FASB Issues Final ASU on Government Grants for Businesses

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• On Dec. 4, 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-10, “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities,” establishing comprehensive guidance in U.S. GAAP for accounting for government grants received by business entities.
• The ASU applies to monetary and tangible nonmonetary government grants but explicitly excludes from its scope intangible asset grants, exchange transactions, and other arrangements.
• Under the ASU, an entity recognizes the impact of a government grant when it is probable that both 1) the entity will comply with the conditions attached to the grant, and 2) the grant will be received. Asset-related grants may be accounted for using either a cost accumulation approach or a deferred income approach. Income grants must be systematically recognized over the related expense periods.
• ASU 2025-10 is effective for public business entities for annual reporting periods beginning after Dec. 15, 2028, and interim reporting periods within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after Dec. 15, 2029, and interim reporting periods within those annual reporting periods. Early adoption is permitted.

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Background

The absence of specific authoritative guidance addressing how business entities should recognize and present government grants in U.S. GAAP has long contributed to a lack of comparability among government grant recipients. Many business entities have applied guidance by analogy, most commonly referencing International Accounting Standards (IAS) 20 or, less frequently, the not-for-profit guidance in Subtopic 958-605. This “accounting by analogy” approach has resulted in inconsistent application and varying levels of disclosure, limiting comparability and transparency for investors.

The board’s 2021 Invitation to Comment on government grants and subsequent 2022 research project confirmed stakeholder demand for authoritative guidance. The final standard addresses this gap by establishing comprehensive recognition, measurement, presentation, and disclosure requirements specifically designed for business entities receiving government assistance.

Breaking it down

Scope

The scope of the ASU includes transfers of both monetary assets and tangible nonmonetary assets from a government to a business entity. Examples include government assistance in the form of grants of land or facility usage, monetary grants, and forgivable loans.

In contrast, the following items are explicitly outside the scope of the guidance:

Crowe observation: Unlike the scope of IAS 20, ASU 2025-10 excludes from its scope the benefit of a below-market interest rate loan. In the ASU, the FASB explains that it believes “the benefit, if any, of reporting a hypothetical additional cost of financing (that is, the amount that potentially exists in the absence of government assistance) and a corresponding amount of grant income does not justify the significant cost of providing that information.”

Recognition

Under the ASU, a business entity recognizes the impact of a government grant when it is probable that both 1) the entity will comply with the conditions attached to the grant, and 2) the grant will be received. The ASU makes clear the receipt of a government grant does not, in and of itself, provide conclusive evidence that the grant conditions have been or will be met.

Crowe observation: Determining whether the “probable” threshold has been met requires judgment and will depend on the relevant facts and circumstances. Entities should establish clear documentation and controls related to probability assessments, particularly for grants with complex compliance requirements.

Grant types, measurement, and presentation

How an entity initially measures and presents the effects of a government grant depends on whether the grant relates to an asset. Grants related to assets are those in which the primary condition is for the recipient to purchase, construct, or otherwise acquire a long-term asset, including direct grants of nonmonetary assets and monetary grants to acquire or construct an asset.

The following table (and subsequent paragraphs) describes the appropriate measurement and presentation for each grant type:

Grants related to assets

For asset-related grants, an entity has the option to present the grant as deferred income or as part of the cost basis in determining the carrying amount of the related asset (cost accumulation approach).

Under the deferred income approach, the grant is recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the government grant is intended to compensate. An entity may elect to present the earnings impact either as other income or as a reduction of the related expense.

Under the cost accumulation approach, the grant is recognized as part of the cost basis of the related asset. In subsequent periods, there is no separate recognition of the grant proceeds in earnings. Instead, the carrying amount of the asset that includes the impact of the grant is used to determine depreciation or other relevant subsequent accounting impacts.

Crowe observation: The choice between the cost accumulation approach and the deferred income approach should be viewed as an accounting policy decision and, therefore, applied consistently to similar grants. Entities should consider the information needs of their financial statement users and the nature of their government grant arrangements when making this election.

