On November 17, 2021, FASB issued Accounting Standards Update (ASU) 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The narrow ASU creates new annual disclosures.
Scope
ASU 2021-10 applies to business entities that account for a government transaction by applying a grant or contribution accounting model by analogy to other accounting guidance, i.e., a grant model within International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, or Subtopic 958-605, Not-For-Profit Entities—Revenue Recognition. Government transactions include assistance that is administered by domestic, foreign, local (city, town, or county), and municipal, regional (state, provincial, or territorial), and federal governments and entities related to those governments (departments, independent agencies, boards, commissions, and component units). Government assistance also can be administered by intergovernmental organizations and other types of organizations such as nongovernmental organizations or government-sponsored enterprises that have authority from a government to administer assistance on its behalf.
ASU 2021-10 first requires preparers to evaluate if the government transaction is covered by other authoritative guidance for similar transactions. This wording excludes transactions covered by Topic 740, Income Taxes; Topic 450, Contingencies; and Topic 470, Debt. This wording would exclude new disclosures for many common governmental transactions such as tax abatements, transfer pricing, loan guarantees, and grants.
| ASU 2021-10 Scope | |
|---|---|
| Type of Assistance | Disclosure Required Under Topic 832 |
| Income tax credit | No, generally covered by Topic 740 |
| Forgiven Paycheck Protection Program (PPP) loans | Yes, if accounted for as a grant by analogy to Topic 958 or IAS 20 |
| Repayable PPP loans | No, if accounted for as debt under Topic 470 |
| CARES Act loans | No, if accounted for as debt under Topic 470 |
| Employee retention credits | Yes, if accounted for as a grant by analogy to Topic 958 or IAS 20 |
| Government contracts where the government is the customer | No, if accounted for under Topic 606 |
Required Disclosures
ASU 2021-10 requires the following annual disclosures about government transactions that are accounted for by applying a grant or contribution accounting model by analogy:
- Information about the nature of the transactions and the related accounting policy used to account for the transactions
- The balance sheet and income statement line items affected by the transactions, and the amounts for each financial statement line item. For example, if an entity is entitled to receive a grant for $100,000 ($20,000 per year) for the next five years that information should be disclosed. However, if an agreement indicates an entity is entitled to receive an amount that is based on 5% of gross revenue for the next five years, an entity would disclose those terms but would not be required to disclose a dollar amount
- Significant transaction terms and conditions, including:
- Duration of the agreement
- Commitments made by both the reporting entity and the government
- Provisions, if any, for recapture, e.g., when the government can recapture amounts awarded, including the conditions under which recapture is allowed
- Other contingencies, commitments, and contingencies
Effective Date & Transition
ASU 2021-10 is effective for all public and private business entities for financial statements issued for annual periods beginning after December 15, 2021. Early application is permitted. The changes can be applied either:
- Prospectively to all in scope transactions that are reflected in financial statements at the initial adoption date and new transactions thereafter, or
- Retrospectively
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