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ASU 2025-10 Government Grants

ASU 2025-10 Government Grants

A U.S. GAAP Framework for Business Entities Under ASC 832

Key Takeaways

ASU 2025-10 establishes authoritative U.S. GAAP guidance for government grants received by business entities, codified in ASC 832, addressing recognition, measurement, and presentation within a defined framework.
Government grants are generally recognized only when it is probable the entity will comply with conditions and the grant will be received.
The ASU is expected to reduce diversity in practice, which historically often relied on IAS 20 by analogy in the absence of dedicated U.S. GAAP guidance for business entities.
Scoping is critical because exchange transactions, including arrangements within the scope of ASC 606, are out of scope of ASC 832.

BY Brad Burch

January 16, 2026

Background

Government grants can be a meaningful component of financing strategies for business entities investing in expansion, hiring, and innovation. While these arrangements are common, U.S. GAAP historically did not include a comprehensive, authoritative model for government grants received by business entities. As a result, entities often developed accounting policies by analogy, contributing to diversity in recognition and presentation.

On December 4, 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, establishing a dedicated U.S. GAAP framework for these arrangements.

Scope and Applicability

ASU 2025-10 defines a government grant as a transfer of a monetary asset or a tangible nonmonetary asset from a government to an entity other than in an exchange transaction. The guidance applies to business entities and excludes not-for-profit entities and certain employee benefit plans. The ASU also includes explicit scope exclusions, most notably transactions within the scope of ASC 606 and certain other forms of government assistance addressed elsewhere in U.S. GAAP.

Because ASC 832 applies only to nonexchange grants, scoping often turns on whether the funding party is effectively acting as a customer and receiving commensurate goods, services, or other outputs in exchange for consideration. As a rule of thumb, if the funder receives commensurate value (including a license or other deliverable), the arrangement is typically evaluated under ASC 606 rather than ASC 832.

For example, if a government provides cash in return for a license to intellectual property, the arrangement may be more consistent with a revenue arrangement under ASC 606 than a nonexchange grant under ASC 832. Similarly, if the government pays to secure committed volumes of a company’s products or services (or pays on behalf of end users under contract-like terms), the arrangement may still be an exchange transaction and therefore fall under ASC 606 scoping.

Recognition and Measurement

A government grant is recognized only when it is probable that the entity will comply with the conditions attached to the grant, and that the grant will be received.

For grants related to an asset, an entity should not recognize the grant on its balance sheet (for example, as a receivable) until it incurs the related costs the grant is intended to compensate.

Forgivable loans are also an important application area. After adoption, a government forgivable loan is treated as a government grant when it is probable the conditions for forgiveness will be met, which may affect the timing of recognition compared with approaches that recognize income only upon legal extinguishment.

For grants related to income, the grant is recognized in earnings on a systematic and rational basis over the periods in which the related costs are recognized. Depending on an entity’s accounting policy and the underlying facts and circumstances, the grant’s effect may be presented either as other income or as a reduction of the related expense.

For grants related to an asset, accounting may be based on either a deferred income approach, under which deferred income is recognized and amortized to earnings over the relevant periods, or a cost accumulation approach, under which the grant reduces the asset’s carrying amount and subsequent depreciation or impairment is based on the net amount.

When amounts become repayable after initial recognition, repayment for income-related grants is applied first against any remaining deferred income, with any excess recognized in earnings. For asset-related grants, repayment is reflected through either the asset’s carrying amount or the deferred income balance, with the cumulative earnings impact recognized as of the repayment date.

Effective Date and Transition

For public business entities, ASU 2025-10 is effective for fiscal years beginning after December 15, 2028 (including interim periods). For all other business entities, it is effective for fiscal years beginning after December 15, 2029 (including interim periods). Early adoption is permitted.

Entities should apply the guidance using one of two transition methods:

Modified prospective: Applied to grants not complete as of the adoption date and to new grants thereafter
Modified retrospective: Applied to grants not complete as of the beginning of the earliest period presented and to new grants thereafter

For transition purposes, a grant is generally considered complete when substantially all grant proceeds have been recognized.