Change in U.S. GAAP – Accounting for Government Grants Received by Business Entities
Up until now, when accounting for government grants, U.S. Generally Accepted Accounting Principles (GAAP) offered no clear authoritative guidance to business entities. This led companies to rely on a patchwork of non-authoritative guidance for how and when to recognize grants in their financial statements.
However, in December 2025 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-10 Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This update creates an authoritative framework for businesses to follow when accounting for government grants.
Overview of the New Guidance
ASU 2025-10 divides grants into two categories:
- Grants tied to the purchase or construction of assets
These may be recorded using one of two approaches:
- Cost accumulation approach: Grants are recorded as a reduction of the carrying amount of the related asset.
- Deferred income approach: Grants are recorded as deferred revenue and then recognized in earnings over the asset’s useful life.
- Grants tied to supporting operations
These are recognized either as a separate element of income or as a reduction of the related expenses being funded. In instances when grant funds are received before recognition, the deferred income approach is used until the conditions for grant recognition are met.
The new guidance also provides clarity on when a grant should be recognized by a business entity, specifying that the grant is not to be recorded on the balance sheet (cost accumulation approach) or income statement (deferred income approach) until it becomes probable that the entity will:
- Comply with the conditions attached to the grant, and
- Receive the grant funds or assets.
In addition, the guidance clarifies that grants can come in the form of monetary assets, the transfer of non-monetary assets, and loan forgiveness, but specifically excludes certain refundable tax credits.
For public business entities, ASU 2025-10 becomes effective for annual periods beginning after December 15, 2028. For all other business entities, it is effective for annual periods beginning after December 15, 2029. However, early adoption is permitted.
Key Considerations for Broadband Grant Recipients
Telecommunications companies and related entities are among those most impacted by the new rules for accounting for government grants, given the significant volume of broadband grants awarded in recent years as part of federal and state initiatives to expand access to high-speed, reliable internet.
Key impacts that decision makers in broadband companies should understand include:
- Evaluating potential benefits of the cost accumulation approach
Companies that previously applied the deferred income approach based on non-authoritative guidance may carry significant deferred grant liabilities on their balance sheets. Electing the cost accumulation approach may reduce reported liabilities and improve balance sheet metrics, which can be beneficial when applying for future funding or complying with loan covenant requirements.
- The opportunity to reduce accounting complexity
Historically, regulatory considerations and the lack of authoritative GAAP guidance led some regulated broadband providers to apply different grant accounting treatments, sometimes even within the same award, by distinguishing between regulated and non-regulated service areas. ASU 2025-10 provides clarity and flexibility, allowing entities to select a consistent and appropriate accounting approach.
- Understanding timing and tax considerations.
Clear guidance on when grants should be recognized may affect the timing of income recognition and related tax impacts. Coordination between grant accounting recognition and project placement-in-service is critical, as timing differences can influence taxable income and tax cash planning strategies.
Need help navigating broadband grant accounting and taxation?
Aldrich Advisors works closely with many broadband grant recipients to assess grant accounting, tax implications, and financial reporting impacts. Contact Chris Provencher or Josh Bailey to learn more.
