Did your finance team struggle to determine the appropriate accounting treatment for government grants received during and after the COVID-19 pandemic? Until recently, U.S. accounting standards provided no specific guidance for business entities on government grant accounting. This gap forced businesses to rely on international accounting standards or domestic nonprofit guidance, leading to inconsistent practices and reduced comparability across companies.
To address this gap, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-10, which establishes clear and comprehensive guidance for how business entities account for government grants. The new standard creates a consistent U.S. framework that aligns accounting outcomes more closely with the underlying economics of government assistance, while improving transparency and comparability across industries.
What Changed
Previously, many companies relied on international accounting guidance or other non-authoritative sources to account for government grants. ASU 2025-10 replaces this patchwork approach with a single, authoritative model under U.S. GAAP, making financial reporting more straightforward for preparers, auditors, and financial statement users alike.
Scope and Definition
Under the new guidance, a government grant generally includes cash or tangible assets provided by a government to a business outside of a typical exchange transaction. Common examples include:
Cash grants
Forgivable loans when forgiveness is expected
Grants of land or buildings.
Certain forms of government assistance are specifically excluded from the guidance:
Income tax credits accounted for under income tax rules
Government guarantees
Tax abatements
Recognition, Measurement and Presentation
Companies recognize government grants in earnings over the same period as the costs the grant is intended to support, such as operating expenses or the purchase or construction of assets. Importantly, a grant cannot be recognized until it is probable that the company will comply with the grant’s conditions and that the grant will be received.
The guidance generally categorizes government grants into two types:
Grants related to assets, such as funding provided for the acquisition or construction of buildings, equipment, or other long-lived assets, and
Grants related to income, such as reimbursements for operating costs or other ongoing expenses.
Depending on the nature of the grant and the accounting policy elected, companies may:
Recognize grant income systematically over time, or
Reduce the reported cost of the related asset or expense.
The standard provides flexibility in how grant income is presented in the financial statements, as long as the selected approach is applied consistently and is clearly disclosed.
Effective Dates and Transition
ASU 2025-10 is effective for:
Public companies: Fiscal years beginning after December 15, 2028
All other companies: Fiscal years beginning after December 15, 2029
Early adoption is permitted and may be appropriate in many cases. Companies may also select from multiple transition methods, providing flexibility in implementation.
What This Means for Your Business
ASU 2025-10 delivers long-needed clarity and consistency to the accounting for government grants under U.S. GAAP. While the new guidance may not significantly change financial statement results for companies already applying similar international standards, it is should enhance transparency and improve comparability in financial reporting across U.S. businesses.
Ready to Prepare for the New Standard?
Whether you’re considering early adoption or planning for the mandatory effective date, understanding how ASU 2025-10 applies to your specific grant arrangements is critical.
At HBK, we’ve guided hundreds of companies through major accounting transitions. Our assurance team stays ahead of regulatory changes so you can focus on what matters most: running your business with confidence that your financial reporting is accurate, compliant, and strategic.
As a Top 50 accounting firm with decades of experience serving businesses across diverse industries, HBK specializes in translating complex accounting standards into actionable business guidance.
Schedule a consultation to discuss your government grant accounting needs and develop an implementation strategy tailored to your business.
Speak to one of our professionals about your organizational needs
