Companies will likely get to weigh in during this year’s second quarter on whether the FASB should merge international accounting rules on government grants to businesses into U.S. guidance, according to a source.
The board plans to issue an Invitation-to-Comment (ITC) around that time to gauge interest in the development of recognition and measurement rules based on International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure.
An ITC does not contain board views but is used by the board to determine early views by companies, which helps to set the scope of the work.
The move comes as no explicit guidance exists under U.S. GAAP for government assistance received by companies and recognition and measurement differences have bubbled up. The reporting differences make it tougher for investors to compare reports when making investment decisions.
Some companies, for example, apply contributions guidance under Subtopic 958- 605, Not-for-Profit Entities—Revenue Recognition, while others apply either IAS 20, Topic 470, Debt, or Topic 450, Contingencies.
The topic has come under the scrutiny of watchdog groups such as Good Jobs First, who have said that conglomerates – such as Amazon and others – get billions of dollars of tax breaks but provide skimpy details in their financial reports about the cost to taxpayers.
To those involved, government assistance is a win-win. Policymakers use incentives such as tax credits and other subsidies to lure big businesses to establish warehouses in their state with the goal of driving economic growth and boosting jobs for residents. The state aid enables those companies to grow their operations in areas they otherwise would not and ways they otherwise could not.
Last year, after about seven years of effort, the FASB issued Accounting Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance. The rules comprise a narrow package of disclosures that would bring more insight into items such as forgivable loans from the government or a receipt of cash or other assets based on the accounting method a company used to record the transaction.
The standard is viewed by the board as a first stab at tackling the topic, according to prior discussions.
Main Advisory Body to Discuss in March
Currently, there is a lot of buzz at the FASB around a potential project.
Specifically, in December FASB Chair Richard Jones added a research project to study whether IAS 20 should become authoritative rules for U.S. companies.
Government grants will also be addressed by the Financial Accounting Standards Advisory Council (FASAC) on March 15, 2022, chair Michael Morrow said at a board trustee meeting on February 15. The FASAC is the main body of advisers to the FASB, comprising of about 35 senior finance leaders and investors.
The topic was also included in ITC No. 2021-004 , Agenda Consultation, which was issued in June 2021 to solicit public comment about the board’s five-year technical agenda and priorities.
About 40 percent of the 520 comment letters to the ITC provided feedback on recognition and measurement of government grants for business entities, according to a FASB staff analysis. Under 20 percent of respondents identified the area as a top priority for the board, while less than 10 percent expressed that, in their view, it does not warrant further consideration by the Board at this time.
Some said that the COVID-19 pandemic highlighted the need for this guidance and that the need continues to exist. Several noted that the lack of specific authoritative accounting guidance for the recognition and measurement of government grants has led to significant diversity in practice among companies.
This “diversity in practice has led to application that does not properly reflect the impacts or economic substance of government grants and other government assistance programs,” analysis states. Those respondents said that “reducing diversity in practice would increase both relevancy and representational faithfulness of financial information provided to investors and other financial statements users.”
Those who did not support a project cited that “there is no pervasive need to provide guidance because companies are able to apply other guidance by analogy.”
This article originally appeared in the February 22, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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