FEI’s Committee on Corporate Reporting (CCR) and Committee on Taxation (COT) filed a comment letter with the FASB on February 10th in response to the FASB’s proposed Accounting Standards Update, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, issued on November 12, 2015.
The proposal seeks to increase the transparency of information provided about government assistance through increased disclosures. In their comment letter, CCR and COT said they “are not convinced that there is an existing issue with government assistance that would require guidance in order to assist users’ understanding of the existing financial statements and supporting disclosures of filers.”
The proposed update would require entities to disclose the accounting for government assistance such as grants, low-interest-rate loans, loan guarantees, tax credits, tax exemptions, etc. The FASB noted that U.S. GAAP lacks explicit accounting guidance for government assistance received by entities, resulting in diversity in practice in assistance recognition, measurement and disclosure.
The increase in government assistance programs led FASB stakeholders to submit inquiries on the topic of accounting for government assistance. In addition, the July 13, 2012, SEC staff report, Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, identified government grants as an area of U.S. GAAP that needs continued development.
The proposed guidance would apply to arrangements in which an entity has entered into a legally-enforceable agreement with the government to receive value, except where the government is a customer of the entity. Additionally, the disclosures would not apply to benefits received that are broadly available to any entity that meets specified eligibility requirements.
Disclosure Requirements
Under the proposed Update, 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 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).
As noted in their the requirements of the proposed update may have broad implications as “government” is defined broadly as domestic and foreign governments, including related governmental entities and intergovernmental organizations. Additionally, the disclosure requirements may raise concerns regarding the public release of confidential information.
“We believe the breadth and scope of the proposed Update as written would expand disclosures well beyond the existing requirements, increasing costs for preparers without a discernable benefit given the limited inquiries received from financial statement users,” the letter states.
Lorraine Malonza, Managing Director – Technical Activities at Financial Executives International.