Effectus Group comments on FASB’s Invitation to Comment, Accounting for Government Grants by Business Entities
In our comment letter, we discussed that the FASB should add a project to its technical agenda related to the accounting for government grants into US GAAP for business entities. We had the following observations that we believe are necessary to improve the operability, consistency and understandability of any FASB standard for grants that starts with IAS 20 as its base:
- The scope of any standard should not be restricted to government grants but should also include non-government grants such as those from philanthropic organizations to biotechnology companies.
- The recognition threshold should be anchored to concepts that are well-understood in US GAAP such as probable or more likely than not rather than the auditing notion of reasonable assurance.
- GAAP should require an entity to identify the activity (i.e., analogous to a performance obligation under ASC 606) the respective grant is intended to incent and then recognize the grant in income as the activity is satisfied or completed using an appropriate measure of progress. In addition, a standard should provide unit of account guidance for grants that have multiple incentives or triggers to grant entitlement embedded in them.
- The presentation of grant income should be separately presented from the asset or expenses the grant is intended to subsidize.
- For cash flow statement purposes, a perspective that should be considered by the Board is that grants are a source of financing for an entity.