FASB Confronts How Entities Should Report Government Aid

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By Steve Burkholder

May 4 — Accounting rulemakers plan to focus in the next several months on exactly how—and which—companies should start to report what can be significant amounts of tax abatements, grants, low-interest loans and other forms of government assistance they receive.

The Financial Accounting Standards Board on May 4 began to wrestle with the reporting specifics and related issues, including possible application of proposed disclosure rules to nonprofits.

FASB, in what is nearly a two-year-old project, wants to fill a void in accounting for enterprises' reporting on government assistance.

Such aid includes the millions of dollars in property tax abatements provided to automakers and other manufacturers to locate in a particular state or community. Investors and others have suggested that information on the awarding of such government aid needs to be more transparent and of better quality.

Vice Chairman James Kroeker said last year that the annual totals for local, state and federal assistance to companies are “astounding.” FASB's staff found that in 2011, more than $500 billion was extended in individual grants by the federal government alone, he said.

Path Staked Out

In a draft standard issued in November, FASB has so far outlined a path in which only profit-making entities would apply the potential reporting prescriptions. In addition, the board would confine the planned reporting requirements to footnote disclosures.

However, many public companies, accounting practitioners and FASB's main advisory council argue that the board should aim for requirements to also measure and recognize government assistance—and not follow the disclosure-only path. This approach would produce an accounting standard much sooner, they argue.

At its May 4 meeting, FASB discussed materiality, among other issues. It restarted a weighing of the pros and cons of particular rulemaking approaches, including how long it would take to complete a recognition and measurement effort.

Three-Year Effort?

Kroeker suggested that floating a proposal for comprehensive recognition and measurement could take about three years and might encounter resistance, depending on the kind of change envisioned.

The board also discussed companies' concerns about confidentiality and potential competitive disadvantage that companies might encounter if details of some terms of government assistance are disclosed.

FASB Chairman Russell Golden and the board's staff suggested that worries about confidentiality could be overcome by providing more generalized, less aggregated information on assistance agreements.

There are ways “to give investors information without giving total details of everything,” Golden said. “So I don't think that confidentiality is a total impediment to making this improvement.”

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

For More Information

A handout on the government assistance accounting issues FASB discussed May 4 is at http://src.bna.com/eHC.