ASU 2021-10: Government Assistance Disclosure Requirement
The COVID-19 pandemic significantly impacted many businesses throughout the country. Fortunately, a lot of assistance was offered to keep business entities afloat and help continue their day-to-day operations. In November of 2021, the Financial Accounting Standards Board (FASB) issued new guidance in their release of ASU 2021-10.
This new ASU requires all entities, except for non-profits and employee benefit plans, to provide additional information regarding government assistance. The assistance can range from federal grants to state and local government assistance. If your entity received any type of government assistance during the pandemic, you might be required to disclose additional information related to such assistance in the entity’s financial statements.
Why Does FASB Require Disclosures?
While no one wants to add more disclosures to their financial statements, it is with good reason that the FASB is now requiring them for government assistance. Prior to the issuance of this ASU, generally accepted accounting principles had no specific guidance on the accounting for and disclosure of government assistance received by business entities. Therefore, the goal of the new ASU is to provide more transparency about transactions with the government (through the disclosure of the types of assistance, how the entity accounted for the assistance, and the effect of the assistance on the financial statements) so that investors and other financial statement users can better understand the entity’s financial position.
What are You Required to Disclose?
The guidance in FASB ASC 832 requires that all business entities disclose the following:
- Information regarding the nature of transactions with the government, including a general description of the transaction and what kind of assistance was received (cash or other assets).
- The accounting policies are used to account for the transactions.
- The line items on the balance sheet and income statement that are affected by the transactions and the amounts applicable to each financial statement line item.
- Significant terms and conditions of the transactions with the government, including commitments, provisions for recapture, duration of the agreement, and other contingencies.
Examples of transactions that would require these disclosures include forgivable loans from a government (such as the Paycheck Protection Program) that an entity accounts for as a grant or receipt of cash that the entity accounts for as a contribution.
What is the Effective Date?
The standard is effective for all financial statements issued for annual reporting periods beginning after December 15, 2021.
Contact Us
If you have questions about the material outlined above or need assistance determining if ASU 2021-10 applies to your entity, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2022 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date. The content is provided for informational purposes only and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.