At a Glance

  • The Financial Accounting Standards Board (FASB) issued a press release on Thursday announcing the formal issuance of a new standard that provides specific guidance for business entities in accounting forgovernment grantsthey receive. The rule will take effect for public companies in annual reporting periods after December 15, 2028, with private companies receiving a one-year deferral.
  • The new standard fills a gap in Generally Accepted Accounting Principles (GAAP), as many companies previously lacked authoritative guidance when handling government grants andturned to international rulesfor direction, though uncertain whether that approach was acceptable. This week's issuance of Accounting Standards Update 2025-10—Government Grants (Topic 832) clarifies the matter.
  • FASB Chair Richard Jones said in the press release: "For over 50 years of the FASB's existence, government grants received by business entities have lacked authoritative GAAP guidance. The new ASU adds guidance in areas where stakeholders have consistently emphasized the need, benefiting both preparers and investors."

In-Depth Analysis

The ASU is the 10th update the FASB has issued so far this year, and its release marks the completion of a multi-year project at the FASB. When the FASB launched the project, the board noted that the increase in government programs during the pandemic was a driving force behind developing specific guidance.

The new rules apply to all business entities, excluding not-for-profit organizations and employee benefit plans. The rules define government grants as "transfers of monetary assets or tangible nonmonetary assets." Key provisions include: grants should not be recognized until it is "probable" they will be received; entities should disclose the nature of grants received, the accounting policy applied, and the terms and conditions of the grants.

Last year, the FASB decided to borrow the accounting framework from existing International Financial Reporting Standards(IAS 20)but that approach was opposed at the time by board member Christine Botosan, who believed the international standard was too permissive and wanted improvements, as CFO Dive previously reported. However, Jones found the approach helpful. "One thing I know is that if we do nothing, we won't make any progress," Jones said at a meeting last April.

The newly issued ASU states that the board made "targeted improvements" to the IAS 20 guidance in areas where stakeholders found it "difficult to apply."