Many for-profit businesses whose operations and supply chains were affected during the pandemic were able to obtain significant amounts of government funding. Through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, businesses, many of which were accepting government funding for the first time, received approximately $500 billion in aid. Prompted by a lack of authoritative guidance related to the disbursement of government funds to for-profit entities, the Financial Accounting Standards Board (FASB) has issued a new Accounting Standards Update (ASU) that increases transparency surrounding the provision of government assistance.
Disclosures by Business Entities Receiving Government Assistance
ASU 2021-10, Disclosures by Business Entities about Government Assistance, applies to all business entities that entered into a transaction with the government for assistance, and that prepare annual financial statements under generally accepted accounting principles (GAAP), whether they received government assistance through cash grants, forgivable loans, or non-cash items. This standard requires the following disclosures for government transactions 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 line items—on both the balance sheet and income statement—affected by the transactions with the governments, and the applicable amounts.
- Any significant terms and conditions of the transactions, including commitments and contingencies.
Before this standard, there was no GAAP guidance regarding disclosures for the receipt of government assistance. This is a significant change for business entities. The standard will be effective for financial statements issued for annual periods beginning after December 15, 2021. Organizations need to familiarize themselves with the new standard and the required disclosures. In addition, management must have clear and concise controls in place and documented.
Best Course of Action
These are significant changes for businesses, requiring clearer documentation and a greater understanding of entering into government assistance transactions. Organizations should reach out to designated government liaisons to ensure awareness of all compliance requirements surrounding any government funding received.
If you have questions related to this new standard and the related disclosures, or with any matter related to audit and reporting, one of our executive contacts would be happy to assist. You may email them below, or call (800) 270-9629.