Government Aid Disclosure; Spotlight on the CARES Act: What accounting rules and guidance did companies follow to report receipt of government aid?

• Author: Bailey, Joseph
• Position: Coronavirus Aid, Relief, and Economic Security Act of 2020

The United States has spent more government aid to combat the COVID-19 pandemic than at any other time in the country's history. Due largely to pandemic spending, the United States federal government debt increased from $22.7 trillion to $28.5 trillion in the past two years, with much of the increased spending going to corporations to aid their operation and survival.

This article highlights the amount of government aid the United States spent to combat COVID-19 and details the ways in which corporations listed in the Standard and Poor's 500 (S&P 500) stock market index received and disclosed government aid. In addition, it provides graphs showing the types of aid and locations of relevant disclosures. The article examines the accounting rules and guidance that companies followed to report their receipt of government aid.

Finally, this article provides excerpts from annual and quarterly financial reports to showcase how companies disclosed various forms of aid received due to the Coronavirus Aid, Relief, and Economic Securities (CARES) Act.

Government Assistance Programs for COVID-19

In 2020, the US federal government authorized $3.8 trillion in spending to combat the effects of COVID-19 through legislative bills, including:'

* the Coronavirus Preparedness and Response Supplemental Appropriations Act ($8.3 billion on March 6, 2020);

* the Family First Coronavirus Response Act ($225 billion on March 18, 2020);

* the Coronavirus Aid, Relief, and Economic Securities Act ($2.2 trillion on March 27, 2020);

* the Paycheck Protection Program and Health Care Enhancement Act ($483 billion on April 24, 2020); and

* the Consolidated Appropriation Act ($920 billion on December 28, 2020).

Most of this funding was in the CARES Act, which provided $2.2 trillion in government aid to individuals, businesses, state and local governments, and health care, education, and safety net initiatives. The largest proportion of recipients of CARES Act aid were individuals and businesses. (2)

Figure 1 shows the aggregate debt of the US federal government and the year-over-year percentage increase in spending between 2000 and 2021. Debt levels rose from $22 trillion at the end of 2019 to $28.5 trillion through the pandemic. The federal government increased spending by approximately eighteen percent year-over-year to combat the pandemic. Interestingly, it is the same year-over-year percentage debt increase as during the financial crisis of 2008 and 2009. After that financial crisis, the federal government continued its elevated year-over-year spending, with percentage increases above ten percent for several years. The rapid economic recovery, driven in part by historically loose monetary policy from the Federal Reserve, resulted in a more severe decline in government spending: six percent year-over-year growth only one year after the pandemic began.

How Companies Reported COVID-19 Government Aid

To report the government aid companies received, financial statement preparers followed a wide variety of standards as well as none at all, includnot-for-profit accounting standards (ASC 958), and nonauthoritative guidance. Some used their own judgment. And many reported nothing.

US GAAP

In 2015, the Financial Accounting Standards Board (FASB) proposed an accounting standard update, Disclosure by Business Entities About Government Aid, that would require companies that prepare their financial statements under US generally accepted accounting principles (GAAP) to disclose details of the government assistance they received. However, many organizations opposed the proposed rule, and comment letters suggested that the scope was too broad to apply and too difficult to implement.

In this case, hindsight is quite literally 20/20--the year of the pandemic--where it became evident from COVID-19 relief that defining the scope of and measuring government aid was not necessarily as complex as comment letters suggested, since companies grasped the nature and amounts of the government aid they received. Unfortunately, there was no rule in US GAAP requiring companies to disclose the details.

International GAAP

On the flip side, and quite oxymoronically, the principles-based accounting society (international accounting) had a rule. With no official rule in US GAAP, many financial statement preparers turned to...