In December 2025, FASB issued ASU 2025-10, Government Grants (Topic 832), introducing dedicated US GAAP guidance for the accounting of government grants received by business entities. Before this update, US GAAP lacked a specific standard for government grants, leading companies to apply analogies to IAS 20, ASC 450, or Subtopic 958-605. This resulted in inconsistent accounting practices and reduced comparability across financial statements. [1] ASU 2025-10 establishes a structured framework for recognising, measuring, presenting, and disclosing government grants, improving transparency and comparability in financial reporting.
Download the Pierag Technical Note on ASU 2025-10: Government Grant Accounting (PDF)
Scope: Who Does ASU 2025-10 Apply To?
Topic 832 applies to business entities receiving government grants and excludes not-for-profit organisations and employee benefit plans, which follow separate accounting guidance. [2] Several transaction types are also excluded from scope, including income tax benefits, government guarantees, and below-market interest rate loans. Finance teams should assess whether their specific grant arrangements fall within the scope of Topic 832 or continue to be accounted for under other applicable guidance.
Grant Classification: Asset-Related and Income-Related
ASU 2025-10 categorises government grants into two primary types, each with its own recognition and presentation requirements. [2]
Asset-related grants are linked to the purchase, construction, or development of long-lived assets. Two accounting approaches are permitted.
The Deferred Income Approach records the grant as deferred income at recognition, with the deferred amount recognised as income on a systematic basis over the useful life of the related asset.
The Cost Accumulation Approach reduces the carrying amount of the asset by the grant amount, which results in lower depreciation charges over the asset’s useful life rather than separate income recognition.
Entities must select and consistently apply one approach for each class of asset-related grant. The chosen approach must be disclosed as part of the entity’s accounting policy. [3]
Income-related grants are intended to compensate for specific expenses incurred or losses suffered, or to provide general financial support. These grants are recognised as income in the period in which the related expenses are incurred, or losses are suffered. Income-related grants cannot be recognised before the related expense or loss is recognised. [2]
Recognition and Measurement
Grants are recognised only when it is probable that the entity will comply with the grant conditions and that the grant will be received. [2] This probable threshold prevents premature recognition and aligns the standard with the principle that grant income should reflect genuine compliance progress rather than anticipated receipt.
Grants must generally be measured at fair value at the date of recognition. For non-monetary grants, such as land or equipment provided by a government body, fair value measurement applies to both the grant and the non-monetary asset received. [3]
Enhanced Disclosure Requirements
ASU 2025-10 introduces expanded disclosure requirements designed to give financial statement users a clear view of an entity’s government grant activity and associated risks. [2] Required disclosures include the nature, terms, and conditions of significant grants, the accounting policies applied, the amounts recognised in the financial statements, contingencies or performance conditions attached to grants, and the risk and timing of any potential repayment obligations.
These disclosure requirements apply regardless of which accounting approach is selected for asset-related grants. Finance teams should assess whether their current disclosure processes and internal documentation practices can support the level of granularity required. Pierag’s Accounting Advisory practice assists organisations in assessing the impact of ASU 2025-10 on accounting policies, financial statement presentation, and disclosure frameworks.
Effective Date and Transition
ASU 2025-10 is effective for public business entities for fiscal years beginning after December 15, 2026, and for all other entities for fiscal years beginning after December 15, 2027. [1] Early adoption is permitted. Entities may apply the standard prospectively or retrospectively. For organisations receiving significant government grants related to clean energy incentives, infrastructure investment, advanced manufacturing, and research and development programmes, early assessment of ASU 2025-10’s impact on accounting policy selection and financial statement presentation is advisable well ahead of the mandatory effective date.
Frequently Asked Questions
What did US GAAP require for government grants before ASU 2025-10?
There was no dedicated US GAAP standard. Companies applied analogies to IAS 20, ASC 450, or Subtopic 958-605, resulting in diverse and inconsistent accounting practices across reporting entities. [1]
Does ASU 2025-10 apply to non-profit organisations?
No. Topic 832 applies only to business entities. Not-for-profit organisations and employee benefit plans follow separate accounting guidance and are excluded from scope. [2]
What are the two accounting approaches for asset-related grants?
The Deferred Income Approach recognises the grant as income over the useful life of the related asset. The Cost Accumulation Approach reduces the carrying amount of the asset, resulting in lower depreciation. Entities must select and consistently apply one approach per class of asset-related grant and disclose their chosen policy. [2][3]
When is ASU 2025-10 effective?
For public business entities, fiscal years beginning after December 15, 2026. For all other entities, fiscal years beginning after December 15, 2027. Early adoption is permitted. [1]
Are all government grants in scope of Topic 832?
No. Income tax benefits, government guarantees, and below-market interest rate loans are excluded from the scope of Topic 832, even when provided by a government entity. [2]
References
[1] FASB. (2025, December). Accounting Standards Update 2025-10: Government Grants (Topic 832) – Recognition, Measurement, Presentation, and Disclosure [Full text]. Retrieved from https://fasb.org/page/ShowPdf?path=ASU2025-10.pdf
[2] CPA Hall Talk. (2026). ASU 2025-10 government grants: New Topic 832 recognition, measurement, and disclosure requirements. Retrieved from https://www.cpahalltalk.com/government-grants/
[3] Eide Bailly LLP. (2026). ASU 2025-10: What entities need to know about the new government grant accounting standard under Topic 832. Retrieved from https://www.eidebailly.com/insights/articles/2026/asu-2025-10-government-grants
