(Posted January 2026)
Accounting for government assistance is a commonly tested topic on the Common Final Examination (CFE). This blog focuses on the key technical considerations relating to the recognition of government assistance and how to measure it on the financial statements.
ASPE and IFRS® Standards are very similar in their application for government assistance relating to recognition, measurement, and presentation. The guidance below focuses on the application of IFRS Standards, with ASPE differences explained afterwards.
Recognition
Government assistance is usually provided in the form of a grant. The government typically provides cash to an entity and in return, the entity must abide by certain conditions set by the government. When assessing a government assistance issue, there are several key concepts to use when determining the approach to take:
- Assessing the timing of recognition (i.e., when to recognize the grant)
- Assessing the presentation of the amount (i.e., how to record it on the financial statements)
- Determining whether the grant is related to income or assets (as this impacts the presentation)
- Determining whether the grant is a forgivable and/or repayable loan
In some instances, you may only need to consider one of the above concepts, while in others, several or all of them may need to be considered. It will depend on the information provided in the case.
Timing (when to record)
For government assistance to be recognized, two conditions must be met:
- There is reasonable assurance that the entity will comply with the conditions related to the grant
- There is reasonable assurance that the grant will be received by the entity
If the grant has been received by an entity, but the first criteria has not been met, the grant must be recorded as a liability initially. If both conditions are met, the grant will be recorded at fair value, which is typically the amount of cash received/receivable.
Presentation (how to record)
To determine how to record the government assistance, assess the nature of the assistance and its intended purpose:
- It is related to “income” if provided to offset the entity’s expenses
- It is related to “assets” if provided to purchase capital assets
Grants related to “income” are recognized as the related expense is incurred. For example, if the grant requires an entity to maintain a certain level of staffing for three years from the date that the grant is received, the amount would be recorded over three years as the staffing expenses are incurred. From a presentation perspective, the amount can be recorded in one of two ways, with the same impact on net income under either method:
- Recognized as other income (gross method)
- Deducted from the related expenses (net method)
Grants related to “assets” are recognized on a systematic basis over the same period that the related costs are recorded. For a depreciable capital asset, the grant is recognized on the same basis as the depreciation expense that is recorded for the asset. If the asset is not depreciable, the grant is recognized into income when the grant conditions are satisfied. From a presentation perspective, the amount can be recorded in one of two ways, with the same impact on net income under either method:
- Deferred income (liability) and amortized into income as depreciation is recorded for the related asset (gross method)
- Deducted from the carrying amount of the related asset (net method)
Forgivable/Repayable Loans
Government assistance can be provided in the form of a forgivable loan and the same methodology for recognition as explained above applies.
Sometimes, government assistance includes provisions for repayment if the terms are not met by the entity. If the grant becomes repayable, it is accounted for as a change in estimate, and applied prospectively. The accounting implications depend on whether the grant is related to “income” or “assets”, as follows:
- If the grant is related to “income”, the repayment is applied first against any unamortized deferred credit that exists. If the repayment exceeds the deferred credit, or if no deferred credit exists, the repayment is recognized immediately in the income statement
- If the grant is related to “assets”, the repayment is recognized by increasing the carrying amount of the related asset, or reducing the deferred income (liability) balance by the amount repayable. The cumulative additional depreciation that would have been recognized had the grant never existed, must be recognized immediately in the income statement
How to Write on the CFE
While you must adapt to the issue and case facts presented to you, the following approach can often be taken to develop sufficient depth in your analysis.
Step 1: Determine whether you need to assess the timing (when to record) and/or presentation (how to record) of the grant
Usually, you will be required to consider both aspects. However, in some instances, only one aspect is relevant to assess. For example, you might be told from a reputable source that the grant has already been recorded, but you need to assess how best to present it. Carefully assess the situation to determine the most efficient and effective approach to take, keeping in mind the type of information presented, including how the entity has accounted for the assistance.
Step 2: Determine whether the grant is related to income or assets
This is important since the purpose of the grant impacts the presentation (i.e., how to record). For example, you could be given information about a grant provided to offset the increased costs of purchasing energy efficient equipment. This grant would be related to assets since it is related to a purchase of equipment.
Step 3: Determine whether the assistance is forgivable and/or repayable
If the assistance is repayable if certain conditions are not met, keep this in mind when assessing the case facts surrounding the entity’s intentions and actual use of the assistance. You may be required to explain the accounting for any repayments that may be required. For example, you might be told that the entity received and recorded a grant to hire workers in a previous period. However, it did not meet the requirements of the grant in the most recent quarter. That would mean you need to assess how to account for the required repayment of the unearned portion of the grant.
Step 4: Assess the relevant technical concepts using case facts
Assess the relevant technical concepts relating to grant timing and/or presentation, using case facts.
Step 5: Conclude on recognition
Conclude on the grant timing and/or presentation concepts. Be sure to consider alternatives for presentation purposes and conclude definitively on which method to use. Consider the user’s needs to support this choice. Quantify the implications based on the presentation method chosen.
Tips for Writing:
- Explicitly assess both timing criteria. If the grant has already been received, it is still important to assess the second criteria and confirm that it has been met.
- Remember that grant conditions do not necessarily have to be satisfied for “reasonable assurance” to exist. If the facts clearly suggest that they will be, this could be sufficient for the criteria to be met. For example, there may be a condition to purchase $75,000 of supplies over the fiscal period to receive the grant. If the entity typically purchases $150,000 of supplies, there would be reasonable assurance that this would be met, even if the entity has not yet actually purchased $75,000 of supplies.
- Discuss presentation options for both “income” and “assets” in the context of user needs. For example, if a company has a debt-to-equity covenant that must be maintained, the presentation of the grant will impact compliance. Unlike balance sheet line items, net income is not impacted by the choice.
- Consider whether there is a repayment required based on the facts since that will change the analysis from recognition of a grant to how to account for the repayment.
ASPE Differences
The primary difference from the above IFRS standards is that, under ASPE, if the grant becomes repayable and is related to “assets”, the cumulative adjustment explained above relating to additional depreciation that would have been incurred, if there had not been a grant provided, is not immediately included in the income statement in the period in which the grant becomes repayable.