ASC Topic 832: Government Grant Accounting and Disclosure

ASC Topic 832 is the GAAP section covering government grant accounting and disclosure for business entities. Today it requires annual footnote disclosures about government assistance; starting in the coming years, it will also dictate when to recognize a grant, how to measure it, and where to present it. The disclosure requirements from ASU 2021-10 have been in effect for fiscal years beginning after December 15, 2021.¹ The recognition, measurement, and presentation rules added by ASU 2025-10 take effect for public business entities in fiscal years beginning after December 15, 2028, and for all other entities a year later.²

What Counts as a Government Grant

Under ASU 2025-10, a government grant is a transfer of money or a tangible non-monetary asset from a government to a business entity in a non-exchange transaction. Aid from any level of government qualifies, whether federal, state, local, domestic, or foreign, along with related agencies. Cash grants, project grants, forgivable loans, and refundable tax credits that fall outside the income tax rules are all in scope.³

The standard sorts grants into two categories that drive the accounting. A grant related to an asset is one conditioned on buying, building, or acquiring an asset such as equipment or inventory. A grant related to income covers everything else, including grants that reimburse operating expenses or provide general financial support.

What Falls Outside Topic 832

Several forms of government aid do not fall within the standard, and entities apply other GAAP to them:

Income tax benefits within ASC 740, including nonrefundable and nontransferable income tax credits, standard R&D credits, and accelerated depreciation deductions.
The below-market interest rate component of a government loan.
Government guarantees on an entity’s borrowings.
Government transfers of intangible assets or services rather than cash or tangible property.
Tax abatements and reductions in sales tax, property tax, payroll tax, or other liabilities.
Standard procurement contracts and other exchange transactions within ASC 606.
Government equity participation.

Not-for-profit entities and employee benefit plans within the scope of Topics 960, 962, and 965 are also excluded. Not-for-profits continue to apply ASC 958 contribution guidance.³

Refundable and Transferable Tax Credits

The boundary with ASC 740 trips up preparers. If a credit can only reduce an income tax liability and would never be refunded by the government, it stays in ASC 740. A refundable tax credit that falls outside Topic 740 is explicitly listed as an example of a government grant under Topic 832.³ Transferable credits add complexity. When the entity generating a transferable credit does not need taxable income to monetize it, the credit may fall outside ASC 740 entirely and be treated as government assistance. That determination requires careful analysis of the specific credit’s terms.

Disclosures Required Now

The disclosures established by ASU 2021-10 apply to all business entities for fiscal years that began after December 15, 2021. They are annual requirements appearing in the notes. ASU 2025-10 retains and revises these disclosures to align with the new recognition and measurement model.¹

Qualitative Information

Describe the nature of each grant, specifying whether it takes the form of a cash grant, a forgivable loan, a tax incentive outside the income tax framework, or another type of aid. Explain the accounting policy applied to each type. Under the current rules that means identifying which framework the entity applied by analogy; once ASU 2025-10 is in effect, the disclosure describes the elections made under Topic 832 itself. Disclose the significant terms and conditions attached to each grant, including commitments, contingencies, or provisions that could require repayment.¹

Quantitative Information

Identify the balance sheet and income statement line items affected by the grant and the dollar amount applicable to each. If a grant reduces operating expenses by $2 million and creates a $500,000 deferred income liability, both the line items and the amounts are disclosed. Under ASU 2025-10, entities receiving tangible non-monetary assets as grants must also disclose the fair value of those assets, regardless of which accounting approach they elect.² Disclose the significant judgments and estimates behind the numbers. If a company concluded it was probable that a forgivable loan would be forgiven, the disclosure should explain the basis for that judgment.

When to Recognize a Grant, and at What Amount

ASU 2025-10 replaces the analogy-based approach with specific recognition and measurement rules. Recognition hinges on a two-part probable threshold.

The Probable Threshold

An entity cannot recognize a government grant until it is probable that two conditions will be met: the entity will comply with the conditions attached to the grant, and the grant will be received. Cash in hand is not enough on its own. If money arrives before the probable threshold is satisfied, the entity records a liability, essentially deferred grant income, and holds it there until it concludes the conditions will be met.²

Timing of Income Recognition

The core principle is matching. Grant income hits earnings in the same periods that the costs the grant is intended to compensate are recognized as expenses. For an income-related grant that reimburses operating costs, that means recognizing grant income as the related expenses are incurred. If a grant compensates for expenses already incurred, or provides immediate financial support without any link to future costs, the entity recognizes it in earnings as soon as the probable threshold is met.²

For an asset-related grant, the entity cannot recognize the grant on its balance sheet until it begins incurring costs to acquire the asset. Grant income then flows to earnings over the useful life of the asset, typically through reduced depreciation or a separate income line, depending on the presentation approach elected.

