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Deloitte comments on FASB's proposed ASU on government assistance disclosures

Published on: Feb 11, 2016

Deloitte & Touche LLP comments on the FASB's proposed ASU, Disclosures by Business Entities About Government Assistance, which was issued in November 2015.

An excerpt from the comment letter is shown below:

We support the Board’s efforts to increase the transparency into accounting for government assistance arrangements and to reduce the significant diversity in practice that has resulted from the lack of guidance in U.S. GAAP on this topic. In light of the need for such guidance, we encourage the Board to reconsider its decision to limit this project to disclosures. We would support the Board’s expansion of the project to include the recognition and measurement of government assistance arrangements.

If the Board continues to believe that a comprehensive approach is not feasible at this time, we support the limited objective of increasing transparency into how entities account for government assistance. Thus, for government assistance transactions recognized in the financial statements, we support the Board’s proposal under which entities would disclose the accounting policies they used to account for assistance received from governments and certain information about the overall nature of the assistance (including a general description of the significant types of assistance received). In addition, we believe that the final ASU should emphasize the requirements in other ASC topics under which disclosure would be required about the actual or potential impact of material arrangements or concentration of risk and uncertainties on the financial statements. For example, ASC 275, Risks and Uncertainties, requires disclosure of information about the potential impact of certain concentrations of risks and uncertainties, which may include an entity’s reliance on government assistance. Also, ASC 740, Income Taxes, contains disclosure requirements regarding government assistance received through income tax benefits. Under those requirements, entities must disclose significant items related to the reconciliation between the reported amount of income tax and the amounts that would have resulted from applying the domestic statutory rates (e.g., government assistance through tax abatements).

However, as discussed below, we believe that the proposal’s scope and other disclosure requirements go beyond what is necessary to achieve the Board’s objective. 

Scope and Identification of Assistance

The proposed guidance would apply to entities that have entered into a legal agreement with a government to receive value. However, it would not apply to transactions in which the government is legally required to provide a nondiscretionary level of assistance to an entity merely because the entity meets the applicable, broadly available eligibility requirements. In our view, to ensure that the guidance is applied consistently, the Board should further refine the proposal’s scope. For example, entities may struggle to determine whether they have received “value,” particularly when they do not derive a direct benefit that is recognized in their financial records — and even more so when the government’s actions benefit multiple unrelated parties. Further, some broadly available programs permit some or limited discretion by the governmental entity. A strict interpretation of “nondiscretionary” would seem to expand the scope beyond the target transactions, but there is no interpretive guidance to clarify this.  

A consequence of the proposal’s broad scope and lack of clarity could be significant diversity in practice. In addition, without guidance on how items may be aggregated or should be disaggregated or on how to assess materiality, the proposed ASU may lead to the disclosure of individually insignificant items.

Disclosing the Value of Government Assistance That Is Not in the Form of Assets Recognized

We believe that as a result of the proposed requirement to disclose any value received in a legally enforceable agreement with a government, entities would have to broadly capture, measure, and aggregate much more information (including information from arrangements in which an insignificant amount of value is received from a government) than they typically currently do in the financial records (i.e., value that does not qualify as an element under the conceptual framework). Further, the proposed ASU does not provide sufficient guidance on the meaning of “assistance” (as noted above) or how the “value received” by an entity should be measured (including how specific actions required by the entity to receive the value should affect the amount disclosed). In many cases, it will be difficult for entities to measure the value received. While the proposal provides an exception for impracticability, entities may feel pressured to disclose this information anyway, which would be costly — especially if there are many arrangements.

Further, given the breadth of arrangements in which entities receive some form of value from a government, the burden on preparers to gather all the information they need to provide the required disclosures (especially information that is not currently captured in the financial records) may be extensive. Entities with large global footprints may have a significant number of arrangements with various governments around the world to receive some form of assistance. These entities will need to develop and implement costly controls and systems to ensure that the value received from all government assistance arrangements is captured, properly measured, and appropriately disclosed (if the types of assistance are deemed to be within the scope of the proposed ASU). We are aware that many entities have significant concerns about whether they would even be able to implement the proposed ASU’s guidance in their organization. 

We encourage the Board to conduct more extensive research before moving forward with this disclosure-only solution. In the interim, the Board could issue a final ASU that specifically limits the types of government assistance for which entities would be required to provide additional disclosures to those agreements that have been or will be recognized in the financial statements and to disclosures not already required under other Codification topics. 

Full text of the comment letter is available below.

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