This article in Bloomberg BNA reports that FASB is expected to issue new rules this year that will require public companies to disclose the amount of their government subsidies. Government support would include, for example, cash and non-cash economic incentives such as grants to assist in buying a building, land grants, low-interest loans, interest expense subsidies, tax abatements providing relief from property tax, sales and use tax or payroll tax, and other legally enforceable government incentives. It remains to be seen whether—and how—the public might react to this information.
According to the article, except for limited disclosure required by income tax accounting guidance under ASC 740, this will be the first time that disclosure of this information will be required under accounting rules, and most companies do not disclose this information “for fear of losing competitive advantages. But the lack of ready, consistent information about those items places investors and analysts at a disadvantage because the agreements can affect company earnings and other vital performance measures…” such as cash flows.
The article reports that “[b]ig ticket megadeals—valued at $50 million or more—are increasing, according to [a research organization] that tracks state and local economic development deals. The organization identified 386 megadeals as of October 2016 with state and local costs of at least $50 million each.” Some estimates put the aggregate amount of government subsidies at $100 billion.
In addition to the fact of the subsidy, companies will be required to disclose certain terms, such as when the agreements begin and end, as well as any “clawback provisions” that impose penalties on companies if they do not satisfy the conditions of the incentive, such as creating and maintaining an agreed number of jobs. For example, companies have been required to repay government assistance when they have closed subsidized facilities or terminated a subsidized transaction.
