To qualify as income, the grant must be used for the purpose for which it was awarded. IAS 20 does not stipulate whether the conditions of the grant must be met for an entity to recognize the grant. However, if what is grant accounting the conditions of the grant are not met, the enterprise may have to return the grant. Detailed guide on interpreting and implementing IFRS, with illustrative examples and extracts from financial statements.
Grant related to income (reimbursement of expenditures)
I have over 20 years of international and domestic experience in providing advisory and audit services to clients in the U.S. and Ireland, including 11 years with KPMG’s Deal Advisory & Strategy practice in New York City (relocated to Ireland in 2022). Government grants land to Company on the condition that Company constructs and operates a manufacturing facility on the land. Company may elect to analogize to an NFP and apply the guidance in the Contributions Received Subsections of ASC 958. Company may also look to IAS 20 as a source of nonauthoritative guidance, however, net balance sheet presentation under US GAAP may not be appropriate.
Technical Advisory Services helpsheets
In practice, companies apply either IAS 124 or IAS 20 by analogy, depending on whether the substance of the ITC is more akin to an income tax allowance or a government grant. The benefits of fund accounting for government grants include the ability to manage finances and improve organization fiscal health. Additionally, grant accounting provides transparency into the financial status of an organization. Choosing the best accounting software for grant management can help with future decision-making about projects.
Sumário da Comparação das Práticas Contábeis Adotadas no Brasil com as Normas Internacionais de Contabilidade – IFRS
ABC can deduct the grant amount to arrive at carrying amount of a water cleaning station. Then its recognition in profit or loss is automatically reflected in depreciation charges. Here, you need to differentiate between the grants for past costs (already incurred) or the grants for current or future costs. IFRS 9, as issued in July 2014, amended paragraph 10A and deleted paragraphs 44 and 47. Presentation of Items of Other Comprehensive Income (Amendments to IAS 1), issued in June 2011, amended paragraph 29 and deleted paragraph 29A.
This way the amount received will not have any effect on Income Statement or Fixed Assets carrying amount. This means that such amounts cannot be distributed as a dividend to shareholders. 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 require judgement, particularly when governments introduce new programmes that may require new legislation, or for which there is little established practice for assessing whether the conditions for receiving a grant are met.
- Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.
- The FASB issued a proposed ASU2 in November 2015 that would apply to business entities that receive government assistance.
- These materials were downloaded from PwC’s Viewpoint (viewpoint.pwc.com) under license.
- IFRS 9, as issued in July 2014, amended paragraph 10A and deleted paragraphs 44 and 47.
Unconsolidated amendments
Companies that have not received government grants previously may need to develop new accounting policies and procedures. They may also need to apply significant judgement when assessing whether they will comply with the relevant conditions set out in government assistance programmes. The receipt of government assistance by an entity may be significant for the preparation of the financial statements for two reasons. Firstly, if resources have been transferred, an appropriate method of accounting for the transfer must be found. Secondly, it is desirable to give an indication of the extent to which the entity has benefited from such assistance during the reporting period.
