Project Update

Disclosures by Business Entities about Government Assistance

Last updated on August 5, 2015. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)


The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective
*Decisions Reached at Last Meeting
*Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

 

Project Objective

The objective of this project is develop disclosure requirements about government assistance that improves the content, quality and comparability of financial information and financial statements and that is responsive to the emerging issues in the changing financial and economic environment in which reporting entities operate.

*Decisions Reached at Last Meeting (July 24, 2015)

The Board continued its deliberations discussing scope, disclosures, transition, and next steps.

Scope

The Board decided that the scope would be described as a legally enforceable agreement in which an entity receives value or benefit from the government. Generally, the agreement is negotiated and the government has some discretion over which entities to provide the assistance to and how much to give even if an entity meets the eligibility requirements. The scope would exclude transactions:
  1. In which the government is legally required to provide the assistance to an entity simply because the entity met the eligibility requirements
  2. In which the government is solely a customer.
The Board decided to provide illustrative examples of the types of arrangements that typically would and would not result in a legally enforceable agreement.

Disclosure Objectives

The Board decided that the objectives of the disclosures by business entities about government assistance should be as follows: The proposed disclosure requirements are intended to result in reporting entities providing information about existing government assistance agreements that will enable a user in assessing the:
  1. Nature of the assistance and related accounting policies used to account for government assistance
  2. Significant terms and conditions of the legally enforceable agreement
  3. Effect of government assistance on a reporting entity’s financial statements
  4. Assistance that has not been recognized in the financial statements but may have an effect on the financial statements in future periods.
Annual Disclosures

The Board decided that the following annual disclosures should be required:
  1. Information about the nature of the assistance and the related accounting policies adopted or the method applied to account for government assistance, including where it is presented on the balance sheet and income statement. The disclosure should reflect a description of how the accounting policies relate to the nature of the agreements and include:
    1. The nature of the assistance, including a general description of the significant categories. This could include grants, loans, or tax incentives and mechanisms by which the assistance has been received.
    2. The accounting policy used to account for government assistance.
    3. Where it is presented on the balance sheet and income statement and the amounts recognized.
  2. Significant terms and conditions of the agreement. This could include, but is not limited to, the following:
    1. The duration/period of the agreement, the tax rate, or interest rate
    2. Commitments made by both the reporting entity and the government
    3. Provisions, if any, for recapturing government assistance, including the conditions under which recapture is allowed
    4. Other contingencies.
  3. Amounts not recognized in an entity’s financial statements but that affect cash flows in the current period.
The Board decided not to require quantitative disclosure of amounts of government assistance expected to affect future periods under existing agreements based on predictions, forecasts, or other similar assertions about uncertain or unknown future events that are beyond management’s control.

Materiality and Level of Aggregation

The Board decided that the proposed amendments should refer to the guidance on materiality that is based on the decisions reached in the Disclosure Framework project and the proposed changes to Topic 235, Notes to Financial Statements.

Confidentiality

The Board decided to include a question in the proposed Accounting Standards Update about any impediments (for example, legal or otherwise) that may exist in government assistance agreements that would preclude an entity from disclosing the information that would be required by this project.

Interim Disclosures

The Board decided not to amend Topic 270, Interim Reporting, to add any specific interim disclosure requirements.

Private Company Considerations

The Board decided not to prescribe alternative disclosure requirements for private companies.

Transition and Next Steps

The Board decided that in the first set of financial statements following the effective date, an entity would apply the proposed disclosures on a modified prospective basis to:
  1. All agreements existing at the beginning of the current period
  2. All agreements entered into after the beginning of that period.
Retrospective application would be permitted.

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 90 days.

*Next Steps

The staff will develop a draft proposed Accounting Standards Update based on the tentative decisions reached by the Board. Please refer to the current technical agenda for information about the project timeline.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.

*July 24, 2015 Board Meeting—The Board continued its deliberations of this project. Decisions were reached on scope, disclosures, transition, permission to draft a proposed Accounting Standards Update, and the comment period for a proposed Accounting Standards Update.
December 17, 2014 Board Meeting—The Board continued deliberations focusing on the types of arrangements to which the newly developed disclosures would apply.
October 8, 2014 Board Meeting—The Board began initial discussions on the scope of this project.
January 29, 2014 Board Meeting—Agenda prioritization meeting about whether to add a project to the Board’s agenda on the accounting for government assistance.
January 15, 2014 Education Session—Additional research, outreach, and Discussion about whether to add a project to the Board’s agenda on the accounting for government assistance.
November 28, 2012 Education Session—Preliminary research and findings on the accounting for government assistance

Background Information

 A statement in the July 13, 2012 SEC staff report, Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, comparing U.S. GAAP to IFRS pointed out that U.S. GAAP contains areas, such as government grants, for which guidance is in need of continued development. Currently there is no explicit U.S. GAAP accounting standard for the accounting for government assistance. FASB Accounting Standards Codification® Topic 958, Not-for-Profit Entities, provides guidance for contributions received and applies to all entities that receive contributions. However, this guidance excludes tax exemptions, tax incentives, tax abatements, and the transfer of assets from governments to business entities from the scope.

Due to the lack of explicit U.S. GAAP guidance, a research project was initiated to determine whether to add a project to the Board’s agenda on the accounting for government assistance. The scope and accounting considerations of a potential project on the accounting for government assistance would consider the types of government assistance that are pervasive and material to reporting entities, the complexities and terms of government assistance programs and any diversity in practice that currently exists. Certain types of government assistance programs that may be considered in a potential project include grants related to assets or capital projects, payments for expenditures, low-interest and interest-free loans, loan guarantees, bond guarantees, revenue subsidies, certain insurance payments and tax assistance including tax credits, payments in lieu of tax credits, tax exclusions or exemptions, property tax abatements and other tax benefits.

At its January 29, 2014 meeting, the Board voted to add to its technical agenda Government Assistance Disclosures, a project to develop disclosure requirements about government assistance.

Contact Information

Elizabeth Gagnon
Project Manager
eagagnon@fasb.org

Ken Doherty
Postgraduate Technical Assistant
kjdoherty@fasb.org