US Accounting Board Looks Across the Ocean to Fill Hole in Rules

The flood of government aid that helped keep companies afloat during the coronavirus pandemic exposed a hole in US accounting rules: Businesses have no way to record the grants, loans, and tax breaks that bolstered their bottom lines.

US accounting standard-setters now wonder if it’s time to look across the Atlantic for guidance. The London-based International Accounting Standards Board issued rules specific to government assistance accounting decades ago. Perhaps US businesses should just follow those well-known rules, the Financial Accounting Standards Board has suggested.

As it turns out, it’s not as simple as copying and pasting. But to some accountants, businesses, and taxpayers eager to know how governments help out businesses, something is better than the status quo, in which there are no rules at all.

“It gives them, at least, a good base to start with,” said Tracy Grosskreutz, partner at Wipfli LLP, of IAS 20.

FASB in June 2022 publicly floated the proposition that US companies should incorporate the international rules, or some version of them, into US generally accepted accounting principles. There have been no public discussions about that effort yet, according to the board’s technical agenda. FASB plans to discuss the feedback in the coming months, a board spokesperson said.

Three of the Big Four accounting firms and an international trade group representing major companies like Bank of America Corp. and Walt Disney Co. told FASB that drawing inspiration from overseas was a good idea. But almost all recommended some tweaks. Some utility companies also warned FASB to avoid anything that could jeopardize tax incentives that encourage energy companies to invest in green technology.

Ernst & Young LLP was the lone Big Four firm telling FASB not to bother. Some parts of the international rules, such as its guidance on forgivable loans, don’t make sense for US companies, the firm wrote. Copying the international rules “would likely require more effort than expected, and in the end, the time and cost of doing so would outweigh any benefit and divert the FASB’s resources from other, more pressing projects,” the firm wrote. The firm this month declined to comment beyond what it wrote in last year’s letter.

There are also some potential technical hiccups. The international rules, first published by the IASB’s predecessor in 1983, contain several options. In its guidance on nonmonetary grants, such as arrangements for companies to use government-owned real estate or obtain access to particle accelerators, the international standard gives companies a choice on how to record the value of such deals, said Scott Ehrlich, president of Mind the GAAP LLC, an accounting consulting firm.

The standard allows companies to present government grants gross or net in the balance sheet and income statement, for example, Ehrlich said.

“In US GAAP, we don’t like optionality,” he said. “We like to know the preferable answer.”

The kind of government assistance that gets covered by the international guidance also could present some questions. IAS 20 covers below-market rate loans from governments. US GAAP already has its own guidance on that.

None of these are deal killers, Ehrlich said.

“You can start with it and make your tweaks,” he said. “It would be better, I think, than starting with a blank sheet of paper.”

Status Quo: Limited Disclosures

With Covid-19 raging, the accounting profession scrambled in 2020 to help companies figure out how to tally tax breaks like the Employee Retention Credit and refundable loans like the Paycheck Protection Program in their financial statements.

Long before the pandemic, FASB tried to get companies to disclose whether they received government aid. The effort stalled after companies said they were leery about public backlash against government incentives. Others complained about tracking down individual agreements across multiple states, cities, and even countries, and then having to follow strict audit and internal control guidelines to ensure reporting accuracy.

At one public meeting in June 2018 between FASB and representatives from large corporations, representatives from Procter & Gamble Co. and Exxon Mobil Corp. questioned why the board was tackling the project in the first place.

FASB revived the effort in 2020. By 2021, it published limited disclosure requirements, some of which applied to Covid-era programs that would have already run their courses by the time the rules went into effect.

FASB’s disclosure requirements don’t cover some of the most pervasive types of government aid, like property tax abatements. If FASB adopts IAS 20, some property tax abatements could be covered by the rules. Income tax breaks, however, are scoped out entirely from IAS 20.

Whatever path FASB takes, some action is better than none, said Ray Pfeiffer, accounting professor at Simmons University in Boston, and a former FASB research staff member.

“It seems like a no brainer,” Pfeiffer said. “Information about any benefit you’re getting from a government entity is super important and should be absolutely part of company financial reports.”