In February 2004, the Board tentatively decided to amend IAS 20 Accounting for Government Grants and Disclosure of Government Assistance by applying the accounting model for government grants contained in IAS 41 Agriculture to all government grants. (At present, the model in IAS 41 applies only to biological assets measured at fair value less estimated point-of-sale costs and grants that require entities not to engage in specified agricultural activity.)
At this meeting, the Board discussed some issues that arose from incorporating into IAS 20 the IAS 41 model. IAS 41 distinguishes between unconditional and conditional grants. An unconditional grant is recognised as income when the grant becomes receivable; a conditional grant when the condition is satisfied. IAS 41, however, contains little guidance about what is meant by unconditional or conditional in this context. Therefore the Board decided to define a condition for the purposes of revised IAS 20 as a stipulation that entitles government to the return of the granted resources if a specified event either occurs or does not occur. The Board also noted that any such stipulation should have commercial substance to be regarded as a condition.
IAS 41 specifies when a government grant is recognised as income. It does not specify when the transfer of resources from government is recognised. Therefore, the Board decided to specify that an entity should recognise a government grant as an asset at the earlier of (i) having an unconditional right to
receive the government grant (regardless of whether there are conditions attached to retaining the grant) and (ii) receiving the government grant.
The Board decided that if the grant involves government waiving repayment of all or part of a liability, the reduction in liability should be recognised when the liability is
discharged or cancelled. A government grant is defined in IAS 20 as a transfer of resources �in return for past or future compliance with certain conditions relating to the operating activities of the entity�.
The Board observed that in an accounting model that distinguishes between conditional and unconditional grants, the use of the word �conditions� in this definition could be confusing. Therefore, the Board decided to delete the phrase �in return for past or future compliance with certain conditions relating to the operating activities of the entity� from the definition of a government grant. The Board also decided to provide additional guidance in the amended Standard to clarify which transactions with government meet the definition of a grant.
IAS 20 explains that loans at nil or low interest rates are forms of government assistance, but the benefit of the reduced loan is not treated as a government grant. Similarly, a government may guarantee an entity�s borrowing, but IAS 20 does not treat the benefit of the guarantee as a government grant.
The Board noted that these requirements of IAS 20 conflict with IAS 39 Financial Instruments: Recognition and Measurement because IAS 39 requires financial liabilities to be measured initially at
fair value. Therefore, the Board decided to delete the references to loans at nil or low interest rates and guarantees from paragraphs 35 and 37 of IAS 20.
The Board decided that entities that receive a government grant in connection with the acquisition of an asset should be required to test that asset for impairment in accordance with IAS 36 Impairment of Assets on its initial recognition. The Board also decided to clarify that any recognised liability arising from conditions attaching to the grant should be included in the same cash-generating unit as the acquired asset. Lastly, the Board considered transition requirements for the amendments to IAS 20.
The Board decided to propose retrospective application in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. However, it decided to ask constituents to provide details of circumstances in which this requirement would cause difficulties.