Heads Up — FASB proposes ASU to increase transparency of accounting for government assistance arrangements
This issue discusses the FASB’s recently issued proposed ASU to increase transparency in financial reporting by requiring specific disclosures in the annual financial statements about government assistance received by businesses. Such disclosures would include (1) information about the nature of the government assistance received, (2) the line items of the balance sheet and income statement that are affected by government assistance, (3) significant terms and conditions of the government assistance agreement, and (4) unless impracticable, the amount of government assistance received but not recognized in the financial statements. Comments on the proposed ASU are due by February 10, 2016.
Background and Key Provisions of the Proposed ASU
There is no explicit guidance in current U.S. GAAP on the recognition, measurement, and disclosure of government assistance received by business entities. As a result, there is diversity in practice related to how business entities account for, and disclose information about, government assistance arrangements.
The proposed ASU would require business entities to disclose the following information about government assistance arrangements in their annual financial statements:
- Information about the nature of the assistance, including a general description of the significant categories and the related accounting policies adopted or the method applied to account for government assistance
- Which line items on the balance sheet and income statement are affected by government assistance and the amounts applicable to each line item
- Significant terms and conditions of the agreement, including commitments and contingencies
- Unless impracticable, the amount of government assistance received but not recognized directly in the financial statements. The amount of government assistance received but not recognized includes value that was received by an entity for which no amount has been recorded directly in any financial statement line item (for example, a benefit of a loan guarantee, a benefit of a below-market rate loan, or a benefit from tax or other expenses that have been abated).
Such disclosures would provide financial statement users with information about the effect of government assistance on an entity’s financial results and prospects for future cash flows. In addition, the disclosures would help users better assess the nature of the assistance.
The proposed amendments would apply to entities, other than not-for-profit (NFP) entities within the scope of ASC 958, that have entered into a “legally enforceable agreement with a government to receive value.” However, such provisions 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” of the entity.
Effective Date and Transition
The Board did not propose an effective date. Rather, the Board indicated that it plans to determine such date after considering stakeholders’ feedback on the proposed ASU. In addition, the Board noted that the proposed amendments would be applied to the first set of financial statements after the determined effective date and to all agreements (1) existing as of the effective date and (2) entered into after the effective date. Further, retrospective application would be allowed.
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