Measuring Non-Monetary Grants

When a government transfers tangible property rather than cash, the measurement depends on the accounting approach chosen. Under the deferred income approach, the entity measures the non-monetary asset at fair value. Under the cost accumulation approach, the entity measures it at its own cost, if any. The election has real consequences. A piece of government-donated equipment measured at fair value looks very different from the same equipment recorded at zero cost.

Presenting Grants on the Financial Statements

ASU 2025-10 gives entities a structured choice, but the choice must be applied consistently.

Asset-Related Grants

Two approaches are permitted:²

Under the deferred income approach, the grant sits on the balance sheet as a deferred income liability and is recognized in earnings on a systematic basis over the periods the entity recognizes the related costs. On the income statement, grant income is either shown as a separate line, such as “other income,” or netted against the related expense.

Under the cost accumulation approach, the grant reduces the carrying amount of the asset. There is no separate grant income line because the benefit shows up as lower depreciation over the asset’s life. A company receiving a $1 million grant toward a $4 million piece of equipment records the equipment at $3 million and depreciates from there.

Income-Related Grants

Income-related grants use the same two presentation options available under the deferred income approach: a separate income line, or a deduction from the related expense. A company receiving a workforce development grant that reimburses training costs can either report grant income separately or show reduced training expenses.

Forgivable Loans

Forgivable government loans are within Topic 832, and they illustrate how the recognition rules work in practice. An entity cannot treat a forgivable loan as a grant until it concludes forgiveness is probable. That means evaluating the specific conditions attached, such as job creation targets or spending requirements, and assessing whether the entity will meet them.

Until the entity reaches that conclusion, the forgivable loan remains a financial liability. Once forgiveness becomes probable, the entity reclassifies and begins recognizing the grant under Topic 832’s rules. The timing of that probability assessment involves significant judgment and should be well-documented.

Repayment and Clawback

When an entity must repay a grant, the accounting depends on the type of grant and the presentation approach previously used. For an income-related grant, repayment first reduces any remaining deferred income liability; any excess is recognized immediately as a charge to earnings.

For an asset-related grant originally recorded under the cost accumulation approach, repayment increases the carrying amount of the asset. The entity then recognizes the cumulative effect of additional depreciation, impairment, or gain or loss on any prior sale of the asset as of the repayment date. If the deferred income approach was used, repayment reduces the deferred income balance, with any excess again flowing to earnings.

Effective Dates and Transition

Topic 832 has two sets of effective dates because the standard was built in stages.

The ASU 2021-10 disclosure rules took effect for fiscal years beginning after December 15, 2021. Calendar year-end entities first applied them in their 2022 annual financial statements, and entities could choose either prospective or retrospective application at transition.¹

ASU 2025-10 has a longer runway. Public business entities must adopt it for fiscal years beginning after December 15, 2028, including interim periods within those years. All other entities have an additional year, with adoption required for fiscal years beginning after December 15, 2029. Early adoption is permitted in any period for which financial statements have not yet been issued. Entities that early adopt during an interim period must apply the standard as of the beginning of the annual period that includes that interim period.²

Three Transition Methods

Under the modified prospective method, the new rules apply to grants that are not yet complete as of the adoption date, plus any new grants entered into afterward. No cumulative-effect adjustment to retained earnings is required. A grant is considered complete when substantially all of its proceeds have already been recognized.

Under the modified retrospective method, the new rules apply to grants not complete as of the beginning of the earliest period presented. This requires a cumulative-effect adjustment to the opening balance of retained earnings and restatement of all prior periods shown.

Under the full retrospective method, the new rules apply to all government grants, including those already complete. This also requires a cumulative-effect adjustment and restatement of prior periods.

The modified prospective approach demands the least historical data gathering. The full retrospective approach produces the most comparable financial statements across periods. Entities with significant long-lived asset grants spanning many years may find the retrospective methods produce cleaner comparatives.

What to Do Now

Entities that have been following the ASU 2021-10 disclosures since 2022 already have the infrastructure to track grant terms, conditions, and financial statement presentation. ASU 2025-10 builds on that foundation but adds substantial new requirements: the probable threshold assessment, the choice between the deferred income and cost accumulation approaches, and the measurement of non-monetary grants.

The most significant implementation work involves cataloging all active government grants, evaluating which presentation approach to elect for asset-related grants, and documenting the probability assessments for each grant’s conditions. Forgivable loans deserve particular attention, since those may have been sitting on the balance sheet as financial liabilities under existing GAAP and will need to be evaluated under the new recognition criteria at transition. Starting that inventory well before the effective date pays off, especially for entities weighing the retrospective transition methods that require historical data.

1
Financial Accounting Standards Board. Accounting Standards Update 2021-10 – Government Assistance Topic 832
2
PwC Viewpoint. ASU 2025-10 Government Grants Topic 832 – Accounting for Government Grants Received by Business Entities
3
PwC Viewpoint. ASU 2025-10 Government Grants Topic 832 – Accounting for Government Grants Received by Business Entities