The Financial Accounting Standards Board has issued a proposed accounting standards update to increase transparency about government assistance to businesses.
The proposed update aims to create more transparency in financial reporting of government assistance arrangements that businesses and other for-profit organizations enter into with governments. Currently, U.S. GAAP lacks explicit guidance for government assistance received by business entities (for example, grants, low interest rate loans, loan guarantees, tax incentives, tax abatements, or the transfer of assets from governments to businesses). FASB noted this has resulted in diversity of practice and a lack of useful information in financial reporting about such arrangements.
FASB's sister organization, the Governmental Accounting Standards Board, is also asking for more disclosure by state and local governments of tax abatement agreements (see GASB Requires Disclosure of Tax Abatements).
The proposed accounting standards update would provide users with more information about existing government assistance agreements to help them better assess the nature of the assistance and the significant terms and conditions of the agreement. Specifically, it would require disclosures about (1) the types of arrangements, (2) the accounting for government assistance, and (3) their effect on the business organization’s financial statements.
Under the proposal, businesses would be required to make the following disclosures in their annual financial statements:
• Information about the nature of the assistance, significant categories and the method applied to account for the government assistance;
• Line items on the balance sheet and income statement that are affected by government assistance and applicable amounts;
• Significant terms and conditions of the agreement including commitments and contingencies, and
• The amount of government assistance not recognized directly in any financial statement line item (unless impractical).
The proposed guidance applies to an organization (other than not-for-profit business, which are already covered under Topic 958, Not-for-Profit Entities) that enters into a legally enforceable agreement with a government to receive value. The guidance would not apply to transactions in which the government is (1) legally required to provide a nondiscretionary level of assistance to an entity simply because the entity meets applicable eligibility requirements that are broadly available without specific agreement between the entity and the government or (2) solely a customer.
The proposed update—including information on how to submit comments—plus a FASB in Focus overview document are available at www.fasb.org. FASB is encouraging stakeholders to review and comment on the proposal by Feb. 10, 2016.
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