For more than 50 years, US GAAP contained no authoritative guidance telling business entities how to recognize, measure, or present government grants. Companies receiving cash from the CHIPS Act, IRA credits, state economic development awards, forgivable PPP-style loans, or transfers of government-owned land or equipment were left to analogize to IAS 20, the IFRS government grant standard, or less commonly to ASC 958-605 (the not-for-profit contribution model) or ASC 450 (contingencies). Different companies operating in the same grant programme, receiving the same type of government assistance, could reach materially different recognition timing and balance sheet presentation outcomes without either being wrong under US GAAP.
On December 4, 2025, the FASB closed that gap with ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This is the first comprehensive, authoritative US GAAP model for government grant recognition, measurement, and presentation for business entities. It builds on IAS 20 principles but makes targeted improvements, eliminates some of IAS 20's weaker provisions, and imposes a more specific recognition threshold.
The effective date for public business entities is annual periods beginning after December 15, 2028, with interim periods included. For calendar-year-end public companies, mandatory adoption begins with the December 31, 2029 annual report. But if your company receives material government grants, the 2026 10-K already needs a SAB 74 disclosure about this pending standard, and your team should be assessing its impact now.
This post explains what ASU 2025-10 covers, what the recognition threshold requires, how the two measurement approaches for asset-related grants work, what the disclosure requirements are, and what your 2026 and 2027 SEC filings need to say about the pending adoption.
Why Did GAAP Have No Guidance on Government Grants Until Now?
The absence of guidance was long-standing and acknowledged. As the FASB's own Basis for Conclusions in ASU 2025-10 states directly, there has been a lack of guidance on accounting for government grants received by business entities for the over 50 years that the FASB has been in existence.
The standard-setting challenge was not lack of awareness. The FASB had repeatedly considered whether to address government grant accounting and repeatedly concluded the economics were too contested. Government grants can be viewed as compensation for costs the entity would otherwise bear, as a policy instrument with no economic substance distinct from a subsidy, as a form of deferred revenue, or as a contribution with conditions. Different conceptual views on the economics of a grant produce different accounting models, and the FASB found stakeholder agreement on the right model elusive across multiple projects over several decades.
In the meantime, practice converged informally around IAS 20 as the dominant analogical framework. IAS 20 allows both the deferred income approach and the cost accumulation (net presentation) approach for asset-related grants, allows flexible income recognition timing for income-related grants, and was familiar to most multinationals that also report under IFRS. A 2021 FASB project, which produced ASU 2021-10, added disclosure requirements for government assistance but explicitly left recognition, measurement, and presentation unaddressed, addressing only the disclosure gap while acknowledging the bigger recognition problem remained open.
The catalyst for ASU 2025-10 was a combination of stakeholder demand and the volume of government assistance flowing to US business entities following the pandemic, the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act. The volume and variety of government grants reaching business entities made the comparability problem visible enough that the FASB concluded the recognition question had to be addressed.
What Is ASU 2025-10 and What Does ASC Topic 832 Cover?
ASU 2025-10 amends ASC Topic 832, Government Assistance, by adding recognition, measurement, and presentation guidance alongside the disclosure requirements that already existed under ASU 2021-10. Prior to the new ASU, ASC 832 contained only those disclosure provisions. Now it is a comprehensive accounting model.
The ASU applies to all business entities except not-for-profit entities and employee benefit plans. NFPs are excluded because they already have authoritative guidance in ASC 958-605. Employee benefit plans are excluded for similar reasons relating to their specialized accounting framework.
The core accounting model is structured around a definition and two categories.
The definition of a government grant under ASC 832: a transfer of a monetary asset or a tangible nonmonetary asset, other than in an exchange transaction (including an exchange transaction that may be at a significant discount to fair value), from a government to an entity. The reference to government includes domestic, foreign, local, regional, and national governments and entities related to those governments.
From that definition, all grants fall into one of two categories: grants related to an asset, or grants related to income. Those two categories drive everything in the subsequent measurement and presentation model.
Early adoption is permitted for any period for which financial statements have not yet been issued or made available for issuance. Three transition methods are available: full retrospective, modified retrospective, or modified prospective. The availability of three options gives entities flexibility to align the transition approach with their data availability and the complexity of their existing grant portfolios.
