On Nov. 17, 2021, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2021-21 that requires for-profit entities to disclose certain types of government incentives they receive, including items such as cash grants, forgivable loans, tax abatements, etc. The new standard is effective for both private and public entities for fiscal periods beginning after December 15, 2021, although earlier application is also allowed. The disclosures will be made available in the businesses’ notes to their financial statements.
According to the FASB, the intent of the disclosures is to provide investors with information that accurately explains any government assistance agreement’s longevity, contingencies, and terms and conditions, as well as potential risks. The update will also allow investors to understand how agreements may affect financial results and enable them to make educated decisions regarding the future prospects an entity. Because generally accepted accounting principles (GAAP) do not specifically address government assistance, these disclosures will provide investors with essential information they otherwise might not acquire.
Though first proposed by the FASB in 2015, the ASU wasn’t initially well-received by some, as certain businesses were concerned about competitive information being disclosed. As a result, the FASB pared down their original version to narrow the scope of disclosure while still providing transparency.
The full update outlining the required disclosures is available on the FASB’s website and is labeled No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance.
Please contact your account executive or contact us if you would like to discuss how this ASU might impact your business and/or financial statements.