Demystifying International Accounting Standard 20

Getting a Grip on Accounting Rules

What’s Essential About Accounting Rules?

Accounting standards are like the rulebook for financial reporting, making sure everyone plays fair and square. These guidelines help create transparent, consistent, and comparable financial statements. One crucial rule here is IAS 20, which covers “Accounting for Government Grants and Disclosure of Government Assistance” (IFRS Foundation). IAS 20 got the green light from the International Accounting Standards Board in 2001, originally cooked up by the International Accounting Standards Committee back in 1983.

Why Bother with These Rules?

Following these standards isn’t just crossing Ts and dotting Is; it’s pretty much mandatory for businesses. Why? First, it shows financial statements that aren’t just numbers but a true snapshot of the company’s health. Investors, regulators, and stakeholders get the confidence they need.

If your company’s picking up government grants, you’ve got some homework. IAS 20 says you need to be crystal clear about what you’re getting and why. You’ve got to spill the beans on the kind and amount of government help. And sometimes, you may need to follow IAS 1 too by explaining the big decisions you made about those grants.

Curious about more rules and why they matter? Check out our sections on UK accounting rules, IAS 39, and accounting standards codification.

International Accounting Standard 20

International Accounting Standard 20 (IAS 20) gives businesses a clear playbook on how to handle government grants and related assistance. Let’s break down what it covers and how your business can benefit.

What is IAS 20?

IAS 20, rolled out in April 1983, sets rules for dealing with government grants and help. It tells businesses when to recognize these funds, how to measure them, and what to share in financial reports. The standard covers almost all government grants, except those affecting taxable income or those under IAS 41 Agriculture. The goal is simple: make sure you tally up government help when you actually bear related costs.

When to Recognize Government Grants

Government grants aren’t just free money—you’ve got to meet some conditions first. Here’s the lowdown on when to recognize these grants:

1. You need to be pretty sure you’ll stick to any attached conditions.
2. And you should expect to actually receive the grant.

Grants are recognized as income in a way that matches them with the related costs. This is all about timing and method to reflect fair practice.

Grant Type	How to Recognize
Operational Grants	Spread them out over the periods matching the related costs.
Capital Grants	Recognize them over the useful life of the asset they help fund.
Grants for Specific Projects	Match them with expenses as they occur.

IAS 20 helps keep everything honest and clear, ensuring that your financial performance reflects the real impact of the grants. It makes disclosures thorough to keep everything transparent.

Why It’s Important

Applying IAS 20 ensures your business stays consistent and accurate when recognizing and reporting government grants. Meeting the conditions attached to these grants is crucial before you can recognize them. By following IAS 20 guidelines, your financial statements will reflect the real benefits of government assistance, making them clear and straightforward. For a deeper dive into handling other forms of government help, check out international accounting standards 37.

Grasping IAS 20 is a game-changer—properly understanding and applying it ensures that your financial statements make sense and hold up under global scrutiny.

Using IAS 20 for Handling Government Grants

How to Account for Government Grants

So, you’ve got a grant from the government, right? The way you handle this cash boost in your books is guided by International Accounting Standard 20 (IAS 20). Essentially, the grants should be recorded in a way that pairs them up with the relevant expenses they’re covering. But don’t start counting your chickens before they hatch! You need to be pretty sure you’ll meet the grant conditions and actually get the cash.

Here’s how you can show these grants on your financials:

1. As extra income—kind of like that surprise birthday money.
2. By knocking it off the expenses it’s paying for (IFRS Foundation).

Way to Show It	What It Means
Other Income	Adds the grant to your total earnings.
Expense Deduction	Takes the grant off the matching expense.

When it comes to asset-related grants (think equipment or buildings), you have two choices: list the grant as deferred income until the asset’s costs are spread out over time, or scrap some of the asset’s value by the grant amount while you’re at it.

For Asset Grants	What to Do
Deferred Income	Show it as a pending amount on your balance sheet.
Asset Deduction	Reduce the asset’s listed value by the grant amount.

What You Need to Disclose

IAS 20 isn’t done yet; it also says you gotta let folks know a few details about your grants to keep everything above board. This includes things like what your grant-related accounting policy is, the kind of grants you’ve recognized, any strings attached to those grants you haven’t met, and other types of help you’ve gotten from the government.

Disclosure Need	Details
Accounting Policy	How you handle grants in your books.
Nature and Extent	What grants you’ve got and how much.
Unfulfilled Conditions	Conditions you haven’t met yet.
Other Assistance	Other government help you’ve received.

Make sure you lay out these details clearly to keep everything transparent and in line with global accounting standards.

Want more on this? Check out our pieces on accounting standards, cost accounting standard, and IAS 36 for more meaty insights.

Special Considerations

Criteria for Grant Recognition

Alright, here’s the lowdown according to International Accounting Standard 20 (IAS 20):

1. Your company must reasonably assure it will meet the conditions attached to the grant.
2. The grant is actually coming through.

Grants are recognized in profits or losses on a methodical basis. This means you spread out the recognition over the time periods when your company records related expenses. By doing this, it ensures the financial impact of the grants is reflected in a fair and accurate manner.

Government Loans and Assistance

IAS 20 doesn’t cover every type of government assistance. Notably, it skips:

• Assistance that affects taxable profits or losses.
• Grants falling under other standards like IAS 41 for Agriculture.

But here’s a twist: the benefit of getting a government loan at a dirt-cheap interest rate counts as a grant. Such loans should be measured at fair value upon first recognition. The difference between this fair value and the actual cash received is noted as a government grant.

Type of Assistance	Covered under IAS 20?
Emissions Certificates	Yes
Land for Green Projects	Yep
Forgivable Loans	Indeed
Loans at Below-Market Rates	Absolutely
Waiver of Expenses	Yes
Investment Tax Credits	Nope
Tax-related Assistance	Nah

Government loans with rock-bottom interest rates for climate projects fall under the grant category and must follow IAS 20. For forgivable loans, it’s all about meeting specific conditions to figure out if the cash received really qualifies as a forgivable loan.

Companies need to spill the beans on any government help they get, in line with both IAS 20 and IAS 1 (the big boss of financial statements). This might mean dishing out extra details about the decisions made regarding such grants.

For more on related standards, check these out:

• International Accounting Standards 10
• International Accounting Standard 36
• List of International Accounting Standards