Which Government Grants Are In Scope and Which Are Excluded?
The scope definition is specific and some of its exclusions will surprise practitioners who have been accounting for certain arrangements under IAS 20 by analogy.
In scope under ASC 832:
Cash grants from federal, state, or local government programmes, including reimbursement grants for wages, training costs, R&D expenditures, and capital expenditures.
Forgivable loans from government, when it is probable the forgiveness conditions will be met. The ASU is explicit that forgivable loans are within scope. BDO's analysis confirms that entities currently accounting for forgivable loans under ASC 470 would recognize income from forgiveness only when the liability is extinguished under ASC 470-50. After adoption, ASC 832 governs, and the entity must assess whether it is probable the forgiveness conditions will be met rather than waiting for extinguishment.
Refundable tax credits not within the scope of ASC 740. This inclusion is significant for companies with IRA credits or similar transferable credits that they have determined fall outside ASC 740. Those credits are within ASC 832's scope.
Transfers of tangible nonmonetary assets, such as government-provided land, buildings, or equipment.
Excluded from ASC 832:
Exchange transactions with the government, including sales of goods or services to the government accounted for under ASC 606. An arrangement where the government is receiving fair market value in return for its payment is an exchange transaction, not a grant.
Grants of intangible assets. This is one of the most significant departures from IAS 20. Patents, licences, intellectual property, and other intangibles transferred by the government are not within ASC 832's scope. The FASB concluded that the recognition and measurement of intangible government grants required additional analysis that was beyond the scope of this project.
Below-market interest rate loans. IAS 20 requires recognition of the benefit of below-market government loans as a grant. ASC 832 explicitly excludes this. The FASB concluded the cost of providing the information (measuring the hypothetical market rate financing cost and the corresponding grant) does not justify the benefit. This is a targeted improvement over IAS 20 that reduces complexity for entities with government-backed financing.
Government guarantees.
Income tax credits within the scope of ASC 740.
How Does the "Probable" Recognition Threshold Work?
The recognition threshold in ASU 2025-10 is where the standard diverges most significantly from the practice many companies developed under IAS 20 by analogy.
Under ASC 832-10-25-1(a), a business entity cannot recognize a government grant until it is probable that both of the following conditions are met:
The entity will comply with the conditions attached to the government grant.
The grant will be received.
The word probable here carries its ASC 450 meaning: the future event is likely to occur. This is a higher threshold than IAS 20's more permissive "reasonable assurance" standard. Crowe's analysis notes explicitly that determining whether the probable threshold has been met requires judgment and will depend on the relevant facts and circumstances. The receipt of the grant does not, by itself, indicate that the recognition criteria are met. A company that received a cash payment from the government on day one cannot recognize grant income simply because money arrived; it must still assess whether it is probable that it will comply with all conditions attached to the grant.
This threshold change matters most for grants with performance conditions. A company that receives CHIPS Act funds subject to hiring and domestic production requirements cannot recognize those funds as income until it is probable that the employment levels, domestic content requirements, and other programme conditions will be met. If conditions are partially met, the ASU allows partial recognition. A grant can be partially recognized when the conditions for a portion of the grant have been met and it is probable that the remaining portion will also be recognized as those conditions are met.
For forgivable loans specifically, the ASU requires the entity to conclude that it is probable the loan forgiveness conditions will be met before recognizing the forgiveness as grant income. This is a change for entities that previously waited for actual extinguishment under ASC 470-50, because it can either accelerate or defer recognition depending on when the probable threshold is reached relative to when extinguishment would occur.
What Are the Two Measurement Approaches: Cost Accumulation vs Deferred Income?
For grants related to an asset, ASU 2025-10 allows either of two approaches, applied as an accounting policy election. The election must be applied consistently to all grants related to assets, though the ASU indicates an entity may make a separate election for different categories of grants if there is a reasonable accounting policy basis for doing so.
