete, all necessary permits have been acquired and the construction company has a history of completing similar projects. On June 30, 20X0, A believes that it is probable that it will comply with the conditions attached to the grant, and the grant has already been received. Under the cost accumulation approach, A should recognize the asset at its cost incurred to date (i.e., $15 million) less $15 million (i.e., the portion of the grant recognized) since the grant should be recognized when, and to the extent that, the costs are incurred. This results in no net asset being recorded on the balance sheet as of June 30, 20X0. Because not enough costs have been incurred to recognize the entirety of the grant, we believe that A should continue to present $5 million as a liability on the balance sheet.

As of December 31, 20X0, the construction is complete, and the manufacturing facility is ready to be placed into service. Entity A has incurred a cumulative $50 million cost related to the construction of the facility. After the grant is accounted for under the cost accumulation approach, the carrying value of the manufacturing facility is $30 million as of December 31, 20X0. Note that for simplicity, the manufacturing facility is treated as a single asset even though such a facility typically consists of several assets, including the land, building, machinery, and equipment. We believe that an entity may use a reasonable approach to allocate the grant among the different assets, or it may conclude that the grant is related to a primary asset (e.g., the building) and allocate it to that single asset.

The manufacturing facility will be subject to the guidance in ASC 360-10 on subsequent measurement, including depreciation and impairment. In A’s application of that guidance, the initial carrying amount of the manufacturing facility will be $30 million.

Grant Related to Income

As previously noted, a grant related to income will be “recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the grant is intended to compensate.” If an entity receives a grant related to income before it incurs the expenses associated with the grant, the entity will recognize a deferred credit liability that will be reduced as the grant is recognized (“on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the grant is intended to compensate”). Alternatively, if an entity receives a grant related to income after it incurs the expenses or losses associated with the grant, the entity will recognize the grant in earnings in the period in which the recognition criteria in ASC 832-10-25-1(a) are met, which may be earlier than when the grant is received.

In a manner similar to how a grant related to an asset is accounted for under the deferred income approach, the earnings impact of a grant related to income will be either (1) recorded “separately under a general heading such as other income” or (2) “deducted from the related expense.”

The example below illustrates the application of the guidance in ASU 2025-10 to a grant related to income.

Example 2

Entity B manufactures medical devices and is developing a new product that uses cutting-edge technology to aid in patient sample collection (e.g., blood and tissue samples). In 20X1, B applies for a grant from the government. If B obtains the grant, the government will reimburse B for expenses incurred in its research and development (R&D) efforts related to getting this product to market.

On December 1, 20X1, B is approved for a $1 million government grant that requires B to submit its qualifying R&D expenses to the government in exchange for subsequent reimbursement on a cost-reimbursement basis. Entity B forecasts that it will incur costs of $1.5 million that would be considered qualifying R&D expenses. On the date of the grant (December 1, 20X1), B determines that it is probable that the conditions for the grant will be met and that the grant will be received as long as qualifying expenses are incurred. However, on December 1, 20X1, B does not record anything related to the grant. This is because the grant has not been received and no qualifying expenses have been incurred.

During 20X2, B incurs $1.5 million of qualifying R&D expenses. Entity B receives all of the $1 million grant on December 15, 20X2. Entity B recognizes the grant systematically throughout the period in which the expenses were incurred, up to the $1 million, and elects to record the grant related to income in earnings as a deduction in reporting the related expense. This results in $500,000 ($1.5 million incurred – $1 million grant = $500,000 earnings impact) of R&D expenses associated with the recognition of the project in earnings during 20X2.

Statement of Cash Flows Presentation

Rather than providing prescriptive guidance on the appropriate presentation of government grants in the statement of cash flows, ASU 2025-10 refers to general principles of ASC 230. The Board clarifies in paragraph BC59 of the ASU that an “entity may classify proceeds from a grant related to income as a cash flow from an operating activity or as a cash flow from a financing activity.” For grants related to an asset, an entity may classify proceeds “as a cash flow from an operating activity, an investing activity, or a financing activity.” Entities will need to apply significant judgment when determining the underlying nature of the grant and the resulting presentation in the statement of cash flows. An entity’s election of the classification of proceeds from grants represents an accounting policy that the entity should disclose and apply consistently in similar arrangements.

Connecting the Dots

An entity’s classification in the statement of cash flows of proceeds from a grant related to an asset depends on (1) the nature of the asset to which the grant is related, (2) the timing of the cash flows (e.g., before or after the criteria in ASC 832 are met), and (3) the entity’s interpretation of ASC 230. We expect that entities will need to continue to apply judgment in determining the appropriate classification of proceeds from a grant related to an asset.

