This document summarizes the accounting treatment for various Covid-19 related grants, reliefs, and loans under UK GAAP. It discusses how government grants should be recognized as income and not offset against related costs. It also covers rent concessions, CBILS and bounce back loans, time to pay arrangements, and considerations for going concern assessments. Auditors must understand the revised requirements of ISA (UK) 570 for December 2020 year-end audits. Ensuring the proper accounting for Covid-19 programs and disclosing any material uncertainties is important.

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Covid-19
Accounting for Grants, Reliefs and Loans
Steve Collings FCCA

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Session overview
▪ Accounting for government grants
▪ Disclosure requirements for government grants
▪ Covid-19-related rent concessions
▪ CBILS and Bounce Back Loans
▪ Time to Pay Arrangements
▪ Going concern issues

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Government grants
▪ Grants in respect of Covid-19 include:
▪ Coronavirus Job Retention Scheme (CJRS)
▪ SSP Rebate
▪ Small Business Grant Fund
▪ Retail, Hospitality and Leisure Grant Fund
▪ Must be reflected in the financial statements in accordance with UK GAAP
requirements (FRS 102 and FRS 105)
▪ Some company law issues to consider as well

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Government grants
▪ Grants are dealt with in FRS 102, Section 24 and FRS 105, Section 19
▪ Grants must not be recognised in the financial statements until there is
reasonable assurance (a term that is not defined) that:
▪ The entity will comply with the conditions attaching to them; and
▪ The grants will be received.
▪ ACCA Technical Factsheet available on the website dealing with Covid-19
accounting issues that can be downloaded which goes into a lot of detail
about all the important Covid-related issues that must be considered

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Government grants: Initial recognition
▪ Once the recognition criteria has been met, the entity applies its chosen
accounting policy to the grant:
▪ Accrual model
▪ Performance model (not for FRS 105 reporters)
▪ For Covid-19-related grants, the accounting treatment will be the same
regardless of whether the accrual or performance model is chosen
▪ It should be emphasised that the relevant accounting policy choice must be
disclosed in the notes (even for small entities reporting under FRS 102,
Section 1A)

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Specific accounting for government grants
• FRS 102 and FRS 105 requires the
grants to be recognised in income
• Do not offset against related costs
(e.g. payroll for CJRS or SSP
Rebate)
• Dr Bank/Debtors
• Cr Grant income

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Specific accounting for government grants
An entity shall not offset assets and liabilities, or income and expenses, unless
required or permitted by an FRS.
(a) Measuring assets net of valuation allowances (for example, allowances for
inventory obsolescence and allowances for uncollectible receivables) is not
offsetting.
(b) If an entity’s normal operating activities do not include buying and selling
fixed assets, including investments and operating activities, then the entity
reports gains and losses on disposal of such assets by deducting from the
proceeds on disposal the carrying amount of the asset and related selling
expenses.’
FRS 102, para 2.52

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Accounting for government grants
‘Amounts in respect of items representing assets or income may not be offset
against amounts in respect of items representing liabilities or expenditure (as the
case may be), or vice versa.’
SI 2008/410, Sch 1, para 8
SI 2008/409, Sch 1, para 8

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Accounting for government grants
Grant type Offset against related costs
Coronavirus Job Retention Scheme No. Dr Debtor/Bank, Cr Grant income
SSP Rebate No. Dr Debtor/Bank, Cr Grant income
Hang on! What about the
employer allowance
granted through the payroll
though?

