Dive Brief:

• In a unanimous vote Wednesday the Financial Accounting Standards Board decided to begin developing a new standard to guide how companies account for government grants in their financial reports, citing the rise of government programs during the pandemic as a development that shed light on the need for the guidance. 

• The U.S. accounting standards setter put the project on its technical agenda, which signals it as a new priority. Earlier in the meeting a FASB staff member told the board there is currently “no authoritative guidance” that specifically addresses accounting for government grants in generally accepted accounting principles, according to a live-streamed video of the meeting. 

• Before casting her vote for the project, FASB member Susan Cosper, who acknowledged it was somewhat of an unusual topic given the board addressed the need for companies to disclose government assistance about two years ago in ASU 2021-10, said “we have this hole in GAAP and the pandemic has highlighted its existence.” 

Dive Insight:

The new government grant project is the latest addition to the FASB’s agenda, which has been packed with high-profile initiatives including its move to finalize new fair value accounting for certain crypto assets and another that will require companies to break out more tax information in their reports. 

“This was again a product from our agenda outreach where we heard fairly clearly that government grants are prevalent, they may become more prevalent in the future, and it makes sense for us to define a model on accounting for government grants to reduce diversity and increase transparency,” Richard Jones told CFO Dive in an interview after the meeting Wednesday. 

Currently preparers generally account for government grants in their financials by borrowing from international accounting guidance or other guidance in U.S. GAAP that is somewhat comparable to government grants.  

During the meeting, the board also voted to move ahead to finalize new accounting guidance on profits interest, which seeks to help report preparers determine whether certain awards should be treated as a share-based arrangement within the scope of compensation-stock compensation (known as Topic 718) or as a cash bonus or profit-sharing arrangement under general compensation guidance included in what is known as Topic 710. 

The final guidance update will be effective for public companies for fiscal years beginning after Dec. 15, 2024, according to a FASB spokesperson.