The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.
The ASU intends to increase transparency in financial reporting by requiring business entities to disclose, in notes to their financial statements, information about government assistance received.
Examples of government assistance can include a forgivable loan or the receipt of cash or other assets resulting from a transaction with a government.
The amendments apply to business entities that account for a transaction with a government by applying a grant or contribution accounting model by analogy to other accounting guidance—such as Topic 958, Not-for-Profit Entities, or International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance.
The amendments don’t apply to the following:
- Not-for-profit entities within the scope of Topic 958
- Employee benefit plans within the scope of Topic 960, Plan Accounting—Defined Benefit Pension Plans; Topic 962, Plan Accounting—Defined Contribution Pension Plans; and Topic 965, Plan Accounting—Health and Welfare Benefit Plans
Under the amended guidance, transactions with a government include assistance that’s administered by domestic, foreign, local, regional, and federal governments and entities related to those governments.
Due to the lack of specific authoritative guidance in current generally accepted accounting principles (GAAP), diversity currently exists in the recognition, measurement, presentation, and disclosure of government assistance that business entities receive.
To address investor concerns, the amendments introduce Topic 832, Government Assistance, which requires disclosures about certain types of government assistance.
Topic 832 requires the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy:
- Information about the nature of the transactions, including a general description of the transactions and the form in which the assistance has been received
- The accounting policy used to account for the transactions
- The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item in the current reporting period
- Significant terms and conditions of the transactions, including but not limited to the duration of the agreement, commitments made by both parties, provisions for recapture, and other contingencies
Entities that are legally prohibited from disclosing the above information must disclose a description of the general nature of the information and indicate that the omitted disclosures are legally prohibited from being disclosed.
The amendments are effective for all in-scope entities for financial statements issued for annual periods beginning after December 15, 2021.
Early application is permitted.
The amendments should be applied either retrospectively or prospectively to all transactions within the scope of the amendments reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application.
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