The Elephant in the Boardroom

Part 1 of 3-Part Series

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It’s no surprise that no one is talking about a new Financial Accounting Standards Board (FASB) pronouncement on government incentives that’s coming down the pike. For years, major corporations have been burying how they account for government incentives on their balance sheets & footnotes to their financial statements under some random line item like “Other Assets”. As a shareholder, how would you feel about having the financial wool pulled over your eyes to a level where you’re not provided complete financial transparency? How can you possibly make an educated investment decision without having all the relevant financial data before you? Well, that’s about to change.


                                   "As a shareholder, how would you feel about having the                                financial wool pulled over your eyes...?"

The FASB has been deliberating its project “Disclosures by Business Entities about Government Assistance” since November 2012 which was spurred by an SEC staff report earlier that year. The report, among other items, focused on inconsistencies between U.S. GAAP and International Financial Reporting Standards (IFRS) as they relate to government grants and assistance. However, the Board did not get serious enough to begin discussions on the scope of the project until October 2014. Fast forward to October 2015 and the FASB is about to issue an Exposure Draft on a proposed Accounting Standards Update (ASU) for the project next month.

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Scope of the Project

Based on tentative decisions reached by the Board, the scope has been defined as legally enforceable arrangements whereby an entity obtains “value or benefit from the government”. As a general rule of thumb, these agreements are negotiated “…and the government has some discretion over which entities to provide the assistance to and how much to give even if an entity meets the eligibility requirements.” The scope also specifically excludes transactions where: 1) the entity is receiving a benefit under the law simply because it met the eligibility requirements under the law; and 2) the government is the only customer.

--- Part 2 of 3 coming next week

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