Different Accounting for Government Grants?

FRS 102 offers a choice of policy for Grants and the choice can lead to very different results.

Since 1974, SSAP 4 has required us to account for Government Grants using an accruals method, matching the grant against the relevant expenditure, whether capital or revenue.

A little to the surprise of many, section 24 of FRS 102 allows the preparer of accounts a choice of using either the (existing) Accrual Model or a new and different policy called the Performance Model.

The latter and new model allows a grant to be fully recognised in income when the grant is received or receivable (having satisfied revenue recognition criteria) providing only that there are no future performance related conditions that will have to be met, regardless of the nature of the grant or why it has been received. Disclosure must be made of the policy, the nature of the grant and any amounts recognised. It is worth pointing out at this stage that this is the option available to corporate entities which use FRS 102. For other specialist entities that are also required to follow a specific SORP, this option may not be available.

It appears that a number of entities which have early adopted FRS 102 for medium and large sized companies have done so in order to use the Performance Model and therefore recognise grants earlier than otherwise would have been the case.

Almost certainly FRS 102 for small companies (who must adopt FRS 102 for periods beginning 1st January 2016 onwards) will offer an identical choice when the finalised version is published shortly.

As ever advisors need to consider the possible impact on their clients. In this area there are no particular transitional provisions.

In contrast to FRS 102, it is currently anticipated that FRS 105 for micro-entities will require the use of the accruals model only. The Exposure Draft for Micro-entities (FRED 58) proposed that micros should use only the Performance Model but it is believed that the FRC have changed their mind. The reason for not offering any choice is that the legislation for Micro Company Accounts does not require any disclosure of particular accounting policies chosen and therefore the FRC believes that no choice should be available.