Many companies have taken advantage of the various government support schemes that have been put in place to help deal with the economic consequences of Covid-19. While these schemes have provided much needed financial support, they do have financial reporting consequences that will need to be reflected in interim and annual financial statements.
The relevant accounting standard is IAS 20 Accounting for Government Grants and this will determine the recognition and measurement of the grant. The first step is to determine if the scheme meets the definition of government assistance and whether the government assistance is in the form of a government grant.
Government assistance is an action by government which is designed to provide an economic benefit to an entity or a range of entities qualifying under certain criteria. An example would be the relief from business rates for certain industries.
As no economic benefit has been transferred, the nature and extent of government assistance should be disclosed. An example of disclosure would be:
During the period the group benefited from government assistance in the form of Business Rates Relief. This provided a 100% relief for the group’s qualifying properties. Without this relief it is estimated that business rates of £• would have been recognised within the Income Statement in the period.
Government grants are assistance provided by the government in the form of transfers of resources, in return for past or future compliance with certain conditions. Examples of government grants would include the furlough scheme (the Coronavirus Job Retention Scheme) and loans provided at a below market rate of interest (such as the Coronavirus Business Interruption Loan). Government grants are recognised when there is reasonable assurance that the entity will comply with the conditions and that the grant will be received. The grant should be recognised in profit or loss on a systematic basis, over the periods in which the entity recognises as expenses the related costs for which the grant is intended to compensate.
For government grants, entities adopting IFRS have an accounting policy choice over the presentation of grants in the financial statements. These can either be presented separately, normally as other income, or offset against the relevant expense. For entities applying FRS 102, grants should be presented separately. Government grants do not arise from contracts with customers and hence should not be presented within revenue.
Entities will have to disclose the nature and extent of government grants in the period. An example of such a disclosure would be:
During the period the group benefited from £• of government grants in the form of the Coronavirus Job Retention Scheme. In accordance with our accounting policy this credit is included in other income within the Income Statement over the same period as the staff costs for which it compensates.
For further advice on how to accurately record government grants, please get in touch with Matthew Stallabrass or your usual Crowe contact.