Last month, the federal government announced it would grant $8.5 billion to Intel Corp. under the CHIPS and Science Act. This is just part of the $39 billion in grants that will be given to companies under this act.
It’s important to note, however, that financial transparency for taxpayers, and other stakeholders is on the horizon. The Financial Accounting Standards Board (FASB) is developing a new rule that will require the disclosure of government assistance in financial reports.
In recent research, it was found that over half of the companies who received the 50 largest assistance packages between 2003 and 2019 did not disclose any details about the government assistance received. This not only affects shareholders and prospective investors, who lack a complete picture of the company’s finances without this information; taxpayers also lose out by not knowing where their dollars are going.
The Accounting Standards Update 2021-10 now requires companies to disclose transactions’ nature, their terms and conditions, and financial line items affected. Furthermore, FASB is constructing a more robust framework that standardizes the accounting of government aid in financial reports.
FASB Chair Richard Jones has noted that government grants “may become more prevalent in the future, and it makes sense for us to define a model on accounting for government grants to reduce diversity and increase transparency.”
In the meantime, organizations like Good Jobs First offer public information on business subsidies. Its Subsidy Tracker tool allows interested parties to search by company, state, year, and subsidy type. This helps to provide stakeholders more information about specific assistance packages.
The future of government assistance transparency seems much brighter with the impending rules from FASB. Through enabling free access to financial information, and allows stakeholders to benefit from the government assistance to companies.
Note: This does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Lillian Mills, the author of these important insights, is the dean at the University of Texas at Austin’s McCombs School of Business.