Deferred income approach. The entity recognizes a deferred income liability on the balance sheet when the grant meets the recognition criteria. For a monetary grant, the deferred income is initially measured at the amount of the monetary asset received or expected to be received on the date the recognition criteria are met. For a nonmonetary grant (land, a building, equipment), deferred income is initially measured at the fair value of the asset as of the date recognition criteria are met.
The deferred income liability is then recognized in earnings on a systematic and rational basis over the useful life of the related asset, consistent with the depreciation or consumption of the asset. The income can be presented in the income statement either as a separate line item under a general heading such as "other income," or netted against the related expense or depreciation. Entities must make an accounting policy election for income statement presentation and apply it consistently.
A deferred income balance arises when a company has received grant proceeds but has not yet met all the conditions for income recognition, meaning the related costs have not yet been incurred. PwC's analysis confirms that the amount recognized by an acquirer at the acquisition date for a grant-related deferred income in a business combination is likely the same as the deferred income of the acquiree, because ASU 2025-10 provides an exception to ASC 805's fair value measurement requirement for these liabilities.
Cost accumulation approach. The entity records the asset at its gross acquisition or construction cost, then reduces the carrying amount of the asset by the grant once the recognition criteria are met. The asset is presented net of the grant on the balance sheet. Because the grant reduces the asset's carrying value, the benefit flows through earnings indirectly, through lower depreciation over the asset's useful life. The income statement never shows a separate grant income line under this approach; the grant's effect is embedded in a lower depreciation expense.
For a nonmonetary grant (a building or equipment transferred by the government), the asset is recognized at its cost to the entity under the cost accumulation approach. If the government transfers the asset directly rather than reimbursing the entity for its purchase cost, the asset's cost to the entity may be zero or nominal, in which case the asset is recorded at that minimal cost rather than at fair value.
How Is an Income-Related Grant Recognized?
A grant related to income is defined as a government grant, or part of a government grant, other than a grant related to an asset. These are grants intended to compensate the entity for expenses, losses, or foregone income rather than to fund or reimburse the cost of a specific asset.
Recognition for income-related grants follows a matching principle. A grant related to income is recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes as expenses the related costs for which the grant is intended to compensate. This mirrors the matching approach familiar from accrual accounting: if the grant compensates for wages paid in Q1 through Q3 of the grant year, the grant income is recognized over Q1 through Q3 as those wages are expensed, not when the cash is received.
For a grant related to income that compensates for expenses or losses already incurred, the recognition is accelerated: the grant is recognized as soon as the entity meets the recognition criteria described above, rather than being spread over future periods. If you received a government grant that reimburses specific expenditures you already made in prior periods, and it is probable you will comply with the remaining conditions and receive the grant, you recognize it when those probability conditions are met.
Income statement presentation for income-related grants gives the entity a choice, made as an accounting policy election. The grant can be presented as a separate line item under a general heading such as "other income" in the income statement. Alternatively, it can be presented as a reduction of the related expense. A company that received a grant to offset employee training costs could either show a "government grant income" line for the grant amount or reduce its training expense line by the grant amount.
The Uniqus analysis of ASU 2025-10 notes that "other income" in ASC 832 does not carry the same meaning as in SEC Regulation S-X and simply refers to income that is not revenue under ASC 606. An entity may present grant income within operating income depending on its specific facts and circumstances, such as when government grants are part of the entity's ongoing, major, or central operations.
What Changed From How Companies Were Doing This Before?
For many companies, ASU 2025-10 will require changes to existing accounting policies, not just a label update. The direction and magnitude of those changes depend on what the company was previously doing.
Companies that analogized to IAS 20. These companies need to assess whether their specific application of IAS 20 differs from ASC 832's model in the areas where the FASB made targeted departures. The most significant departures are: (1) the probable threshold is higher than IAS 20's reasonable assurance standard, which can change recognition timing; (2) below-market government loans are explicitly excluded from ASC 832 while they were within IAS 20's scope; and (3) the cost accumulation approach for nonmonetary asset grants under ASC 832 results in the asset being recorded at cost to the entity (potentially zero) rather than at fair value under IAS 20. PwC's analysis confirms that entities analogizing to IAS 20 must assess whether changes to their accounting policies are required to comply with ASU 2025-10.
