Board Meeting Handout ________________________ The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after extensive due process and deliberations. Page 1 of 13 Disclosures by Business Entities about Government Assistance June 8, 2016 PURPOSE OF THIS MEETING 1. The objective of this meeting is to begin redeliberations to discuss scope, disclosures, and restrictions. TOPIC 1: SCOPE—DISCLOSURE PROJECT 2. Diversity in practice exists in the recognition, measurement, and disclosure of government assistance arrangements because no explicit generally accepted accounting principles (GAAP) exist for government assistance received by business entities. Preagenda research revealed a lack of decision-useful information in financial reporting for a wide variety of government assistance. The Board added this project to its agenda on January 29, 2014. After considering the vast array of government assistance arrangements, diversity in practice, and resources that would be needed to complete a comprehensive project that addresses the recognition and measurement of government assistance in a reasonable period of time, the Board decided to focus the project on developing disclosures in the notes to financial statements to increase transparency about government assistance arrangements, including (a) the types of arrangements, (b) the accounting for government assistance, and (c) their effect on an entity’s financial statements. 3. During initial deliberations, the staff and the Board have received questions from some stakeholders about the Board’s basis for deciding why this project is limited to disclosures. Specifically, at the March 17, 2015 Financial Accounting Standards Advisory Council (FASAC) meeting, some FASAC members indicated that they believe that recognition and measurement should be the focus of the project. The staff discussed the questions raised from stakeholders with the Board at the SGMs in April 2015. At those meetings, the consensus among Board members was to
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Board Meeting Handout
________________________
The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
Page 1 of 13
Disclosures by Business Entities about Government Assistance
June 8, 2016
PURPOSE OF THIS MEETING
1. The objective of this meeting is to begin redeliberations to discuss scope,
disclosures, and restrictions.
TOPIC 1: SCOPE—DISCLOSURE PROJECT
2. Diversity in practice exists in the recognition, measurement, and disclosure of
government assistance arrangements because no explicit generally accepted
accounting principles (GAAP) exist for government assistance received by business
entities. Preagenda research revealed a lack of decision-useful information in
financial reporting for a wide variety of government assistance. The Board added
this project to its agenda on January 29, 2014. After considering the vast array of
government assistance arrangements, diversity in practice, and resources that would
be needed to complete a comprehensive project that addresses the recognition and
measurement of government assistance in a reasonable period of time, the Board
decided to focus the project on developing disclosures in the notes to financial
statements to increase transparency about government assistance arrangements,
including (a) the types of arrangements, (b) the accounting for government
assistance, and (c) their effect on an entity’s financial statements.
3. During initial deliberations, the staff and the Board have received questions from
some stakeholders about the Board’s basis for deciding why this project is limited
to disclosures. Specifically, at the March 17, 2015 Financial Accounting Standards
Advisory Council (FASAC) meeting, some FASAC members indicated that they
believe that recognition and measurement should be the focus of the project. The
staff discussed the questions raised from stakeholders with the Board at the SGMs
in April 2015. At those meetings, the consensus among Board members was to
Page 2 of 13
proceed with the scope that the Board had originally set when it added this project
to the agenda (disclosure only).
4. Feedback on the proposed FASB Accounting Standards Update, Government
Assistance (Topic 832): Disclosures by Business Entities about Government
Assistance (proposed Update), indicated that some stakeholders (primarily
practitioners, public company preparers, and the FASAC) urged the Board to
reconsider the project as a recognition, measurement, presentation, and disclosure
project as opposed to a disclosure-only project. Some respondents believe that IAS
20, Accounting for Government Grants and Disclosure of Government Assistance,
provides a clear and reasonable framework, and they recommended that the Board
look to this standard in the next steps of the proposed Update.
Question 1 for the Board
Does the Board want to reaffirm the scope of the project (disclosure only)?
TOPIC 2: SCOPE—LEGALLY ENFORCEABLE AGREEMENT
5. Question 1 of the proposed Update asked respondents to comment on whether they
agree that the scope of the amendments (a) should be limited to legally enforceable
agreements in which an entity or entities receive value from a government and (b)
should not apply to transactions in which the government is (i) legally required to
provide a nondiscretionary level of assistance to an entity simply because the entity
meets the applicable eligibility requirements that are broadly available without
specific agreement between the entity and the government or (ii) solely a customer.
Many respondents agree that the scope should be limited to legally enforceable
agreements and would represent a manageable parameter for entities to determine
whether an agreement is within the scope. Some of these respondents request that
the Board clarify certain terminology (for example, value, discretionary, and
broadly available). Other respondents disagree with the scope and believe that the
scope is too broad and that the Board should limit the scope to specific types of
assistance. For example, the scope could include various types of assistance,
Page 3 of 13
including loan guarantees, income taxes, grants, tax abatements, and so on. Some
stakeholders raised questions about whether tax settlements or transfer pricing
agreements would be within the scope of the project.
