THE BENEFIT OF A GOVERNMENT LOAN AT A BELOW-MARKET INTEREST RATE: ACCOUNTING FOR AND DISCLOSURE IN COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS

Abstract

The question of why the problem of government grants and government assistance has increasingly
attracted interest worldwide was discussed in my previous articles committed to the subject matter.
The issue that is the focus of the present article is the one of how to initially recognize and assess at recognition,
how to evaluate and account for subsequently, i.e. after recognition, and how to present and disclose in the financial
statements (of general purpose) the benefit of a government loan lent at a below-market rate of interest. The issue is
a significant one as well as an important area in the subject scope of financial accounting and international financial
reporting. Under the burden of the circumstances imposed by the crisis the problem has increasingly gained
relevance. No less important turn out to be the complications arising out of the requirements for recognition,
assessment and accounting for such benefit and related costs supplemented by additional guidelines for disclosure
introduced throughout regular improvements to the International Financial Reporting Standards.
The subject matter is comprehensively discussed in theoretical and methodological standpoint. The International
Accounting Standards Board’s prescriptions that the applicable standards embody are presented, analyzed and
summarized in manner consistent with the author’s objectives. The primary author’s goal is to explore and analyze
the essentials, the core principles, the guiding rules relevant to the subject endorsed by the International Accounting
Standards Board, to illustrate their practical application and to search for and find out coherent arguments for the
support of the change (of 2008) in the International Accounting Standards Board’s policy. Heuristic methods of
scientific knowledge such as analysis and synthesis, induction and deduction, descriptive method and another
methods as for instance, observation, comparison and analogy are used for achieving the author’s goal. An
additional author’s motive was to support the professional community and students interested in enlargement and
enhancement of their competencies integrating theoretical and practical knowledge. The essential amendment to the
respective international accounting standards on financial reporting introduced by the International Accounting
Standards Board refers to the accounting for and presentation of the benefit of receiving funds on a government loan
at nil or a below-market rate of interest. Logically, it can be summarized that the accounting for a government grant
as well as the manner of presentation and disclosure of the benefit of a government grant and government assistance
depend on the nature of the specific object. The nature and the peculiarities of the object are of crucial importance to
the process of accounting for, presentation and disclosure. This means that in practice it should be primarily
answered the question of whether it is about a government grant, a government loan, a government guarantee or a
tax benefit. Therefore, it will be critical to the process (procedure) of accounting for the specific requirements
relevant to the particular case be precisely identified in order to be properly taken into consideration.