Annual Disclosure Requirements for Business Entities Receiving Government Assistance
Businesses have seen a spike in governmental assistance in the last few years mainly due to the COVID-19 pandemic. As a result of this significant increase, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Government Assistance. Some examples of government assistance that companies have received are Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL), and Employee Retention Credit (ERC). ASU No. 2021-10 increases the transparency of government assistance received. Before this standard was issued, there was little guidance given on how to account for and disclose government assistance.
The update requires entities to provide three additional annual disclosures to their normal financial statements.
- Information about the nature of the transactions and the related accounting policy 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, including commitments and contingencies.
This update has brought more clarity and consistency to financial statement reporting. These disclosures will help users of the financial statements to better understand and interpret the entity’s financial situation. The update does not apply to not-for-profit organizations nor to employee benefit plans. All other industries are included in this update.
Additionally, there are two types of transactions which are exempt from disclosures. The standard does not apply when the government is the customer or legally required to provide a nondiscretionary level of assistance to the entity.
The update is effective for all entities within the scope for financial statements issued for annual periods beginning after December 15, 2021. Early adoption of the standard is permitted.