FASB Issues ASU 2025-10: New Guidance for For-Profit Entities on Government Grant Accounting

Executive Summary

• In December 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025‑10, Government Grants (Topic 832), establishing authoritative U.S. GAAP for business entities that receive government grants.
• The standard provides clear rules for recognition, measurement, presentation, and disclosure, reducing diversity in practice and aligning more closely with international standards while retaining U.S. GAAP‑specific improvements.
• Companies should begin evaluating existing grants, selecting an accounting policy for asset‑related grants, and preparing for expanded disclosure requirements.

Key implications for businesses

Government grants have increased significantly through federal and state programs supporting broadband expansion, clean energy, research and development (“R&D”), workforce development, and economic revitalization. Historically, companies recognized the government assistance by analogizing to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance or FASB Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition, leading to inconsistent reporting and limited comparability. ASU 2025‑10 introduces structure and transparency with predictable outcomes for preparers and users of financial statements.

Who is affected?

Business entities that receive a government grant, as defined below are affected. Not‑for‑profit entities, employee benefit plans, as well as arrangements such as income tax-related items (Topic 740), below‑market interest rate loans, and government guarantees are excluded. Intangible assets, resources, and services are also excluded from the scope (e.g., patent protection, free rent, security services). Entities may need to evaluate their accounting policies for such items upon adoption.

What is considered as a ‘government grant’?

A government grant is a transfer of a monetary or tangible nonmonetary asset from a government to a business entity in a nonexchange transaction (where the entity does not provide equal value to the government in return), including exchange transactions significantly below fair value.

Practical Insight: Different terms (such as grants, awards, or subsidies) may be used to describe government assistance. Entities should evaluate the facts and circumstances to determine whether assistance meets the definition of a government grant and is within the scope of Topic 832.

Core accounting model

Recognition

A business entity may recognize a government grant only when it is probable that (1) the entity will comply with grant conditions and (2) the grant will be received. Receipt alone does not permit recognition unless it is also probable that the entity will meet any outstanding grant conditions. This recognition framework applies to both asset‑related and income‑related grants, as defined below.

Practical Insight: Loans from a government that are probable of forgiveness are accounted for as grants under ASC 832 after adoption; timing of recognition

depends on when it is probable the entity will meet forgiveness conditions.

Classification

• Asset‑related grants: conditioned on acquiring, constructing, or purchasing an asset.
• Income‑related grants: all other grants, such as those intended to reimburse operating costs or provide direct support.

Accounting approaches for asset‑related grants

Deferred income approach

• Record the grant as deferred income (liability) as the qualifying expenditures are incurred and the related asset is recognized on the balance sheet.
• Recognize in earnings:
  • Systematically over the periods in which the related expense is recognized (e.g., through depreciation, impairment, or disposal).
  • Present either separately under a general heading such as “other income” or as a reduction of related expense.
• For tangible nonmonetary assets, measure at fair value at recognition.

Practical Insight: Under ASC 832 (and as used in this article), the heading “other income” is referenced broadly as an example of separate presentation under a general heading and is not intended to reflect the formal definition in ASC 220, Income Statement—Reporting Comprehensive Income, which typically places “other income” below operating income. Amounts recognized separately may be presented within operating results if that presentation is appropriate to the entity’s facts and circumstances.

Cost accumulation approach

• Reduce the carrying amount (cost basis) of the asset by the amount of grant recognized (cash received or receivable).
• Grant income is not recorded separately within earnings; subsequent accounting (e.g., depreciation, impairment, or disposal) is based on the reduced cost.
• For tangible nonmonetary assets, measure at cost to the entity (if any).

Policy consistency: Elect a policy by type of grant and apply it consistently to similar grants; changes require preferability under ASC 250, Accounting Changes and Error Corrections.

Accounting for income‑related grants

Recognition principles for income-related grants:

• Grants tied to ongoing costs: Recognize in earnings on a systematic and rational basis over the periods in which the related costs are incurred and the recognition criteria are met.
• Grants that compensate for past costs or provide immediate support: Recognize in earnings in the period the recognition criteria are met, even if the related costs were incurred in a prior period or if there are no future related costs.
• Amounts not yet recognized are reported as deferred income on the balance sheet.

Statement of cash flows: presentation guidance

ASU 2025‑10 refers entities to ASC 230, Statement of Cash Flows. For grants related to income, cash inflows may be presented as operating or financing activities depending on timing and nature. For grants related to assets, cash inflows may be presented as operating, investing, or financing activities; policy elections should be disclosed and applied consistently.

