(Please note that this new guidance does not apply to Nonprofits)
Businesses who receive government grants just received some long-awaited guidance from the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2025-10 Government Grants. This guidance clarifies how business entities should account for government grants under U.S. GAAP. While it does not apply to nonprofits, it provides a consistent framework for businesses that previously lacked authoritative guidance.
What is considered a business?
This ASU is applicable for business entities, that is all except for not-for-profit entities and employee benefit plans.
What is considered a government grant?
FASB defines a government grant as a transfer of a monetary or tangible nonmonetary asset, other than an exchange transaction.
- Grants related to an asset: A grant related to an asset is a government grant, or part of a government grant, that is conditioned on the purchase, construction, or acquisition of an asset (for example, a long-lived asset or inventory).
- Grants related to income: A grant related to income is a government grant, or part of a government grant, other than a grant related to an asset (for example, a grant that reimburses a business entity for operating expenses).
The amendments in the ASU do not apply to exchange transactions with the government, income taxes, benefit of below-market interest rate loans, or government guarantees.
Main provisions of ASU 2025-10 Government Grants
Timing of Revenue Recognition:
A government grant received by a business should not be recognized until it is both probable that a business entity will comply with the conditions of the grant and it is probable that the grant will be received. The business entity must also meet the recognition guidance for a grant.
Two Approaches Are Allowed Depending on the Type of Grant:
- Deferred Income Approach – Both Grants Related to Income and Grants Related to an Asset
Under this approach, the grant is recognized on the balance sheet as deferred revenue as related costs are incurred. Earnings are recognized on a systematic and rational basis over the periods in which the grant-related expenses are incurred and may be presented either as other income or as a deduction from the related expenses. - Cost Accumulation Approach – Grants Related to an Asset
Under this approach, the grant is recognized as an adjustment to the value of the asset. When the cost accumulation approach is used, there is no separate subsequent recognition of revenue.
Disclosures are required, including:
- Nature of the government grant received
- Accounting policies used to account for the government grant
- Significant terms and conditions of the government grant
When is the new guidance effective?
Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2025-10 Government Grants was issued in December 2025 and is effective for:
- Public business entities for annual periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods.
- Other than public business entities for annual periods beginning after December 15, 2029, and interim reporting periods within those annual reporting periods.
Early adoption is permitted in both interim and annual reporting periods in which financial statements have not already been issued or made available for issuance. (Please see the standard for additional details on the transition methods allowed as there are several options.)
Final Thoughts
ASU 2025-10 provides clarity and consistency for businesses receiving government grants. While the guidance introduces new considerations around recognition, presentation, and disclosure, it offers a clear framework to ensure compliance with U.S. GAAP.
At Han Group, we help organizations understand how new accounting standards affect their financial reporting and compliance obligations. If you have questions about how ASU 2025-10 may impact your financial statements or implementation planning, we are here to help. Contact Us.
