FASB Seeks Firms' Disclosure of Government Aid

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By Steve Burkholder

July 17 — Accounting rulemakers are seeking to shed more light on tax abatements, grants, and other forms of government assistance extended to U.S. companies.

Specifically, the Financial Accounting Standards Board plans to meet July 24 to make more decisions in its rulemaking project on disclosures about government assistance.

FASB May Seek Disclosures in Footnotes

Unlike current rules issued by International Accounting Standards Board, FASB's effort doesn't aim for potential standards that call for additions to the front of the financial statements that would affect bottom lines. Instead, the U.S. board may seek additional footnote disclosures on government assistance that stem from contracts in which entities receive “value or benefit from the government.”

In the tentative setting of the sweep of the rulemaking effort, FASB wouldn't call for disclosures on aid from a government that derives from a law that leads to something of value or a benefit received “simply by meeting eligibility requirements,” according to a project update at FASB's website.

FASB Vice Chairman: `Astounding' Amounts

FASB's vice chairman, James Kroeker, spoke last month about the potentially huge amounts of government assistance money that would be subject to the potential disclosures.

The board's staff found that in 2011 that more than half a trillion dollars in government assistance was extended in individual grants by the federal government, Kroeker said in a June 5 speech.

“So, if you take smaller grants—state and local, and other governments—the number we're talking about in terms of government assistance is astounding,” he said.

Huge Amounts in Tax Abatements and Credits, Other Aid

Total numbers for state and local government aid—available in property tax abatements and many other forms—are difficult to come by because of a lack of central collection in the states.

Kenneth Thomas, a professor of political science at the University of Missouri-St. Louis, told Bloomberg BNA July 17 that he estimated what he called “investment incentives” extended to companies by state and local governments added up to about $50 billion in 2005. He said all forms of subsidies or assistance from state and local governments came to about $70 billion in that year.

Kroeker said that FASB is proposing an accounting model that would call for disclosures on what assistance business entities receive and how they account for it.

He noted that dearth of U.S. accounting principles on the topic. The staff of the Securities and Exchange Commission also highlighted room for development of such principles on government aid to companies in its 2012 report on issues surrounding incorporation of IASB-written rules in the reporting regime for U.S. public companies.

Related GASB Rules Imminent 

FASB is aware of the related work done by its sister panel, the Governmental Accounting Standards Board, in a complementary project.

GASB hopes to issue in August final standards on disclosures about tax abatements.

FASB Project: Value to Investors

Sandra Peters, chief of the financial reporting group at the CFA Institute, spoke of the value to investors of information about government assistance should the FASB project lead to such disclosures.

As with information about contracts, security analysts are keenly interested in information about commitments that the company has made and related data, Peters suggested July 17 in a brief Bloomberg BNA interview.

At the July 24 meeting, FASB plans to consider potential disclosure requirements, refinements to the scope of the possible rules, and how companies would apply potential standards for the first time. The board started the project in earnest in 2014, but has held relatively few meetings on it.

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

To contact the editor responsible for this story: Xing Gao at xgao@bna.com

An update on the FASB project is available at http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176162562805.

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