Practical examples

Asset‑related grant: cost accumulation approach (condensed)
A federal grant funds construction of a facility. Cash is received before conditions are probable; the entity records a liability. As costs are incurred and conditions become probable, the entity reduces the asset’s carrying amount by the recognized portion of the grant, and any excess cash received remains a liability until additional qualifying costs are incurred.

Income‑related grant: reimbursement basis (condensed)
A government approves a grant to reimburse qualifying R&D costs. As the entity incurs qualifying expenses and it is probable the grant will be received, the entity recognizes the grant in earnings in the same periods, up to the approved amount, and may present as a reduction of the related expense.

Repayment guidance

If a grant must be repaid after initial recognition:

• Income‑related grant: First reduce any remaining deferred income liability; recognize any excess repayment immediately in earnings.
• Asset‑related grant: Increase the asset’s carrying amount (under the cost accumulation approach) or reduce deferred income (deferred income approach) by the amount repayable; recognize the cumulative effect (e.g., additional depreciation or impairment) as of the repayment date immediately in earnings.

Business combinations (ASC 805)

The ASU adds an exception: an acquirer must recognize deferred income for acquiree grants related to income (unless the acquiree has fully complied with conditions) and measure that deferred income in accordance with ASC 832.

Disclosure requirements

Entities must disclose:

• Nature and form of each government grant.
• Accounting policy applied by grant classification (deferred income versus cost accumulation for asset-related grants; gross (separate) or net presentation for income-related).
• Line items affected and amounts recognized.
• Deferred income approach or income-related grants: Disclose affected balance sheet and income statement line items and amounts for the current reporting period.
• Cost accumulation approach: Disclose affected line items on the balance sheet and the useful life of any related depreciable asset in the period the grant is initially recognized.
• Fair value of tangible nonmonetary assets in the period recognized on the balance sheet (required even when cost accumulation approach is applied).
• Significant terms and conditions, including duration and any commitments, contingencies, and recapture provisions.
• If legally restricted from providing details, disclose the general nature of omitted information.

Practical Insight: When the cost accumulation approach is used, disclosure of affected balance sheet line items and the useful life of related assets is required only in the period the grant is initially recognized. There is no ongoing requirement to disclose income statement impacts in subsequent periods, because the grant is not presented separately in earnings; its effect is embedded in reduced depreciation or other asset accounting.

Effective dates and transition

• Public business entities: Fiscal years beginning after December 15, 2028.
• All other entities: Fiscal years beginning after December 15, 2029.
• Early adoption permitted.

Transition options:

• Modified prospective: apply to grants not complete as of adoption and to new grants thereafter; no prior-period restatement or cumulative‑effect adjustment.
• Modified retrospective: apply to grants not complete as of the beginning of the earliest period presented; restate prior periods as needed and record a cumulative‑effect adjustment to opening retained earnings as of the earliest period presented.
• Full retrospective: apply to all grants; record a cumulative‑effect adjustment to opening retained earnings at the beginning of the earliest period presented.

Keiter Insight: Implementation priorities

Government grants can materially impact financial statements, operating metrics, and internal controls. To prepare:

1. 1. Inventory and assess grants: review existing and pending agreements, scope considerations, and compliance conditions.
   2. Choose and document a policy: for asset‑related grants (deferred income versus cost accumulation) and apply it consistently; re‑evaluate prior analogies (e.g., IAS 20) in light of updates to ASC 832.
   3. Plan disclosures and cash‑flow classification: align with ASC 832 and ASC 230 and disclose policy elections.
   4. Update systems and controls: track grant conditions, costs, and recognition timing; enable fair value capture for tangible nonmonetary assets.
   5. Coordinate across functions: accounting, compliance, procurement, and grants administration, especially for large capital grants or multi‑year operating support.

Final thoughts

ASU 2025‑10 delivers long‑awaited clarity for business entities receiving government grants. By establishing consistent recognition and measurement guidance and strengthening disclosures, the ASU improves comparability and transparency. Start evaluating your grant portfolio, policy elections, cash‑flow classifications, and disclosures now to ensure smooth adoption and stakeholder communication.

Need guidance on implementing ASU 2025-10? Contact your Keiter Opportunity Advisor to discuss how this update affects your business.

Resources and Further Reading:

• For-Profit Businesses: FASB Proposes Accounting Changes for Government Grants: This article from November 2024 provides helpful background on how the final standard evolved and includes additional discussion of key industries and legacy practice comparisons.
• FASB Website: Access ASC, updates, and implementation resources.
• FASB ASU 2025-10: Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities