Should Government Assistance be Reflected in Financial Reports?

Abstract

SYNOPSIS Government assistance provided to U.S. companies is a large and economically significant phenomenon. Although the Financial Accounting Standards Board (FASB) has a current project concerning government assistance, U.S. Generally Accepted Accounting Principles (GAAP) do not yet provide guidance about financial reporting for assistance. We explore whether recipients of government assistance should reflect it in financial reports. Specifically, we synthesize arguments and evidence from several sources, including conceptual framework element definitions and recognition criteria, current practice, IFRS guidance and practice, written arguments from FASB constituents, and guidance from professional service firms. We conclude that U.S. GAAP should require both the recognition of assets, liabilities, and changes in equity stemming from assistance agreements with government entities and the disclosure of relevant details to help users understand the measurement, timing, and uncertainty of the benefits and costs of agreements. We discuss implementation challenges and suggest avenues to improve financial reporting for government assistance. JEL Classifications: M41; M48; H81. Data Availability: All data are from public sources identified in the manuscript.