FASB project on government grants

Model

The Board indicated it wants to develop an accounting model that provides guidance on recognition, measurement and presentation of government grants received by business entities. The Board confirmed that the guidance in this project will apply to both public and private business entities.

Scope - definition of a government grant

The Board defined a government grant as assistance by a government in the form of transfers of monetary and tangible nonmonetary assets to a business entity. The project’s scope would include forgivable loans.

Scope exclusions

The project’s scope excludes:

• exchange transactions in the scope of ASC 606 (revenue from contracts with customers) or ASC 610-20 (gains and losses from derecognition of nonfinancial assets);
• items accounted for under ASC 740 (income taxes);
• below-market interest rate loans; and
• government guarantees.

Recognition

The Board tentatively agreed that the threshold to recognize government grants should be ‘probable’, consistent with ASC 606 and ASC 450-20 (loss contingencies).

The Board clarified that an entity would recognize a government grant when it is probable:

• the entity will comply with the conditions attached to the grant; and
• the grant will be received.

The Board confirmed that the project would include guidance for grants related to assets and grants related to income (grants other than those related to assets).

Grants related to income

The Board tentatively agreed that government grants related to income would be recognized in the income statement in the periods in which the entity incurs the grant-related costs.

These grants would be presented on the balance sheet as a deferred liability and as a credit balance in the income statement category related to the costs for which the grant is intended to compensate.

Grants related to assets

Grants related to assets are for the acquisition or construction of an asset and include the receipt of a nonmonetary asset.

The Board tentatively decided that a cost-accumulation approach would be applied to these grants. Therefore, monetary amounts received related to assets would reduce the cost basis of the related asset on the balance sheet, which would reduce the related depreciation expense on the income statement.

Statement of cash flows presentation

The Board tentatively agreed that cash inflows from government grants would be presented based on the principles in ASC 230 (statement of cash flows). 

The Board tentatively agreed to amend the scope of ASC 832 to include government grants that are in the scope of this project. The Board plans to consider additional decision-useful disclosure requirements.