Chapter 26: Government Grants

Perspective and Issues

Government grants or other types of government assistance are usually provided to enterprises to encourage them to embark on activities that they would not, presumably, have undertaken in the absence of such assistance. Government assistance is action by the government aimed at providing economic benefits to an enterprise or a class of enterprises that fulfill certain criteria. A government grant, on the other hand, is government assistance that entails the transfer of resources in return for compliance, either past or future, with certain conditions relating to the enterprise's operating activities.

IAS 20, which is the standard relating to accounting for government grants and disclosure of government assistance, was approved in 1982 and reformatted in 1994, but there were no substantive changes made to the originally approved text of the standard. Since IOSCO advised the IASC in June 1994 that IAS 20 was acceptable to it for the purposes of the core set of standards, IAS 20 was not reviewed as part of the IASC/IOSCO core set of standards work program. Currently, the IASC has no plans to review IAS 20, although it realizes that the choice of treatments with respect to grants related to assets allowed under the standard may technically not be consistent with the IASC's Framework.

The receipt of government assistance could be important to the presentation of financial statements of an enterprise; thus the method of accounting used to recognize such government assistance must be appropriate. IAS 20 deals with the accounting treatment and disclosure of government grants and the disclosure requirements of government assistance. Depending on the nature of the assistance given and the conditions attached to it, government assistance could be of many types. Government assistance can take the form of a grant, a forgivable loan and other forms of assistance, such as technical advice.

Sources of IAS

IAS 20, SIC 10