AICPA’s FinREC Encourages FASB to Develop Recognition and Measurement Guidance for Government Grants

The American Institute of CPAs’ (AICPA) Financial Reporting Executive Committee (FinREC) submitted comments to the Financial Accounting Standards Board (FASB) regarding the Board’s Exposure Draft (ED), Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance. 

In its February 10 letter, FinREC expressed its appreciation for the FASB’s effort to increase transparency about government assistance arrangements by requiring disclosures in the notes to business entities’ financial statements and agreed with the FASB that there is currently a lack of guidance on recognition and measurement of government assistance arrangements in US GAAP.  “Accordingly,” the letter stated, “we believe the Board should also develop recognition and measurement guidance for government assistance arrangements.” 

FinREC recommended as a starting point to develop such guidance that the Board could explore the concepts in International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, because the Board’s constituents have experience with that standard.  The letter noted that the AICPA Accounting Standards Executive Committee’s 1979 Issues Paper Accounting for Grants Received from Governments launched what would become IAS 20.  “We continue to believe that the scope of IAS 20 and its focus is a useful starting point for the FASB,” the letter stated.  Furthermore, as part of its initial research, FinREC also suggested that the FASB solicit input from preparers, auditors, and users of financial statements to obtain their views on the needs of those parties in relation to that standard.

“Should the Board decide to proceed with a standard on disclosures only,” FinREC wrote in the letter, “we have some concern about the broad scope of the proposal and whether application of the proposal to such a wide range of arrangements could have unintended consequences and result in disclosure of information that is not decision-useful.”

FinREC cited as an example of its concern certain transactions accounted for under other ASC topics, such as ASC 740, Income Taxes, which FinREC wrote it believes should be excluded from the scope of the disclosure requirements.  Arrangements between the reporting entity and taxing authorities, including foreign governments, can be sensitive, and disclosing them might cause the reporting entity to violate nondisclosure provisions or otherwise cause economic harm to the reporting entity, FinREC stated.  “To the extent that the Board believes that increased transparency is necessary in the disclosure of income taxes as it relates to government assistance, we would recommend that the Board address those disclosure requirements as part of its more holistic project on income tax disclosures,” FinREC wrote.