After decades of letting business entities figure it out on their own—like parents watching their toddlers assemble IKEA furniture—the FASB has finally decided to give us the instruction manual.

On June 25, 2025, the Board completed redeliberations of its Proposed Accounting Standards Update, Government Grants (Topic 832) (“Proposed ASU”), shifting grant accounting from improvisational art to codified science, ending the reign of IAS 20-by-analogy and giving preparers consistent U.S. GAAP guidance for the first time.

This article is the first in a two-part series that unpacks the new accounting standard, flags industry hot spots, summarizes stakeholder feedback (including the liability blob!), and previews what to watch as the standard is finalized. For anyone who touches financial statements involving government incentives, it’s time to trade in duct tape and workaround memos for something a little sturdier.

Emerytus Insight: While the standard has been finalized, there is plenty of time for CFO’s to prepare as the amendments are not effective until the first quarter of 2029 for calendar year end companies. For nonpublic companies, the amendments aren’t effective until the first interim period in 2030 for calendar year end companies. 

Blueprints at Last: What the Proposed ASU Says and the Board Finalized

This section summarizes the blueprints in the Proposed ASU, which the Board agreed to finalize on June 25^th. While there could be slight changes to the wording to address clarifications recommended by respondents, the Board agreed to keep the core model in the proposed standard.

The Proposed ASU applies to business entities receiving a “government grant,” defined as:

“A transfer of a monetary asset or a tangible nonmonetary asset, other than an exchange transaction, from a government to a business entity.”

The guidance excludes transactions within the scope of other GAAP, such as income taxes (Topic 740), below-market loans, and guarantees.

Recognition: Grants are recognized when it is probable that:

1. The entity will comply with grant conditions, and
2. The grant will be received.

This threshold mirrors the common interpretation of “reasonable assurance” under IAS 20 but uses the defined U.S. GAAP term “probable” to improve clarity and operability.

Grants Related to Income: Recognized in earnings on a systematic basis as related costs are incurred.

Grants Related to Assets: Recognized using either of the following two approaches:

• Deferred income approach: Separately recognize the grant as deferred income on the balance sheet. The deferred income is subsequently recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the government grant is intended to compensate (e.g., depreciation).
• Cost accumulation approach: Recognize the grant in determining the carrying amount of the asset on the balance sheet. There is no separate subsequent recognition of the government grant proceeds in earnings because they have been reflected in the carrying amount of the asset. The carrying amount of the asset that reflects the government grant proceeds shall be used to determine depreciation or other subsequent accounting for that asset.

Measurement: For monetary grants, measurement is straightforward—recognize the grant at the amount expected to be received.

For grants of tangible nonmonetary assets (e.g. land or equipment), measurement depends on the elected accounting approach:

• Deferred income approach: Initial measurement at fair value.
• Cost accumulation approach: Measured at the entity’s cost to acquire the asset

Grants Related to Income: Recognized in earnings on a systematic basis as related costs are incurred.

Grants Related to Assets:

• Deferred income approach: Recognized in earnings over time (e.g., through depreciation)
• Cost accumulation approach: Reduces the asset’s carrying amount; no separate income is recognized

Subsequent Measurement: A government grant that becomes repayable is accounted for as a change in estimate in accordance with Topic 250 on accounting changes and error corrections.

Grants Related to Income: Repayment of a grant related to income is applied first against any unamortized deferred credit recognized related to the grant. To the extent that the repayment exceeds any unamortized deferred credit or when no deferred credit exists, the repayment is recognized immediately in earnings.

Grants Related to Assets: Repayment of a grant related to an asset is recognized by increasing the carrying amount of the asset (if the cost accumulation approach was used) or reducing the deferred income balance (if the deferred income approach was used) by the amount repayable.

The cumulative additional depreciation (or change in previously recognized gain or loss on sale or impairment due to a change in the carrying amount) that would have been recognized in earnings to date in the absence of the government grant shall be recognized immediately in earnings.

If repayment of a grant related to an asset results in a new carrying amount of the asset, the new carrying amount should be considered when evaluating the asset for impairment purposes.

Presentation:

For grants related to income, entities can present the benefit:

• As a separate line item (e.g., in “Other Income”), or
• As a reduction of the related expense

Similarly, grants related to assets using the deferred income approach are presented as deferred income on the balance sheet and as part of earnings in either of the following ways:

• Separately under a general heading such as other income, or
• As a deduction from the related expense (e.g., depreciation, gain or loss on sale, or impairment).

A grant related to an asset that is accounted for using the cost accumulation approach is presented on the balance sheet as part of the carrying amount of the asset. There is no separate subsequent presentation of the government grant proceeds in earnings because they have been reflected in the carrying amount of the asset.

Disclosures:

In addition to the disclosures already required by ASC 832 on government grants, the proposed ASU adds a requirement to disclose the fair value of a tangible nonmonetary asset that is received as a government grant in the period in which the grant is recognized on the balance sheet (including if the cost accumulation approach is applied).

Who Feels This the Most? Industry Hot Zones

While the final standard applies broadly to all business entities receiving government grants, its impact won’t be felt equally. Some industries are on the front lines of government funding and will now face the most scrutiny in how they recognize, measure, and disclose that support.

Clean Energy & Manufacturing:

With the Inflation Reduction Act (IRA) funneling billions into production and investment incentives, companies in renewable energy, electric vehicles, battery production, and related manufacturing are prime recipients of direct cash grants and non-tax-based support.

• Impact: These entities will need to evaluate whether benefits fall under Topic 740 (income taxes) or the new Topic 832. For asset-related grants, they’ll face a choice between the deferred income and cost accumulation models—each with different balance sheet and income statement implications.

Life Sciences & Biotech:

Pharma and biotech companies often receive research grants from federal agencies (e.g., NIH), especially in early-stage development. These grants are frequently milestone-based or tied to performance obligations.

• Impact: Under the ASU’s “probable” threshold, many grants may not be recognized until specific conditions are met, delaying recognition compared to looser IAS 20 analogies. Companies must now explicitly track compliance conditions and link them to related costs over time.

Technology & Startups:

From SBIR/STTR grants to innovation subsidies and economic development incentives, tech startups often rely on external support to scale. These entities typically lack formal grant accounting policies.

• Impact: The ASU introduces structure and complexity. Companies will need to assess grant types, recognition timing, and disclosure requirements. Those used to informal practices may face a steep implementation curve.

Transportation, Infrastructure & Real Estate Development:

Grants tied to capital projects—airports, transit hubs, broadband expansion, and more—are common in infrastructure-heavy sectors and often span multi-year construction periods.

• Impact: Asset-related grants will require policy elections that directly affect asset carrying amounts, depreciation patterns, and income recognition.

Advanced Manufacturing & Industrial Automation:

Companies in these sectors benefit from state and local incentives, especially those building new facilities or expanding operations in target regions. These programs often offer both cash and in-kind support.

• Impact: Entities must now standardize how they determine recognition timing and select a presentation method.

Conclusion

These changes mark a turning point for business entities that rely on government grants—and for those advising them. But the proposal hasn’t landed without controversy.

In Part 2, we’ll explore the stakeholder responses, highlight key areas of debate, and examine what the FASB clarified in redeliberations. From disclosure fatigue to presentation optionality—and yes, even a liability “blob”—there’s more to this story than just new rules.