ERC Grants, Accounting Considerations
By now many businesses have applied for and received Employee Retention Credit (ERC) grants. Now you likely have questions regarding accounting for and reporting of these transactions.
Accounting Considerations
Construction entities who receive ERC grants likely analogies to one of the following accounting alternatives:
- IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, or
- Subtopic 958-605, Not-For-Profit Entities—Revenue Recognition
| Standards | Initial Recognition | Derecognition |
| ASC 958-605 | Refundable Advance | Contribution recognized once the conditions of release have been substantially met or explicitly waived. |
| IAS 20 | Deferred Income Liability | Government assistance is recognized when there is “reasonable assurance” (similar to “probable” threshold in U.S. GAAP) that conditions will be met. Amount is recorded as either a credit (such as other income) or a reduction of related expenses. |
Disclosure requirements:
- Information about the nature of the transactions and the related accounting policy used to account for the transactions.
- The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item.
- Significant terms and conditions of the transactions, including commitments and contingencies.
Areas of complexity
- Eligibility
- Full or partial suspension due to governmental order
- Substantial decline in gross receipts (20% for 2021)
- Cost Qualifications
- Performance requirements must be met, and costs incurred are in compliance with the program.
- Review costs for potential double reporting of expenditures for multiple programs. This would result in reduction in eligible costs and could require adjustment to earned grant revenue if this were to occur.
- Timing of Recording Grant Receivable
- Grants from the government are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled.
Consideration of these matters should be given proper attention. Eligibility and usage of funds in compliance with the program based on dollar thresholds and other factors are subject to review. These considerations can be subjective, and rules are not completely clear, so consider consulting with a professional if you need assistance. We are here to help.
Michael A. (Mike) Westervelt is a principal with CLA with over 25 years of experience and a past Chair of the AICPA’s PCPS Technical Issues Committee (“TIC”). Mike is a National Assurance Principal and Construction Industry Assurance Leader. Mike specializes in thought leadership, ethics, independence, financial reporting, client service and accounting consulting for U.S. and international clients. He has managed relationships nationally and internationally for entities in the construction, manufacturing, hospitality, commercial service and healthcare industries. Mike is also a member of the AICPA’s Accounting and Review Service Committee (ARSC) and volunteers as a mentor for American Corporate Partners (ACP). Mike graduated from Iona College with a Bachelor of Arts in Accounting. He is a Certified Public Accountant licensed by the states of North Carolina and New York. Mike lives in Charlotte, NC and enjoys spending time with his family and an avid member of F3 who’s credo is “Leave no man behind, but no man where you find him.”
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