As a child of the 1980’s, I remember watching The Blob when I was quite young at my grandparents’ house and being terrified.  I imagine it would be quite comical to watch now, particularly if I made my kids watch it with me.  Maybe I’ll do that sometime this summer and report back in a later article.   

Now, what could the The Blob have to do with government grant accounting? Read on below and you’ll find out in the comment letter highlights! 

Stakeholders Chime In: Comment Letter Highlights 

There were 34 comment letters revealing strong support for authoritative guidance. Here are some of the highlights: 

Recognition Threshold: Probable, but Not Problem-Free 

There was broad support for using the “probable” threshold for recognizing government grants—a well-established term in U.S. GAAP. Many respondents felt this offered more clarity than IAS 20’s “reasonable assurance.” However, stakeholders asked the Board to clarify how to apply this threshold in practice. 

• PwC commented, “…we are concerned that linking initial recognition of a government grant solely to the probability of the entity complying with the conditions of the grant could be interpreted as requiring a “gross up” of the balance sheet before an entity has incurred the related costs, which is not consistent with how business entities generally apply the guidance in IAS 20.” 

• EY noted, “We suggest that ASC 832-10-25-1 be revised to state that (edits are in bold and underscored): “A government grant shall not be recognized until it is probable …” If amended, this paragraph would serve as a recognition threshold, rather than dictating the timing of recognition. Otherwise, the use of “when” in ASC 832-10-25-1 would imply that an entity should “gross up” its balance sheet for government grants not yet received, begin to recognize a grant related to an asset before obtaining the related asset and/or begin to recognize a grant related to income before incurring the related expenses.” 

• RSM supported the “probable” threshold but recommended additional implementation guidance for grants that rely on qualifying expenses, asking the Board to expand examples to clarify when recognition is appropriate. 

Emerytus Insight: The Board appeared to address these concerns during redeliberations by agreeing to make the following clarifications in the final standard: 

1. The recognition threshold does not prescribe the timing of recognition for a government grant but, instead, is a threshold that must be met before an entity applies the recognition guidance.  

2. A government grant should not be recognized until it is probable that (a) the business entity will comply with the conditions attached to the grant and (b) the grant will be received.  

3. A grant related to income or a grant related to an asset accounted for under the deferred income approach should be 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 grant is intended to compensate, so long as the recognition threshold is met.  

Disclosures: Transparency vs. Tracking Fatigue 

The proposed disclosures were supported in principle, but many commenters urged the FASB to balance transparency with cost. 

• In commenting on the requirement to disclose the amount of grant proceeds in determining the carrying value of an asset or the fair value of the grant for the grant of a tangible nonmonetary asset, BDO noted the disclosure, “…would require dual record keeping that would increase the cost for reporting entities and reduce any operational benefits from applying the cost accumulation approach.” 

• CLA stated, “Additional disclosures about the ongoing impact of the grant on the asset’s carrying amount and related potential future expenses would enhance the usefulness and reliability of the financial statements.” 

Emerytus Insight: The Board affirmed the disclosures in the proposed ASU. Additionally, the Board decided to require for a grant related to an asset that is accounted for under a cost accumulation approach, that an entity should disclose, if applicable, the useful life of each related asset in the period in which the government grant is recognized on the balance sheet. Additionally, the Board decided not to include disclosure about a grant related to an asset accounted for under the cost accumulation approach in periods after the grant is recognized. 

Presentation: Optionality or Obscurity? 

The ASU permits income-related grants to be presented either as other income or as a reduction of related expense. Commenters were divided: 

• Constellation Energy favored flexibility, especially for grants like production tax credits tied to core operations, which they believe should be eligible for revenue classification. 

• Deloitte leaned toward requiring a standardized presentation, arguing that optionality could impair comparability and reduce decision-usefulness for investors. 

• Baker Tilly recommended, “Gross presentation is most appropriate… Net presentation obscures the impact of government grants.” 

Emerytus Insight: The Board affirmed the proposed amendments to allow the grant proceeds from a grant related to income and a grant related to an asset accounted for under the deferred income approach to be presented either (1) separately under a general heading such as other income or (2) deducted in reporting the related expense.  

Asset Grants: Two Models, One Problem 

The ASU allows preparers to choose between the deferred income approach and the cost accumulation approach. While both are used today under IAS 20 analogies, most commenters favored eliminating this choice in the name of consistency. 

• BDO noted, “We prefer a single accounting model for all government grants under the deferred income approach because it provides more transparency… and is consistent with the accounting for other assets when a third party provides the related funding…” 

• Grant Thornton stated, “We recommend eliminating the option to apply the cost accumulation approach. Consistency in applying the deferred income approach would enhance comparability and understandability of financial statements.” 

Emerytus Insight: The Board made the following decisions on the two models during redeliberations: 

1. The Board affirmed the proposed amendments to provide different accounting requirements for a grant related to an asset and a grant related to income.  

2. The Board affirmed the proposed amendments for the definition of a grant related to an asset and a grant related to income and decided to clarify those definitions.   

3. The Board affirmed the proposed amendments to permit either the cost accumulation approach or the deferred income approach.  

4. The Board decided to provide specific guidance (leveraging the guidance in paragraph 18 of IAS 20) about how to subsequently account for a grant related to a nondepreciable asset under the deferred income approach. 

The Liability Blob is Taking Over! 

I’d be remiss not to mention that someone managed to reference the 1958 sci-fi classic The Blob in a comment letter on a proposed accounting standard. That someone? Former FASB Board Member Ed Trott, who—let’s just say—is not a fan of the deferred income approach. 

“A defer and amortize accounting approach does NOT reflect the economics of a [government grant] and does NOT result in high quality financial information. It requires the recording of a BLOB on the liability side of the balance sheet that does NOT meet the current or even any definition of a liability.” 
—Edward W. Trott, Comment Letter No. 1 

In other words: if it lingers on your balance sheet, oozes over reporting periods, and isn’t really a liability… it might just be a BLOB! 

Let’s Be Honest, You Were Never Going to Love Grant Accounting 

No one went into accounting for the thrill of estimating the fair value of a gifted wastewater treatment facility. But here we are. 

The ASU, while far from perfect, offers clarity where there was chaos. It introduces structure without reinventing the wheel and aligns reasonably well with current practice for many. Yes, optionality remains a challenge—but it’s a vast improvement over a choose-your-own-adventure model based on international analogies and not-for-profit accounting standards. 

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