FASB PROPOSES IMPROVEMENTS TO DISCLOSURES BY BUSINESSES ABOUT GOVERNMENT ASSISTANCE
Norwalk, CT, November 12, 2015—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) intended to increase transparency about government assistance arrangements entered into by businesses and other for-profit organizations. Stakeholders are encouraged to review and comment on the proposal by February 10, 2016.
The proposed ASU is intended to create greater transparency around financial reporting of government assistance arrangements that businesses enter into with governments. Currently, GAAP lacks explicit guidance for government assistance received by business entities (for example, grants, low interest rate loans, loan guarantees, tax incentives, tax abatements, or the transfer of assets from governments to businesses). This has resulted in diversity of practice and a lack of useful information in financial reporting about these arrangements.
The proposed ASU would provide users with more information about existing government assistance agreements to help them better assess the nature of the assistance and the significant terms and conditions of the agreement. Specifically, it would require disclosures about (1) the types of arrangements, (2) the accounting for government assistance, and (3) their effect on the business organization´s financial statements.
Under the proposal, businesses would be required to make the following disclosures in their annual financial statements:
The proposed guidance applies to an organization (other than not-for-profit business already covered under Topic 958, Not-for-Profit Entities) that enters into a legally enforceable agreement with a government to receive value. The guidance would not apply to transactions in which the government is (1) legally required to provide a nondiscretionary level of assistance to an entity simply because the entity meets applicable eligibility requirements that are broadly available without specific agreement between the entity and the government or (2) solely a customer.
- Information about the nature of the assistance, significant categories and the method applied to account for the government assistance
- Line items on the balance sheet and income statement that are affected by government assistance and applicable amounts
- Significant terms and conditions of the agreement including commitments and contingencies, and
- The amount of government assistance not recognized directly in any financial statement line item (unless impractical).
The proposed ASU—including information on how to submit comments—plus a FASB in Focus overview document are available at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.