Article

New Accounting Standard on Government Grants to Be Released in Q4

Aug 01, 2025

Private companies are generally supportive of the direction and decisions made by the majority of the FASB to introduce a new accounting standard on government grants for businesses, according to the Private Company Council (PCC), a body that works with the FASB to simplify rules for privately held firms.

The rules, which leverage international accounting standards on government grants for U.S. businesses, are expected to be released in the fourth quarter of this year, a FASB staff member revealed during June 27, 2025, PCC discussions. No concerns were raised by PCC members-surprisingly, because the rules passed by only a narrow FASB majority.

"I'm very supportive of the direction we've taken with this standard," said Douglas Uhl, director of corporate accounting policy at Chick-fil-A, Inc. "In my experience working with grants, I think this standard will have a significant impact," he said. "My general reaction is that it seems to align closely with the requirements of IAS 20 in terms of the options for both asset-based grants and income-based grants."

International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, was adopted and released by the International Accounting Standards Board (IASB) in 2001. The rules were developed in the 1980s by a prior body.

When asked whether there were any departures from IAS 20 or potential differences for private companies that may have been applying the guidance under IAS 20, a FASB staff member replied, "For the most part, there are no major significant differences between IAS 20 and the new standard." The staff member noted that the scope of the new standard is slightly narrower and that some clarifications were made to align the guidance with GAAP. "But overall, I think there's nothing that's overly significant in terms of differences," she said.

On June 25, the FASB voted 4-3 to finalize and publish the first accounting standard for U.S. GAAP that will clarify when and how to recognize, measure, present, and disclose government grants. The three board members that objected-financial statement users-did so fervently and plan to write dissenting views.

The standard will apply to government grants involving monetary and tangible non-monetary assets. The scope does not include non-refundable transferable tax credits or right-of-use assets and does not expand beyond what was originally proposed.

Under the coming guidance, companies must meet a "probable" threshold before recognizing a government grant. A grant should not be recognized before the company incurs the related costs or expenses or receives the grant proceeds, even if the probable threshold is met. The rules clarify the timing and pattern of recognition to prevent premature recognition of grants.

Types of grants and accounting approaches

There are two types of grants: grants related to assets and grants related to income. For grants related to assets, companies may choose between: the cost accumulation approach (recognizing the grant in the carrying amount of the asset, with non-monetary assets measured at cost); the deferred income approach (recognizing the grant as deferred income and recognizing it in earnings over time, with non-monetary assets measured at fair value). For grants related to income, companies would recognize grant proceeds in earnings on a systematic and rational basis over the periods when related costs or expenses are recognized. For grants related to income, companies can present the grant in the income statement either: separately under a general heading (such as "other income"); by deducting it from the related expense.

Companies will need to provide disclosures for transactions within the scope of the rules. If a grant related to an asset is accounted for under the cost accumulation approach, companies must disclose the useful life of the related asset when the grant is recognized on the balance sheet.

Companies would apply the amendments either prospectively (to grants not completed as of the effective date or entered into after the effective date) or retrospectively (to all government grants). If adopting retrospectively, companies will be required to provide certain disclosures under Topic 250, Accounting Changes, and Error Corrections. For government grants acquired in a business combination, the amendments are to be applied prospectively.

The effective date is 2029 for calendar year-end public companies, and 2030 for private companies, with early adoption permitted.

In response to a query from PCC Chair Jere Shawver about the long lead time for the effective date, FASB staff said the timing was designed to allow for the adoption of other upcoming accounting standards. Early adoption would be permitted, staff confirmed.

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