BDO’s US GAAP and IFRS Comparison Series: Government Grants
Government Grants
Guidance related to assessing and recording government grants is found in International Accounting Standard (IAS) No. 20 Accounting for Government Grants and Disclosure of Government Assistance for entities complying with International Financial Reporting Standards (IFRS). US accounting standards do not provide specific guidance on the accounting for government grants to business entities but include relevant guidance for not-for-profit entities.
Below is a comparison of the accounting under the US GAAP and IFRS standards related to government grants.
US GAAP | IFRS1 |
Scope | Scope |
There are no specific US GAAP standards on accounting by business entities for government assistance. |
IFRS includes a specific standard, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, which addresses different types of government assistance including transfers of assets from governments to business entities. |
Recognition & Measurement (ASC 958-605) | Recognition & Measurement |
ASC 958-605 does not consider the probability of whether a condition has been or will be met. |
Recognized when there is reasonable assurance2 that:
|
Government loans with a below-market rate of interest | Government loans with a below-market rate of interest |
For purposes of imputing interest, ASC 835-30-15-3(e) scopes out ‘transactions where interest rates are affected by the tax attributed or legal restrictions prescribed by a governmental agency (for example, industrial revenue bonds, tax exempt obligations, government guaranteed obligations, income tax settlements).’ Therefore, a business entity would not impute interest on a below-market interest rate loan from the government. This would include for example the PPP loans provided under the CARES Act. |
The difference between the initial carrying value of the loan determined in accordance with IFRS 9 Financial Instruments and the proceeds received is recognized as a government grant. |
Presentation and Disclosure | Presentation and Disclosure |
Generally, the income would be recognized in the income statement as qualified expenses are paid and presented as either (1) other income or (2) a reduction of the related expenses; presentation as revenue would not be appropriate. |
Grants related to asset: |
The above discussion covers the more significant differences between US GAAP and IFRS related to government grants, it is not intended to replace the review of the specific accounting literature applicable to government grants or consultation with professional advisors.
[1] The guidance only covers IFRS as issued by the IASB and does not include IFRS for SMEs or any jurisdictional versions of IFRS.
[2] ‘Reasonable assurance’ is generally considered to be similar to ‘probable’ used in ASC 450 Contingencies.
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