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FASB Aims to Improve Government Assistance Disclosures for Businesses

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Nov 16th 2015
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The Financial Accounting Standards Board (FASB) issued a proposed accounting standard on Nov. 12 that would increase transparency about government assistance to businesses.

The move is in response to increasing amounts of government assistance, such as tax incentives, low interest rate loans, loan guarantees and grants, and a lack of US GAAP guidance for financial reporting about it.

The lack of guidance has resulted in what the FASB describes as a “diversity of practice and lack of useful information” about the assistance. In 2012, US Securities and Exchange Commission staffers also identified government assistance as a GAAP area in need of exploration.

“Pre-agenda research revealed that there are many pervasive forms of government assistance,” the proposal states. “Requiring disclosures about government assistance in the notes to financial statements could improve the information that is provided to users when analyzing an entity's financial results and prospects for future cash flows.”

The proposed Accounting Standards Update, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance, would apply to organizations that have a legally enforceable agreement with a government to receive value. It wouldn't pertain to deals where a government is required to provide assistance to an eligible business where an agreement isn't needed or to a customer. The proposal also would not apply to nonprofits that are covered under Topic 958, Not-for-Profit Entities.

The proposed disclosures would require the following:

  • The nature of the assistance, significant categories, and the accounting method applied.
  • Line items on the balance sheet and income statement affected by the assistance and applicable amounts.
  • Terms and conditions of the assistance agreement.
  • Unless impracticable, the amount of government assistance received but not recognized directly in the financial statements. That amount includes value received by an entity for which no amount has been recorded directly in any financial statement line item, such as benefits from a loan guarantee, below-market rate loan, or abatement of tax or other expenses.

The FASB's proposal also indicates that the required disclosures generally are consistent with those required by International Financial Reporting Standards.

In the absence of GAAP guidance, issuers have looked to IAS 20 for guidance – and it does provide guidance on government grants – but it doesn't cover other types of government assistance. IAS 20 doesn't address government business assistance given as benefits available in determining taxable profit or loss, or that is determined based on income tax liability.

Comments on the proposal are due by Feb. 10, 2016. Instructions on how to submit feedback can be found in the proposed Accounting Standards Update.

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