What’s the issue?
Governments around the world responded to the COVID-19 coronavirus pandemic by implementing a variety of measures to provide relief to companies and stimulate the economy. Government assistance that meets the definition of a government grant is accounted for under the specific requirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.
Companies need to evaluate all of the government assistance they may receive to determine the appropriate accounting – for example, by asking the following questions.
- Does the assistance meet the definition of a government grant?
- When should the grant be recognised?
- How should the grant be measured and presented in the financial statements?
Companies that have not previously received government grants may need to develop new accounting policies and procedures, and significant judgement may be required to address newly implemented government programmes.
Significant judgement may be required to determine when and how to recognise new government assistance programmes – e.g. in response to a pandemic.
Getting into more detail
IFRS® Standards include accounting requirements specifically for government assistance in the form of a government grant. Therefore, companies need to consider the distinction between government grants and other forms of assistance carefully. IAS 20 defines a government grant as a transfer of resources in return for past or future compliance with certain conditions relating to the operating activities of the company.
Government grants may come in many forms. For example, companies may receive grants in the form of forgivable loans, below-market interest rate loans, waivers of expenses, non-monetary assets and other subsidies. However, government assistance in the form of benefits that are available when determining taxable profit or tax loss, or are determined on the basis of a company’s income tax liability, are not in the scope of IAS 20. [Insights 4.3.10]
Accounting for government grants
A company recognises a government grant when it has reasonable assurance that it will comply with the relevant conditions and the grant will be received. This may be a judgemental matter, particularly when governments are introducing new programmes that may require new legislation, or for which there is little established practice for assessing whether the conditions to receive a grant are met.
If the conditions are met, then a company recognises government grants in profit or loss on a systematic basis and in line with its recognition of the expenses that the grants are intended to compensate. Companies need to consider the conditions associated with the grant carefully to determine whether it compensates expenses already incurred or future costs. [Insights 4.3.40]
Measurement and presentation of government grants depends on the nature of the grant and the company’s accounting policies. For example, companies may need to develop accounting policies for:
- grants in the form of non-monetary assets – whether to measure at nominal or fair value [Insights 4.3.50];
- grants related to assets – whether to deduct the grant from the cost of the asset (net presentation) or present the grant separately as deferred income to be amortised over the useful life of the asset (gross presentation) [Insights 4.3.130]; and
- grants related to income – whether to offset the grant against the related expenditure (net presentation) or to present it separately or under a general heading such as ‘Other income’ (gross presentation). [Insights 4.3.140]
Actions for management
- Monitor government actions and legislation to identify all assistance that may meet the definition of a government grant.
- Develop accounting policies and procedures for government grants.
- Consider expanding disclosures on the accounting policies for government grants and the impact of grants and other assistance on the financial statements. [IAS 20.39]
Find out more in our podcast about when and how to account for government assistance using IAS 20 Accounting for Government Grants.
References to ‘Insights’ mean our publication Insights into IFRS®
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