Hannah Carmichael, Associate Director, Risk, Compliance & Professional Standards, Grant Thornton Ireland
In response to the COVID-19 pandemic, the government put in place a range of financial support measures. As a business you may be availing of more, or substantially different, government support than in previous years. When preparing this year’s financial statements, you will need to consider how these various support packages should be reflected.
As a starting point, you should consider what grants or schemes your business received, and whether these, or any component thereof, meet the definition of government grants or assistance.
Next, you must determine whether recognition criteria is satisfied, i.e. that there is reasonable assurance your business will comply with the attached conditions and that the grants will be received. This requires significant judgement.
In light of the new support measures, your business must revisit, or draft, your accounting policy in relation to assistance received and how it has been reflected in the financial statements. Indeed, there are many decisions to be made in respect of how to incorporate grants into your financial statements, for example, the timing of their recognition.
There are various accounting choices (FRS 102) and flexibility in presentation (IFRS) available. The below are examples of how several common government support schemes might, if applicable, be considered in your financial statements.
If your business is availing of business tax relief for 2020/21 this will not constitute a government grant as there is no transfer of resources. However, be mindful that it will represent a form of government assistance for disclosure purposes.
If eligible for one-off cash grants to help meet your ongoing business costs, you do not need to satisfy any further performance or other conditions. The grant should be recognised in the income statement once the conditions for entitlement are satisfied and there is reasonable assurance that it will be received.
There are various schemes designed to compensate for staff costs, for example, the Coronavirus Job Retention Scheme, and the scheme to reclaim Statutory Sick Pay. Any amounts your business received from these should be recognised in the income statement over the same period as the costs to which they relate.
If you are an FRS 102 reporter you should present the grant income gross. If you are an IFRS reporter you may present the grant income separately in the income statement or net it off the related expense.
If your business accessed loans under the Coronavirus Business Interruption Loan Scheme and if these were issued at a market rate there is likely no government assistance to disclose. However, you must give consideration as to whether any were issued at a non-market rate of interest as it is possible that there might be government assistance in the form of a lower rate of interest than would likely have been payable in the absence of the government guarantee. Your accounting responsibilities for interest payments or lender-levied fees covered by the government would be similar to the Job Retention Scheme.
This year more than any, it is important to ensure that all levels of support and subsidy are reviewed in advance of filing any returns to ascertain if there is a reporting requirement.
For further information or advice, Hannah Carmichael can be contacted at firstname.lastname@example.org
Grant Thornton (NI) LLP specialises in audit, tax and advisory services.