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Don’t Drop Efforts on Accounting Rules for Government Grants, Small Public Filers tell FASB

Denise Lugo  Editor, Accounting and Compliance Alert

Denise Lugo  Editor, Accounting and Compliance Alert

The FASB’s current research on accounting for government grants should be advanced to its rulemaking agenda – and as a priority matter – as the topic is pervasive and rife with reporting diversity, small public filers told the board.

“I think it should be a priority; I’ve been at least at three companies where this has been relevant – large and small,” Ryan Siurek, chief accounting officer at Biodesix, Inc., said during Small Business Advisory Committee (SBAC) discussions on Nov. 10, 2022.

“You’ve got the 2008-09 financial crisis and all of the activities from the government that occurred; you’ve got the pandemic and the [Paycheck Protection Program] loans and you’ve got – I know this isn’t included – but you’re got below market loans,” he said. “There’s a lot of government grant activity and I think there’s diversity in practice.”

Under its research effort, the FASB is studying whether to incorporate International Accounting Standard (IAS) 20Accounting for Government Grants and Disclosure of Government Assistance into U.S. GAAP as designed.

Feedback from the SBAC was a clear “no.”

“I would not favor an approach that someone just adopts IAS 20 – [but] I think IAS 20 is a good starting point,” Siurek said.

The 12-member SBAC serves as a standing resource for the FASB, providing focused input from the perspective of small public companies.

“I do think this is important, especially you’ve got the Inflation Reduction Act and you’ve got things like carbon credits etc.,” Steven Yang, Fundamental Analyst, Aquila Group of Funds, said. “A lot of times there are just different levels of grants and credits both on the federal as well as the state level,” he said. “One thing I want to focus on is just being able to delineate the cadence of the grants. So one thing we talk about as investors is ‘what are your cadence in terms of is this quarterly, is this annually, and how much would that total.’”

The remarks were focused on helping the FASB to determine whether it was on the right track on the topic which has been on its research agenda since December 2021.

Earlier this year in June, the FASB issued Invitation-to-Comment (ITC) No. 2022-002, Accounting for Government Grants by Business Entities: Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles, to solicit public feedback on whether to add a project to its technical rulemaking agenda. (See FASB Seeks Input: Are International Accounting Rules on Government Grants Good Fit for U.S.? in the June 14, 2022, edition of Accounting & Compliance Alert.)

The ITC garnered 31 comment letters by the Sept. 12 deadline.

Currently, there is no specific recognition and measurement standard in U.S. GAAP for reporting government grants and assistance for businesses and thus companies analogize either to IAS 20, or other rules. This has caused reporting differences between companies, making it difficult for investors to make useful comparisons.

The SBAC’s discussions also signaled that private companies would also be in favor of the development of accounting provisions.

“Seems to me that absolutely there ought to be a project, because at least in my part of the world there are just more and more government grants,” said Richard “Dood” Forrestel, treasurer at Cold Spring Construction, a privately-owed company in Western New York. “And this is an issue, and I see it time and time again – I’m on a couple of different boards and I’ve seen it in at least two of the companies that I’m involved in,” he said. “And I don’t particularly like all the optionality, that’s just what we have here, I’m not a real fan of that. I really do think that this is a project where it does matter.”

Providing a full accounting standard on accounting for government incentives has evaded the FASB in the past because it tried to tackle the topic too broadly, according to board discussions almost a decade ago. Last year however, after narrowing a prior disclosure proposal, the board issued Accounting Standards Update (ASU) No. 2021-10Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, with a promise that reporting rules would follow.

The board is aware that scoping its current research project narrowly to government grants is critical to ensuring the project gets completed is a timely manner, SBAC discussions indicated. Excluded from the scope, for example, would be highly controversial areas that could stall the project such as property tax abatements, sales tax abatements and below market loans.

“Our project on disclosures last time started broad,” FASB Vice Chair James Kroeker observed. “And you get into some pretty interesting questions if you try and figure out ‘what prices of loans would be without government involvement and monetary policy’ and Fannie and Freddie and providing for assistance in different formats where you can get into ‘what the price of gas would be if the government wasn’t releasing the strategic stockpile – is that a form of government assistance in fuel pricing today’ and to figure out the hypothetical fair value that one would have transacted at,” he said. “And so [we’re] trying to scope this more discretely.”

 

This article originally appeared in the November 14, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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