How to account for Government Grants under IAS 20 and US GAAP ASC 958

Government grants can materially affect an entity’s financial performance and position, especially in industries dependent on public subsidies or development support. Accounting for these grants varies significantly between IFRS (IAS 20) and US GAAP (ASC 958 and ASC 450). While IFRS provides a structured model for both recognition and presentation, US GAAP distinguishes between not-for-profit and for-profit entities and relies on a patchwork of standards, often requiring judgment in classification, timing, and income recognition.

Government grants are defined differently under IFRS and US GAAP.

Under IAS 20, government grants are defined as transfers of resources in return for past or future compliance with specific conditions. These may include:

• Cash subsidies

• Forgivable loans

• Asset-related grants (e.g., to purchase machinery)

• Income-related grants (e.g., wage support or operating subsidies)

In US GAAP, no unified standard governs government grants for for-profit entities. Instead:

• ASC 958 applies to not-for-profit organizations.

• ASC 450 (Contingencies) and SEC guidance are commonly used by public companies.

• Entities must classify grants as contributions, revenue, or gain contingencies, depending on nature and conditions.

The difference in conceptual basis leads to different income timing and presentation choices.

IFRS provides clear guidance on recognition and classification of grants.

IAS 20 divides grants into two main types:

1. Grants related to income

Recognized in the profit and loss statement systematically over the periods in which the related costs are incurred.

Example:

Dr. Cash                            200,000  
    Cr. Other income                          200,000

Or:

Dr. Cash                            200,000  
    Cr. Government grants deferred            200,000  

[Then amortized]
Dr. Government grants deferred      50,000  
    Cr. Other income                           50,000

2. Grants related to assets

Presented in one of two ways:

• Deferred income approach: recognize grant as a liability and amortize over the asset’s useful life.

• Netting off: deduct the grant from the carrying amount of the asset.

Choice of method affects depreciation and reported asset values.

Option	Impact on balance sheet	Impact on P&L
Deferred income	Shows full asset cost + liability	Recognized as other income over time
Netting off	Lower asset base, lower depreciation	No separate income line item

Under US GAAP, treatment differs sharply between not-for-profit and for-profit entities.

For not-for-profit entities (ASC 958)

Grants are usually treated as nonreciprocal contributions and recognized when:

• The conditions are met, and

• The barriers to entitlement are overcome.

Revenue recognition follows ASC 958-605 and can involve:

• Conditional contributions (recognized once conditions are met)

• Unconditional contributions (recognized immediately)

For for-profit entities

No specific standard. They typically follow:

• ASC 450 (gain contingency): Recognize only when grant is received or virtually certain

• SEC SAB Topic 13: Can follow IAS 20-like treatment (if consistently applied and disclosed)

• ASC 606: If grant resembles a contract with a customer

Entity Type	Recognition trigger	Standard
Not-for-profit	Conditions met; barrier cleared	ASC 958
Public company	Contingency resolved or payment received	ASC 450 / SEC SAB
Government contract	Performance obligation satisfied	ASC 606

Forgivable loans require judgment under both frameworks.

• IFRS (IAS 20): Forgivable loans are treated as grants once reasonable assurance exists that conditions will be met.

• US GAAP: Often treated as gain contingencies, recognized only when forgiven unless the entity qualifies for an ASC 958-type model.

Treatment	IFRS (IAS 20)	US GAAP (ASC 450 / 958)
Forgivable loan not yet forgiven	Liability until conditions are met	Liability until formally forgiven
Forgiveness probable	Reclassified as grant income	Recognized only if virtually certain

Disclosures differ in focus but aim to provide transparency on grant effects.

IFRS (IAS 20) requires:

• Nature and extent of grants

• Unfulfilled conditions or contingencies

• Accounting policy chosen (netting vs deferred income)

• Income recognized in the period

US GAAP disclosures depend on applied guidance:

• ASC 958: Contribution classes, conditional vs unconditional, timing

• ASC 450: Nature of contingencies, probability assessments

• SEC guidance: Consistency with IFRS-like disclosure if adopted

Key differences between IFRS and US GAAP in government grant accounting.

Area	IFRS (IAS 20)	US GAAP
Standard applicability	All entities	ASC 958 (nonprofits), no unified guidance for for-profits
Recognition threshold	Reasonable assurance of compliance	Contingency resolved or cash received
Presentation methods	Deferred income or asset reduction	Revenue, gain, or other income depending on judgment
Forgivable loans	Recognized when forgiveness is likely	Recognized only when forgiven
Timing differences	May lead to earlier recognition	Generally more conservative timing

Both IFRS and US GAAP aim to reflect the economic substance of government support, but IFRS provides a clearer framework for all entity types, while US GAAP remains fragmented and more conservative. Entities must ensure consistent application, robust documentation of conditions, and transparent disclosures—especially when government assistance materially affects reported earnings or cash flows.

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