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ASU 2025-10 (ASC 832) Government Grants: A Practical U.S. GAAP Guide for Business Entities

Executive Summary

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, to establish authoritative U.S. GAAP guidance on the recognition, measurement, presentation, and disclosure of government grants received by business entities. Historically, U.S. GAAP did not include comprehensive guidance for government grants received by for-profit entities, which led many companies to analogize to IAS 20 (IFRS), ASC 958-605 (contributions), or ASC 450 (contingencies)—resulting in diversity in practice.

Key Takeaways

• Topic 832 now includes an accounting model for government grants (not just disclosures).
• A grant generally is not recognized until it is probable that the company will comply with the grant’s conditions and probable that the grant will be received.
• Companies classify grants as asset-related or income-related, which drives the timing and presentation of recognition.
• Asset-related grants allow an accounting policy election (e.g., deferred income vs. cost accumulation).
• Disclosure requirements build on existing ASC 832 disclosures and add targeted, period-of-recognition disclosures.
• The ASU includes specific effective dates, early adoption, and multiple transition approaches—so planning and data readiness matter.

Who This Applies to

The ASU applies to business entities that receive government grants (monetary or tangible nonmonetary assets) and expands ASC 832 beyond disclosure-only guidance. It does not apply to not-for-profit entities or employee benefit plans within Topics 960/962/965. Certain items are explicitly excluded from scope (for example, income taxes under Topic 740, benefits of below-market interest rate loans, and government guarantees).

What is a Government Grant?

A government grant is generally a transfer of a monetary asset or a tangible non-monetary asset (other than in an exchange transaction) from a government to a business entity. In practice, common examples include cash reimbursements for qualifying payroll or R&D spend, grants tied to training or location-based incentives, transfers of equipment or land, and certain forgivable loan arrangements (when they meet the recognition criteria).

Why ASU 2025-10 Matters

Government incentives are increasingly common, and inconsistent accounting can affect EBITDA, gross margin, operating income, and balance sheet presentation. ASU 2025-10 is designed to improve comparability and transparency, reduce policy-by-analogy judgments, and provide a consistent framework for auditors and stakeholders.

Implementation Checklist —What to Do Now

• Inventory all government assistance arrangements (federal, state, local, and foreign) and map them to the new definition and scope exclusions.
• Identify conditions (performance and compliance requirements) and establish a process to track compliance evidence and timing.
• Decide on and document accounting policy elections for asset-related grants (deferred income vs. cost accumulation), including presentation choices for income-related grants.
• Update close checklists, internal controls, and disclosure checklists; align with FP&A for forecasting and KPI impacts.
• Assess the transition approach and data availability (especially for multi-year grants).

Frequently Asked Questions (FAQ)

1) What qualifies as a government grant under ASU 2025-10 and ASC 832?

A government grant is generally a transfer of a monetary asset or a tangible nonmonetary asset from a government to a business entity, other than in an exchange transaction (including an exchange transaction at a significant discount to fair value). The guidance also identifies scope exclusions, including income taxes within Topic 740, the benefit of below-market interest rate loans, and government guarantees.

2) When do we recognize a government grant?

Recognition is generally prohibited until (a) it is probable the entity will comply with the grant’s conditions, (b) it is probable the grant will be received, and (c) the entity meets the specific recognition guidance for an asset-related or income-related grant. Practically, this requires documenting conditions, assessing probability, and maintaining support for compliance and receipt.

3) How do we account for asset-related vs. income-related grants?

Asset-related grants are tied to the acquisition or construction of long-lived assets (or costs directly associated with those assets). Income-related grants are intended to compensate for expenses or losses already incurred or for future operating costs. Classification drives both the timing of recognition (generally over the period of related costs or expenses) and the presentation options available.

4) What financial statements are typically impacted—and where does the grant go?

Balance sheet: asset-related grants may be recorded as deferred income (a liability) or as an adjustment to the asset’s cost basis, depending on the elected approach.

Income statement: income-related grants may be presented as other income or as a reduction of the related expense, depending on the elected presentation policy.

Cash flows: the ASU does not override Topic 230; classification depends on the nature of the grant and the underlying activities.

5) What disclosures should we expect under the updated Topic 832 model?

For annual periods, disclosures generally cover the nature of significant grants, related accounting policies, the effect on the financial statements, significant terms and conditions (including duration, commitments, and recapture provisions), and line-item impacts. Additional disclosures may apply in the period a grant is first recognized (for example, for asset-related grants accounted for under the cost accumulation approach).

6) What is the effective date and what transition options are available?

The ASU is effective for public business entities for annual periods beginning after December 15, 2028 (including interim periods within those annual periods) and one year later for all other entities. Early adoption is permitted for any period for which financial statements have not yet been issued (or made available for issuance). Transition approaches include modified prospective, modified retrospective, or full retrospective, depending on an entity’s facts, data availability, and comparability objectives.

How Centri Can Help

Centri can serve as the central point of contact for cross‑functional working groups spanning accounting, legal, tax, treasury, and operations, helping organizations define clear ownership, milestones, and evidence requirements. Our professionals draft and review technical accounting memoranda, including scope analysis, exchange versus nonexchange assessments, condition identification, and evaluations of the “probable” recognition threshold. We assist with selecting and documenting accounting policy elections, including the asset‑related approach and income statement presentation, and design repeatable journal entry models. Centri also supports updates to accounting policies, close procedures, and disclosure language to enhance audit readiness and support effective stakeholder communication. To learn how Centri can support your organization with these accounting and reporting challenges, contact us today.

Joseph Hayes

Senior Manager | CPA

Joseph is a Senior Manager at Centri Business Consulting. He has more than 12 years of experience in public and private accounting. View Joseph Hayes's Full Bio

Blake Roberts

Partner | Technical Accounting Practice Leader | CPA

Blake is a Partner at Centri Business Consulting and the leader of the firm’s Technical Accounting Practice. He has more than 18 years of public accounting experience. View Blake Roberts's Full Bio