Grants related to income

Income-related grants – that is, all grants not considered to be asset-related grants – are recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the government grant is intended to compensate. An entity may elect to present the earnings impact either as other income or as a reduction of the related expense.

Disclosures

The ASU requires business entities that receive a government grant to provide, on an annual basis, the disclosures outlined in Topic 832, “Government Assistance.” These include information on:

• The nature of the government grants, including a general description and the form of the grant received
• Relevant accounting policies (for example, for a grant related to an asset, whether the deferred income approach or the cost accumulation approach is applied, or, for a grant related to income, whether the grant is presented separately under a general heading such as other income or deducted from the related expense), including financial statement line items affected
• Significant terms, including the duration of the arrangement, commitments made by either party, and provisions for recapture or any other contingencies, if applicable
• If applicable, a general description of legal restrictions that prevent the entity from providing any of the aforementioned disclosures

For asset-related grants using the deferred income approach and for income-related grants, an entity must disclose which balance sheet and income statement line items are affected and the amounts recorded in the current period.

For grants using the cost accumulation approach, an entity must disclose, in the period in which the government grant is recognized on the balance sheet, the balance sheet line items affected and related amounts as well as the useful life of any asset that will be depreciated or amortized.

Crowe observation: The board decided not to include disclosure about a grant related to an asset accounted for under the cost accumulation approach in periods after the grant is recognized.

Entities receiving grants of tangible nonmonetary assets also are required to disclose the fair value of the grants when recognized on the balance sheet, regardless of the approach used to account for the grant.

Grant repayments

When a grant related to income becomes repayable, repayments are first applied against any remaining deferred income. Any excess repayment, or any repayment when no deferred income remains, is recognized immediately in earnings.

When a grant related to an asset becomes repayable, the repayment is accounted for as follows:

• Under the cost accumulation approach, the asset’s carrying amount is increased by the repayment. Any related expenses, such as depreciation or prior gains or losses that would have been recorded without the grant, must be recognized immediately in earnings.
• Under the deferred income approach, the deferred income balance is reduced by the repayment. Any repayment that exceeds the remaining deferred income is recognized immediately in earnings.

If repayment changes the asset’s carrying amount, the entity must reassess the asset for impairment, depreciation, and any other subsequent accounting based on the new amount.

Business combination guidance

The ASU also introduces a new application exception for the recognition and measurement of liabilities associated with grants related to income in a business combination accounted for under Topic 805, “Business Combinations.” Under the exception, the acquirer must recognize and measure deferred income arising from an income-related grant in accordance with Topic 832, “Government Grants,” unless the acquiree has already fully met all grant conditions at the acquisition date.

Transition and effective dates

The ASU takes effect for public business entities in annual reporting periods beginning after Dec. 15, 2028, including interim reporting periods within those annual reporting periods. All other entities have an additional year to adopt (periods beginning after Dec. 15, 2029).

Business entities may adopt the new guidance either prospectively or retrospectively using one of the following approaches:

• Modified prospective approach
  • Applies to grants entered into on or after the effective date and to grants not yet complete by that date (a grant is complete when substantially all proceeds have been recognized).
  • Prior periods are not restated, and no cumulative effect adjustment is recorded.
• Modified retrospective approach
  • Applies to grants entered into on or after the beginning of the earliest period presented and to grants not complete at that time.
  • Prior periods are restated for incomplete grants, with a cumulative effect adjustment recorded to opening retained earnings for the earliest period presented.
• Full retrospective approach
  • Applies to all grants, with a cumulative effect adjustment made to opening retained earnings at the beginning of the earliest period presented.

Early adoption is permitted for interim and annual financial statements that have not yet been issued (or been made available for issuance). If an entity adopts the amendments in an interim period, the entity must adopt them as of the beginning of the annual reporting period that includes that interim period.

FASB materials reprinted with permission. Copyright 2025 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.