The constant barrage of media updates, seemingly ever-changing CDC regulations, and the constant push to keep the lights on and your employees working productively were just some of the challenges we all experienced, and may still be experiencing, since the beginning of the pandemic. And while there was a record amount of government stimulus being distributed, the complexity and ambiguity of the rules and regulations surrounding these funds were just another source of stress for many business owners. Even in the so-called “black and white” word of accounting, there was initial uncertainty on the proper treatment of these various relief programs.
Recently, the Financial Accounting Standards Board (FASB) introduced a new accounting standards update called “2021-10 Government Assistance: Disclosures by Business Entities about Government Assistance”. Though the new standard was released after most 2021 financial reporting deadlines were already met, it does clarify the reporting and disclosing information on the various forms of governmental assistance businesses have or will receive in the future. The new update affects any annual period beginning in 2022 and early application is permitted.
As we have seen repeatedly, our government’s programs continue to evolve and expand and the new standards will allow financial reporting to adapt to any such modifications. Unlike not-for-profit entities, which already had specific guidelines, or international standards, which already contained provisions applicable to these transactions, the generally accepted U.S. accounting principles had no specific guidance regarding the accounting policies and related disclosures of government assistance received by for-profit companies.
The good news is that the new guidance will create consistency while enhancing financial reporting transparency for entities that receive government assistance through services like the Paycheck Protection Program (PPP) or the Employee Retention Credit (ERC) by requiring the disclosure of specific information, such as:
- The nature of the transaction
- Any related accounting policies that are utilized, like the PPP where options existed to account for the proceeds as debt, contingent contributions, or a gain contingency
- Specifically affected line items in the financial statements
- Any other significant terms and conditions related to the transactions including duration, provisions, and any other contingencies under the agreements
Moving forward, this update will be the new standard and should serve as the foundation to standardized reporting for these government assistance programs in order to add universal comparability.
In an ideal world we would never have to worry about the impact of relief programs like the PPP or ERC. But as we’ve learned, the world can change in an instant and having guidance such as this new standards update can certainly help alleviate stress for business owners while they navigate a challenging situation.