The Latest in Accounting for Government Assistance What Nonprofits Need to Know
Back in November 2015, the FASB released a proposed accounting standard update (ASU) designed to increase transparency about government assistance to businesses for comment. This proposed ASU, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance
, was developed in response to increasing levels of monetary assistance from both the federal government and state and local governments as well. In the proposed ASU, nonprofits have been initially scoped out.
Although the title of the ASU addresses Government Assistance
, the ASU does not cover state and local government grants and contracts received by nonprofits. For nonprofits, the question remains as to whether funds received from government grants and contracts qualify as revenue from a contract with a customer – which would fall under Topic 606, Revenue from Contracts with Customers
– or as a contribution from a donor (in this case, the government).
The government assistance covered by the standard comes in a wide variety of forms, including but not limited to government grants, tax incentives and credits and low-interest rate loans, received by a for-profit entity.
The proposed ASU was developed to supplement the lack of financial reporting guidance currently under U.S. GAAP on these types of assistance programs. Some organizations, both for-profit and nonprofit, have looked for clarity in how to report government assistance by looking to the International Accounting Standards Board’s IAS 20
, Accounting for Government Grants and Disclosure of Government Assistance
, which provides some guidance on disclosing government assistance but fails to address all areas of concern.
According to the proposed ASU, “pre-agenda research revealed that there are many pervasive forms of government assistance.” It goes on to say that “requiring disclosures about government assistance in the notes to financial statements could improve the information that is provided to users when analyzing an entity’s financial results and prospects for future cash flows.” The proposed ASU would apply when a for-profit entity enters into a legally-enforceable agreement with the government in return for some sort of value.
While not required to apply this guidance, nonprofits might use it as a best practice. Such disclosures bolster transparency and paint a clearer picture to donors, stakeholders and other users of their financial statements.