FASB makes Additional Disclosure Proposals for Business Government Assistance

Monday, November 30, 2015 Print Email

In order to increase business assistance on government transparency, an update of the proposed accounting standards has been issued by the Financial Accounting Standards Board. The aim of the proposed update is in creating more transparency in government financial reporting, business arrangement and assistance and other profit making organizations the government enters its arrangements with. Presently, there is no explicit guidance on the GAAP government assistance that is received by the business entities such as loan guarantees, grants, low interest loan rates, tax incentives, loan guarantees, tax abatements or assets transfer from governments to businesses. FASB noted that this led to practice diversity and lack of relevant information in financial reporting regarding such arrangements.

The Governmental Accounting Standards Board which is the sister organization to FASB is also seeking for more disclosure by the local government and state of agreements of tax abatement. The update of proposed standards of accounting would offer users more information with respect to prevailing agreements of government assistance in order to assist them better assess the assistance nature and the agreement’s significant conditions and terms. Particularly, it would require such disclosures regarding:

i) Arrangement types

ii) Government assistance accounting

iii) Effect of the financial statements of the business organization

 In the new proposal, businesses would be expected to make the following disclosures in their financial statements that are annually prepared:

Information concerning assistance nature, significant categories and the applied accounting method in accounting for government assistance

Line items of the Income statement and balance sheet which are affected by the applicable amounts and government assistance

Significant conditions and terms of the agreement including contingencies and commitments

The government assistance not directly recognized in line of the financial statements. The anticipated guidance normally applies to an organization entering into an agreement that is legally enforceable for purposes of receiving value. This guidance does not apply to transactions where the government is expected legally to offer nondiscretionary level of assistance to an organization just because the entity meets the applicable requirements of eligibility that are widely available without any particular agreement between the government and the entity or a customer.

Source: ReadyRatios

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