Government grants and subsidized funding

Government support for healthcare infrastructure is common in the region, and getting the grant-versus-service-contract distinction wrong shifts income between periods incorrectly and can hide repayment risk from conditions attached to the funding; correctly matching grant income to the related asset's life or the compensated cost also avoids front-loading income that later has to be walked back.

Is the funding genuinely a grant with no repayment expected and conditions tied to service delivery, or is it, in substance, consideration for services under a customer contract that should instead follow IFRS 15? Do the grant conditions (minimum years of operation, specific equipment usage) create a real risk of repayment if breached, and is that risk reflected in the recognition pattern? Is the grant related to an asset, requiring deferral and recognition over the asset's useful life, or related to income, requiring matching to the expense it compensates?

1) First determine the substance of the funding: is it a genuine grant with no expectation of reciprocal distinct services (IAS 20), or is it, in substance, consideration for services the government receives under a contract (IFRS 15, see government healthcare contracts issue)? 2) For genuine grants, confirm reasonable assurance exists both that the entity will comply with attached conditions and that the grant will be received, before recognizing anything. 3) For asset-related grants (e.g. equipment, land), recognize the grant over the useful life of the related asset, either as deferred income released systematically or by deducting the grant from the asset's carrying amount (a consistent accounting policy choice). 4) For income-related grants (e.g. compensating specific operating costs), recognize in the period the related costs are incurred, matching the grant to the expense it compensates. 5) Identify and monitor conditions creating repayment risk (minimum operating years, specific usage requirements); disclose contingencies. 6) Measure non-monetary grants (subsidized/free land) at fair value, or at a nominal amount only if fair value cannot be reliably determined, applying the policy consistently.

Measure non-monetary grants (e.g. subsidized or free land) at fair value using an appropriate valuation basis, or at a nominal amount if fair value cannot be reliably determined, applying a consistent policy across similar grants; for cash grants tied to a specific asset, measure the deferred income (or asset cost reduction) at the cash amount received or receivable; reassess the systematic recognition basis if the useful life or cost pattern of the related asset/expense changes materially.

Disclose the accounting policy adopted for government grants (deferred income vs. deduction from asset carrying amount); disclose the nature and extent of government grants recognized in the financial statements during the period; disclose unfulfilled conditions and other contingencies attached to recognized government assistance; disclose any grants recognized directly in income that are of such size or nature that separate disclosure is needed for a proper understanding of results.

• Recognizing grant income immediately on receipt rather than matching it to the related asset'
• s useful life or related expenses
• treating funding that is in substance a service contract as a grant to avoid IFRS 15 variable consideration complexity
• not disclosing conditions that could trigger repayment, hiding contingent liability exposure
• inconsistently switching between the deferred-income and asset-deduction presentation methods across periods or assets
• measuring non-monetary land grants at an arbitrary value instead of fair value or a properly justified nominal amount.