Proposed disclosures by businesses about government assistance
FINANCIAL REPORTING INSIGHTS |
Currently, generally accepted accounting principles lack explicit guidance regarding the disclosure of government assistance (e.g., grants, low-interest-rate loans, loan guarantees, tax incentives, tax abatements) received by business entities. Therefore, the Financial Accounting Standards Board recently issued a proposed Accounting Standards Update (ASU), Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which is intended to increase transparency about government assistance arrangements entered into by businesses and other for-profit organizations. Per the proposed ASU, the following disclosures would be required in annual financial statements:
- Information about the nature of the assistance, significant categories (e.g., grants, loans or tax incentives) 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
- Unless impractical, the amount of government assistance not recognized directly in any financial statement line item
The proposed guidance applies to an organization (other than not-for-profit business already covered under FASB Accounting Standards Codification 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 (a) 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 (b) solely a customer.
The FASB will determine the effective date of the ASU after considering feedback from stakeholders. In the first set of financial statements following the effective date, the amendments in the proposed ASU would be applied to all agreements (a) existing at the effective date and (b) entered into after the effective date. Retrospective application would be permitted.
The proposed ASU is available for comment until February 10, 2016.