Financial Reporting and Ethics - The Institute of Chartered ...

FINANCIAL REPORTING AND ETHICS! Grants are not given or received for nothing. Theyare earned by compliance with conditions and bymeeting obligations. The grants should, therefore,be matched with the cost of meeting thoseobligations.! Grants are an extension of fiscal policies and so asincome taxes are charged against income, sogrants should be credited to income.! The requirement of IAS 20 is that grants shouldnot be credited directly to shareholder’s fund. Theyshould be recognized as income over the periodrequired matching them with the cost of theobligations they are expected to meet. In otherwords, government grants should be accounted forusing the income approach.! Grants should be credited to the income statementon a systematic basis in such a manner as to matchthe grants with the costs they are expected tocompensate. For instance, grants for theacquisition or construction of a depreciable assetshould be recognized in the income statement inproportion to the depreciation of the asset.! Government may transfer a non-monetary assetsuch as a motor vehicle, a piece of land or equipment,to an entity as a grant. The entity should determinethe asset’s fair value and use it as the basis foraccounting for both the asset and the grant. As withcash grants, non-cash grants should be accountedfor using the income approach.! Government offers various kinds of assistance toenterprises to support their business activities. Thecondition for the receipt of such assistance maynot berelated to the operating activities of the entity.For instance, government may offer assistance toenterprises to start their businesses, or continue tooperate in rural areas. Such assistance should beregarded as government grant within the scope ofIAS 20, and so should not be credited directly toequity.! IAS 20 provisions are very suitable in the periodsof economic meltdown, when governments aredesigning a number of bailout policies to assistbusinesses to continue to exist or to bounce back.There is, therefore, an urgent need for a similarSAS in Nigeria!94