6. A few respondents suggest that the Board expand the scope to include agreements
that are nondiscretionary. These respondents believe that a similar lack of
transparency exists for those types of assistance.
7. Overall, most stakeholders were supportive of the exclusion of transactions in
which the government is (a) legally required to provide a nondiscretionary level of
assistance to an entity simply because the entity meets the applicable eligibility
requirements that are broadly available without specific agreement between the
entity and the government or (b) solely a customer.
8. Some stakeholders highlight that the term value is broad and question what types of
value would be considered assistance (for example, monetary/nonmonetary and
direct/indirect). In addition, some stakeholders interpret the term value to include
any type of transaction with the government (for example, zoning variances,
transfer pricing agreements, legal settlements, and other normal functions of the
government) regardless of considerations about whether the entity is receiving some
type of assistance or benefit from those transactions.
Question 2 for the Board
Does the Board agree with any or all of the following affirmation,
clarifications, and refinements to the final Update?
a. Reaffirm that the scope should be limited to legally enforceable
agreements
b. Indicate that an entity will need to consider individual facts and
circumstances to determine whether an agreement is within the scope
c. Replace the terms nondiscretionary and discretion with other words or
phrases that describe the Board’s intention
d. Replace the term value with the term assistance or benefit
Page 4 of 13
e. Indicate that a legal settlement could provide a quantitative amount;
however, an entity must look to the underlying agreement or statute to
determine if that amount is related to government assistance
f. Provide examples that describe the various mechanisms and types of
benefits that could be considered government assistance
g. Add the term generally to indicate that broadly available is not a bright
line but is, instead, a characteristic that could help an entity determine
whether assistance is within the scope of the project.
What additional changes, if any, to the scope does the Board suggest?
TOPIC 3: SCOPE—TOPIC 740, INCOME TAXES
9. Question 3 of the proposed Update asked respondents whether they agree that the
scope of the proposed amendments should not exclude government assistance
arrangements that are within the scope of Topic 740. Many respondents suggest that
the scope of the proposed Update should exclude government assistance agreements
that are within the scope of Topic 740. These stakeholders believe that the existing
disclosure requirements in Topic 740 and the Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB) Topic 11, Miscellaneous Disclosure, may
already provide adequate disclosures about certain government assistance
agreements. For example, paragraph 740-10-50-9(d) requires an entity to separately
disclose government grants (to the extent recognized as a reduction of income tax
expense), paragraph 740-10-50-11 requires an entity to disclose income tax expense
compared to statutory expectations, and SAB Topic 11.C, Tax Holidays, requires
disclosures on tax holidays such as the requirement to disclose the aggregate dollar
value and the per share effects of the tax holiday as well as the terms of the
arrangement, including the date on which the special tax status will terminate. Some
stakeholders believe that the proposed disclosures could increase cost and
complexity while not increasing the usefulness of the information provided to users.
10. Some stakeholders suggest that to the extent that it is an objective to increase
transparency about government assistance agreements, additional disclosure should
Page 5 of 13
be examined separately for income taxes under a more holistic approach or in the
Board’s broader review of the Topic 740 disclosures in its disclosure framework
project.
11. Many respondents point to IAS 20, which excludes government assistance that is
provided for an entity in the form of benefits that are available in determining
taxable profit or tax loss or that are determined or limited on the basis of income tax
liability. These respondents highlight that excluding transactions that are within the
scope of Topic 740 from the scope of the guidance would more closely align the
disclosures with those in IFRS.
12. For those stakeholders that agree that government assistance arrangements within
the scope of Topic 740 should not be excluded from the scope of the proposed
disclosures, emphasis was placed around consistency. These stakeholders believe
that it would be (a) inconsistent to exclude income-tax-related assistance while
including other tax-related assistance (for example, property or sales tax relief) and
(b) inconsistent with the objective of the proposed Update, which is to increase
transparency of government assistance agreements. Many users agree that legally
enforceable agreements within the scope of Topic 740 should not be excluded from the
scope of the proposed disclosures.
Alternatives
13. The staff identified the following alternatives:
(a) Alternative 1: Do not exclude transactions within the scope of Topic 740
(b) Alternative 2: Exclude transactions within the scope of Topic 740
(c) Alternative 3: Exclude transactions within the scope of Topic 740 and add
additional disclosures to Topic 740.
Question 3 for the Board
Does the Board want to reaffirm its decision that the final Update should
not exclude government assistance agreements that are within the scope