On December 4, 2025, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (ASU 2025-10). This ASU brings clarity and consistency to the accounting for government grants, reducing diversity in practice and aligning U.S. generally accepted accounting principles more closely with international standards by leveraging existing guidance in International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.
The amendments in ASU 2025-10 apply to all business entities that receive government grants in the form of monetary assets or tangible nonmonetary assets. The standard does not apply to not-for-profit entities and employee benefit plans and excludes exchange transactions, income taxes, below-market rate loans and government guarantees.
Under the ASU, entities may recognize government grants only when it is probable that they will comply with grant conditions and the grant will be received. Recognition is further tied to the incurrence of costs for which the grant is intended to compensate. For grants related to assets, entities may elect either the deferred income approach (recording the grant as deferred income and recognizing the deferred income in earnings over the asset’s useful life) or the cost accumulation approach (recording the grant as a reduction to the related asset’s carrying amount). Grants related to income are recognized in earnings on a systematic or rational basis over the periods in which the related expenses are incurred.
A grant related to income or a grant related to an asset accounted for under the deferred income approach may be presented either separately under a heading such as other income or deducted from the related expense. A grant related to an asset accounted for under the cost accumulation approach will be presented on the balance sheet as part of the carrying amount of the asset.
Additionally, the ASU requires disclosures about the nature of grant received, accounting policies used to account for the grant, significant terms and conditions of the grant and the fair value of tangible nonmonetary assets received as a grant in the period recognized. For grants related to an asset that is accounted for under the cost accumulation approach, disclosures also include the line items on the balance sheet that are affected by the grant and the amounts applicable to each financial statement line item, including the useful life of any related depreciable or amortizable asset. These additional disclosures are limited to the period the grant is recognized on the balance sheet.
Public business entities (PBEs) must adopt the amendments in ASU 2025-10 for annual periods beginning after December 15, 2028, including interim periods within those annual periods; entities other than PBEs have until annual periods beginning after December 15, 2029, and interim reporting periods within those annual periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance; however, a business entity adopting the amendments in an interim period is required to adopt them as of the beginning of the annual reporting period that includes that interim reporting period.
The amendment in ASU 2025-10 should be applied using either (a) a modified prospective approach, (b) a modified retrospective approach, or (c) a retrospective approach.
