Improved transparency around government grants.
The FASB issued accounting standards update (ASU) 2021-10 – Disclosures by Business Entities about Government Assistance. This organization establishes financial accounting and reporting standards for public and private companies and not-for- profit organizations that follow Generally Accepted Accounting Principles (GAAP) in the United States of America.
The FASB is issuing this Update to increase transparency of government assistance including the disclosure of:
- The types of assistance,
- An entity’s accounting for the assistance, and
- the effect of the assistance on an entity’s financial statements.
The amendments in this Update are effective for business entities except for nonprofit organizations and pension plans for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted.
Case study
Your organization accounts for government assistance that it received by applying a grant or contribution accounting model by analogy to other accounting guidance? If so, you should provide the following annual disclosures:
1. Information about the nature of the transactions and the related accounting policy used to account for the transactions;
2. 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;
3. Significant terms and conditions of the transactions, including commitments and contingencies.
The FASB acknowledges that diversity currently exists in the recognition, measurement, presentation, and disclosure of government assistance received by business entities because of the lack of specific authoritative guidance in generally accepted accounting principles (GAAP). The FASB believes that requiring disclosures about government assistance in the notes to financial statements will provide comparable and transparent information to investors and other financial statement users to enable them to understand an entity’s financial results and prospects for future cash flows.
Current GAAP has no specific authoritative guidance on the accounting for, or the disclosure of, government assistance received by business entities.