We believe that it would be appropriate to present government grants in the statement of cash flows as follows:

Grant related to an asset — If an entity receives cash for a grant related to an asset after incurring the costs associated with manufacturing or acquiring the asset, it would be appropriate to present the cash inflow in the same category as that of the original payment for the associated asset. The majority of government grants related to an asset are for a productive asset (e.g., property, plant, and equipment), and it would be appropriate to present the cash inflow in such cases as an investing activity. However, certain government grants related to an asset may be for an operating asset (e.g., inventory). If a monetary grant is related to an operating asset, it would be appropriate to present that cash inflow as an operating activity. If the grant funding is received before the expenditures have been incurred, it would be appropriate to present that cash inflow as a financing activity because receiving the cash before incurring the related cost would be similar to receiving a refundable loan advance that is restricted by donor stipulation to investment in the asset (which ASC 230-10-45-14(c) indicates should be presented as a financing cash flow). In addition, when an entity incurs the costs associated with the grant, it should disclose a noncash financing activity resulting from the fulfillment of the grant requirements.
Grant related to income — If an entity receives cash for a grant related to income after incurring the qualifying expenses, the grant would be presented as an operating activity since the cash receipt is reimbursing the entity for operating expenses incurred. If the entity receives cash before incurring the qualifying costs, it must consider whether to present the cash inflow as (1) a financing activity in a manner consistent with the guidance on government grants related to an asset or (2) an operating activity. Given the absence of explicit guidance, either of these two approaches would be acceptable for presenting the cash inflow for a government grant received before the related expense is incurred.

Disclosure

Under ASU 2025-10, the current disclosure requirements in ASC 832 for government assistance mostly will continue to apply to government grants. The ASU clarifies that for a grant related to an asset accounted for under the cost accumulation approach, an entity only needs to “disclose the line items on the balance sheet and income statement that are affected by the grant and the amounts applicable to each financial statement line item” in the period in which the grant was recognized. Similarly, if the cost accumulation approach is used, an entity will only be required to disclose the useful life of the related depreciable or amortizable asset in the period in which the grant was recognized. Further, the ASU adds a requirement to disclose the fair value of tangible nonmonetary assets that are received as a government grant even if accounted for under the cost accumulation approach.

Other Matters

Repayment of Government Grants

ASU 2025-10 provides guidance on repayments that occur after a government grant has initially been recognized.

For a grant related to income, the repayment will first be applied against any deferred income liability remaining. Any excess repayment beyond the deferred income liability will then be immediately recognized in earnings.

For a grant related to an asset, the repayment will be recognized by increasing the carrying amount of the asset (if the cost accumulation approach was used) or reducing the deferred income balance (if the deferred income approach was used) by the amount repayable. An entity will recognize in earnings the cumulative effect of additional depreciation, impairment, or gain or loss on a prior sale of the asset as of the date of the repayment.

Business Combinations

ASU 2025-10 includes amendments to ASC 805-20 that add an exception to the recognition and measurement principles for liabilities associated with grants related to income. The acquirer must recognize deferred income in accordance with ASC 832 unless the acquiree has already fully complied with the conditions associated with the grant. The acquirer must also measure the deferred income in accordance with ASC 832.

Effective Dates and Transition

Effective Dates

For public business entities (PBEs), ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, including interim periods within those fiscal years. For non-PBEs, the ASU is effective for fiscal years beginning after December 15, 2029, including interim periods within those fiscal years. Early adoption is permitted.

Transition

Entities should apply the guidance in ASU 2025-10 by using one of the following transition methods:

Modified prospective approach — Under this approach, the amendments in the ASU are applied to government grants that are not complete4 as of the adoption date (i.e., the beginning of the adoption period) and to any new government grants entered into after that date. There is “no cumulative-effect adjustment to the opening balance of retained earnings” under the modified prospective approach.
Modified retrospective approach — Under this approach, the amendments in the ASU are applied to “government grants that are not complete[5] as of the beginning of the earliest period presented” upon adoption and to any new government grants entered into after that date. Entities should record a “cumulative-effect adjustment to the opening balance of retained earnings” and restate all prior periods on the basis of their adjustments.
Full retrospective approach — Under this approach, the amendments in the ASU are applied to all government grants. Entities must record a “cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the earliest period presented.”

Contacts

	Chris Chiriatti Audit & Assurance Managing Director Deloitte & Touche LLP +1 203 761 3039 cchiriatti@deloitte.com		Ignacio Perez Audit & Assurance Managing Director Deloitte & Touche LLP +1 203 761 3379 igperez@deloitte.com
	Kristin Bauer Audit & Assurance Partner Deloitte & Touche LLP +1 312 486 3877 kbauer@deloitte.com		Michael Parducci Audit & Assurance Senior Manager Deloitte & Touche LLP +1 425 466 7474 mparducci@deloitte.com

Footnotes

1FASB Accounting Standards Update (ASU) No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities.

For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.

ASC 832-10-65-2(d)(1)(ii) (added by ASU 2025-10) states, in part, that “[a] government grant is complete when substantially all of the government grant proceeds have been recognized before the effective date of the [amendments in the ASU].”

ASC 832-10-65-2(d)(2)(ii) (added by ASU 2025-10) states, in part, that “[a] government grant is complete when substantially all of the government grant proceeds have been recognized before the beginning of the earliest period presented in which the [amendments in the ASU are] adopted.”

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