Companies that analogized to ASC 958-605 (not-for-profit contribution model). These companies were generally recognizing grants when the conditions were substantially met, which is broadly similar to the probable threshold but not identical. They also generally did not distinguish between asset-related and income-related grants in the same structured way ASC 832 does. Adopting ASU 2025-10 requires a more structured bifurcation of all grants into the two categories and application of the appropriate measurement approach for each.
Companies that analogized to ASC 450 (contingency model). These companies may have been more conservative in recognition timing, recognizing grant income only when realization was virtually certain (the ASC 450-30 gain contingency model). The probable threshold in ASC 832 is lower than virtual certainty, which may accelerate recognition compared to prior practice.
Forgivable loans under ASC 470. Companies that accounted for government forgivable loans under ASC 470 previously recognized income only when the liability was extinguished. After adoption, if it is probable the forgiveness conditions will be met, the entity can recognize the grant before extinguishment. For COVID-era PPP loans that were not yet extinguished, companies should note that those transactions will need to be revisited under ASC 832 for any similar future arrangements, though the transition provisions need to be considered for historical grants that have already been resolved.
Transferable tax credits. The FASB explicitly confirmed that nonrefundable, transferable tax credits are excluded from the literal scope of ASC 832 because they are intangible assets. However, Deloitte's analysis and PwC's analysis both confirm that entities may analogize to ASC 832 when accounting for transferable tax credits outside ASC 740's scope, because it is appropriate to apply guidance for similar transactions by analogy under ASC 105-10-05-02. Companies currently analogizing to IAS 20 for IRA transferable credits should assess whether the ASC 832 analogy produces different results under the higher probable recognition threshold.
What Are the New Disclosure Requirements Under ASC 832?
ASU 2025-10 modifies and expands the existing ASC 832 disclosures from ASU 2021-10. After adoption, entities that receive a government grant must disclose annually:
The nature and a general description of grants received, including the form of the grant (cash, forgivable loan, nonmonetary asset transfer).
Accounting policies used for grants, including whether the deferred income approach or the cost accumulation approach is applied for asset-related grants, and whether grants are presented separately as other income or netted against the related expense for income-related grants.
Significant terms, including the duration of the arrangement, commitments made by either party, and provisions for recapture or other contingencies.
The amounts recognized and where they are presented in the financial statements, including balance sheet line items for deferred income and the income statement line items where grant income or expense reductions appear.
Significant judgments and estimates related to grant recognition, particularly around the probable threshold assessment.
If a tangible nonmonetary asset is received as a government grant, the fair value of that asset must be disclosed even if the entity applies the cost accumulation approach and records the asset at zero cost.
Crowe's analysis notes that a general description of any legal restrictions preventing disclosure of the above information is also required where applicable.
These disclosures must be provided in both annual and interim financial statements following adoption.
What SAB 74 Disclosures Are Required in Your 2026 10-K?
SAB Topic 11.M, codified at ASC 250-10-S99-5, requires companies to disclose in their current financial statements the expected effects of recently issued but not yet effective accounting standards when those effects are or may be material. ASU 2025-10 was issued December 4, 2025, with a mandatory effective date of annual periods beginning after December 15, 2028 for public business entities. It is a recently issued, not-yet-effective standard.
For companies with material government grants, IRA-related transferable tax credits accounted for outside ASC 740, CHIPS Act receipts, state economic development incentives, forgivable loan balances, or any other arrangements that are or may be within ASC 832's scope, ASU 2025-10 requires SAB 74 disclosure in the 2026 annual report and in interim filings through the adoption date.
A complete SAB 74 disclosure for ASU 2025-10 in the 2026 10-K should address:
The standard's full name and a brief description of what it establishes (first comprehensive GAAP recognition, measurement, and presentation guidance for government grants).
The mandatory effective date for the entity (annual periods beginning after December 15, 2028 for public business entities; calendar-year companies first adopt in the December 31, 2029 annual report).
Whether early adoption is being considered.
The transition method or methods the entity expects to apply (full retrospective, modified retrospective, or modified prospective).
Either a quantitative estimate of the transition effect or a statement that the entity is currently evaluating the impact and cannot yet reasonably estimate the effect on its financial statements.