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Business rates relief
• Not a government grant so Section 24/Section 19 will not apply
• Treat as an absent cost in P&L
• Time-apportion depending on client’s year end in relation to rates bill date (31
March)

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Business rates relief: Example
• Sunnie Ltd is preparing its financial statements for the year ended 31 August
2020
• Rates bill for the year ended 31 March 2020 was £40,000
• Rates bill for the year ending 31 March 2021 is £nil
Period Calculation Charge to P&L
£
01.09.19 to 31.03.20 £40,000 x 213
days/366 days
23,279
01.04.20 to 31.08.20 £0 x 152 days/365
days
0
Rates charge in profit or loss 23,279

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Rent concessions
• Amendments made to FRS 102 and FRS 105 in October 2020
• Applies to accounting periods commencing on or after 1 January 2020 (early
adoption permissible)
• Concerns rent concessions granted to lessees in an operating lease as well
as lessors (no difference between accounting treatments under UK GAAP as
there is in IFRS 16) – not rent deferrals
• FRC changed the accounting standards to prevent diversity in practice as
previously UK GAAP did not deal with Covid-19-related rent concessions

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Rent concessions
• Recognise the rent concession in the period that benefits (not over the
remaining life of the lease)
• Same accounting treatment under FRS 105
• Lessors recognise the reduction in income in the period that the concession
intends to compensate
• Concession only relates to Covid-19-related rent concessions (not other
types of concession for which another accounting treatment may be
appropriate)
• Cut-off date per FRS 102 and FRS 105 is 30 June 2021 (to reflect the
temporary nature of the concession)

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Rent concessions: Disclosure
• FRS 102, para 20.16(c) requires disclosure of the amount of change in lease
payments recognised in profit or loss (this is a new requirement following the
October 2020 amendments)
• Micro-entities reporting under FRS 105 need not disclose this

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CBILS and Bounce Back Loans
• Uptake of these loans has been very high (year 1 interest is paid by the
government to the lender as well lender-levied charges)
• Watch for contentious issues (e.g. clients deliberately inflating their turnover
on Bounce Back loan applications to get the £50,000) – this would be a
money laundering issue
• CBILS and BB loans accounted for as a basic financial instrument
• Generally the effect of discounting such loans will be immaterial so usually
recognised at value of the loan (additional disclosure may be required to this
effect)

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CBILS and Bounce Back Loans
• Business Interruption Payment (BIP) needs to be reflected in the accounts as
a grant even though the BIP is not received by the entity (to reflect the
substance of the arrangement)
• Entries to record the BIP:
• Dr Finance costs (P&L) X
• Cr Grant income X
• In substance there has been a transfer of economic resources to the
reporting entity in the form of year 1 interest and lender-levied charges
• See ACCA Technical Factsheet for a worked example
• Don’t forget the split of the current/non-current elements of the loan

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Time to pay arrangements
• VAT deferred from March to June 2020 can be paid by instalments
• The client has to apply for the time to pay arrangement for this
• All deferred VAT must be paid by 31 March 2022
• VAT (and taxation) do not meet the definition of a financial instrument hence
no adjustment to carrying amounts are needed
• Deferred VAT and other taxes are presented as current liabilities in the
balance sheet

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Going concern
• Management must assess the entity’s going concern status every year
• Liquidation/cessation of trade are the 2 situations cited in UK GAAP as
reasons not to adopt the going concern basis of accounting
• Assessment is at least (but not limited to) 12 months from the date of
approval of the financial statements (not 12 months from the balance
sheet date)
• Material uncertainties must be disclosed (encouraged for small entities but
you must keep in mind the true and fair obligation and ACCA’s view on non-
disclosure – see Technical Factsheet)

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Going concern
• For auditors, a MURGC paragraph is needed where the entity has adequately
disclosed material uncertainties (do not use an Emphasis of Matter
paragraph)
• Auditors: keep in mind ISA (UK) 570 (Revised September 2019) comes into
effect for December 2020 year ends onwards (watch for ACCA
articles/guidance on this)
• If going concern basis is inappropriate use a basis other than the going
concern basis and disclose the basis used
• The ‘break-up’ basis is considered inconsistent with UK GAAP so would only
be used in very rare situations

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Summary
• Ensure a sound understanding of the accounting requirements for the various
grants/reliefs/concessions in respect of Covid-19
• Don’t offset grants against their related expenditure
• Don’t forget about the BIP
• Ensure a sound understanding as to the going concern requirements
(auditors must understand the revised ISA (UK) 570)

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