The American Institute of Certified Public Accountants (AICPA) recently issued Technical Q&A 5270.01, which discusses recipient accounting for Shuttered Venue Operators Grants (SVOG) and Restaurant Revitalization Fund (RRF) grants received under the Small Business Administration COVID-19 Relief Programs.
For business (for-profit) entities, there is no explicit guidance within U.S. generally accepted accounting principles regarding the accounting for government grants. The AICPA staff has observed that the following guidance might be considered for application by analogy:
- International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. Under IAS 20, government grants cannot be recognized in income until there is reasonable assurance that a recipient (a) will comply with the conditions associated with the grant and (b) will receive the grant. Once there is reasonable assurance that the conditions will be met, the earnings impact is recorded "on a systematic basis over the periods in which the entity
recognizes as expenses the related costs for which the grants are intended to compensate." A grant related to income may be reported either as income or as a reduction in the related expense the grant is intended to defray. If the amount of payments received or receivable at a reporting date exceeds the amount of the grant for which the reasonable assurance threshold has been met, the difference is reported as a refundable advance (i.e., a liability).
- Financial Accounting Standards Board Accounting Standards Codification (ASC) Subtopic 450-30, Contingencies – Gain Contingencies. Under ASC 450-30, the earnings impact of a gain contingency is recognized when all the contingencies related to receipt of the assistance have been met and the gain is realized or realizable. A business entity would record the payments received under the SVOG or RRF grants as a refundable advance (i.e., a liability) until the grant proceeds are realized or realizable, at which time the earnings impact would be recognized.
- ASC 958-605, Not-for-Profit Entities – Revenue Recognition, which is discussed in the following paragraph.
Not-for-profit (NFP) entities should account for government grants in accordance with the “contributions received” subsections of ASC 958-605. SVOG and RRF grants would be considered conditional contributions under ASC 958-605, and thus, contribution revenue would be recognized only to the extent that eligible expenses have been incurred at a given reporting date. Payment amounts received that exceed recognizable contribution revenue (for example, because entitlement is conditioned on eligible expenses that are expected to be incurred in the subsequent accounting period) are reported as a refundable advance (i.e., a liability). Payments would be considered to be donor-restricted. Due to the linkage of the conditions with the restrictions, restrictions likely will be satisfied simultaneously with meeting the conditions (but each entity’s specific facts and circumstances would need to be considered). Thus, any contribution revenue recognized would be reported as an increase in donor-restricted net assets, along with a reclassification to net assets without donor restrictions to reflect the satisfaction of the restriction. However, an NFP entity that has elected one of the "simultaneous release" accounting policy options described in ASC 958-605-45-4A-B (for donor-restricted contributions whose restrictions are met within the same reporting period) would be permitted to report the contribution revenue directly in net assets without donor restrictions.