In December 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-10, Government Grants (Topic 832), introducing dedicated U.S. GAAP guidance for the accounting of government grants received by business entities.
Previously, U.S. GAAP lacked a specific standard for such grants, leading companies to rely on analogies to other guidance such as IAS 20, ASC 450, or Subtopic 958-605. This resulted in inconsistent accounting practices and reduced comparability across financial statements.
The new update establishes a structured framework for recognizing, measuring, presenting, and disclosing government grants, improving transparency and consistency in financial reporting.
Key Highlights
1. Dedicated Guidance:
Topic 832 introduces explicit accounting guidance for government grants received by business entities under U.S. GAAP.
2. Clear Grant Classification:
Grants are categorized into:
⇨ Asset-related grants: linked to the purchase or construction of long-lived assets.
⇨ Income-related grants: intended to compensate for expenses or losses.
3. Recognition Criteria:
Grants are recognized only when it is probable that the entity will meet grant conditions and receive the grant.
4. Measurement:
Grants must generally be measured at fair value at recognition, including non-monetary assets.
5. Accounting Approaches for Asset Grants:
⇨ Deferred Income Approach: Grant recorded as deferred income and recognized over the asset’s useful life.
⇨ Cost Accumulation Approach: Grant reduces the carrying amount of the asset, lowering depreciation over time.
6. Enhanced Disclosures:
Entities must provide expanded disclosures on the nature of grants, accounting policies applied, grant terms, contingencies, financial statement impacts, and potential repayment risks.
Scope
The standard applies to business entities and excludes not-for-profit organizations and employee benefit plans, which already follow separate accounting guidance. Certain transactions such as income tax benefits, government guarantees, and below-market interest loans are also excluded.
Impact
ASU 2025-10 aligns U.S. GAAP more closely with international practices while maintaining its principles-based structure. The update is expected to improve comparability, reduce diversity in practice, and enhance the transparency of government grant reporting.