The third option is the one most companies will use in the 2026 10-K. "Currently evaluating" is appropriate for a standard with a 2029 mandatory adoption date when the entity has not yet completed its impact assessment. However, for companies with significant grant programmes, investors and the SEC staff expect the "currently evaluating" language to become more specific over time. By 2027 and 2028, the SAB 74 disclosure should ideally provide directional guidance about whether the transition is expected to be material and what the primary accounting policy changes will be.
The key preparatory work to support even a "currently evaluating" SAB 74 disclosure: compile a complete inventory of all government grant arrangements, classify each into asset-related or income-related categories, identify the current accounting policy applied to each, and assess whether that policy differs from ASC 832 in any material respect. That inventory is the foundation of the SAB 74 disclosure and of the transition plan.
Frequently Asked Questions
What is ASU 2025-10?
ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, is the FASB's December 4, 2025 standard establishing the first authoritative US GAAP guidance for recognition, measurement, and presentation of government grants for business entities. Before this standard, no specific GAAP guidance existed and companies analogized to IAS 20, ASC 958-605, or ASC 450, producing inconsistent practice.
What is ASC Topic 832?
ASC Topic 832, Government Assistance, was established with disclosure-only requirements in 2021 by ASU 2021-10. ASU 2025-10 expands ASC Topic 832 by adding comprehensive recognition, measurement, and presentation guidance alongside the existing disclosures. It is now the authoritative home of all government grant accounting for US GAAP business entities.
When is ASU 2025-10 effective for public companies?
Annual periods beginning after December 15, 2028, including interim periods within those annual periods. For calendar-year-end public business entities, mandatory adoption begins January 1, 2029. Early adoption is permitted.
What government grants are excluded from ASC 832?
Exchange transactions with government (accounted for under ASC 606), grants of intangible assets (a key departure from IAS 20), below-market interest rate government loans (another departure from IAS 20), government guarantees, and income tax credits within ASC 740's scope. Nonrefundable, transferable tax credits outside ASC 740's scope are also explicitly excluded from the literal scope but may be accounted for by analogy to ASC 832.
Do transferable tax credits fall under ASC Topic 832?
Not in the literal scope, because the FASB determined they are intangible assets and excluded intangibles from ASC 832. However, both Deloitte and PwC confirm that entities may appropriately analogize to ASC 832 when accounting for nonrefundable, transferable tax credits outside ASC 740. Entities currently analogizing to IAS 20 for such credits should assess whether ASC 832's probable recognition threshold produces different results than their current practice.
Key Takeaways
- FASB issued ASU 2025-10 on December 4, 2025, establishing the first authoritative US GAAP recognition, measurement, and presentation guidance for government grants received by business entities. ASC Topic 832, previously containing only disclosures, is now a comprehensive accounting model.
- The standard applies to monetary and tangible nonmonetary government grants, including cash grants, forgivable loans when forgiveness is probable, and transfers of tangible assets such as land or buildings. It explicitly excludes intangible asset grants, below-market loans, and exchange transactions.
- Recognition requires it to be probable that both (1) the entity will comply with the grant's conditions and (2) the grant will be received. Probable carries its ASC 450 meaning of likely to occur, which is higher than IAS 20's reasonable assurance standard.
- For asset-related grants, entities choose between the deferred income approach (gross asset and separate deferred income liability, with income recognized over the asset's useful life) and the cost accumulation approach (net asset carrying amount, with benefit flowing through lower depreciation).
- For income-related grants, income is recognized on a systematic basis over the periods in which the related expenses are recognized, or immediately upon meeting the criteria for grants compensating for previously incurred costs.
- Effective date for public business entities is annual periods beginning after December 15, 2028. SAB 74 disclosures are required in 2026 10-K filings for companies with material government grant arrangements.
- Companies that analogized to IAS 20, ASC 958-605, or ASC 450 need to assess whether their current recognition timing, measurement, and presentation differ from ASC 832's model. The primary differences from IAS 20 are the higher probable recognition threshold, the exclusion of below-market loans, and the cost accumulation method treatment of nonmonetary asset grants at cost to the entity rather than at fair value.
