Our view at this time is that it is a government grant and therefore should be accounted for under the rules in Section 24 FRS 102. Section 24.1 of FRS 102 defines a government grant as assistance by the government in the form of a transfer of resources to an entity in return for past or future compliance specified conditions relating to the operating activities of the entity. The Glossary to FRS 102 states that the word ‘Government’ in this definition refers to government, government agencies, and similar bodies whether local, national or international. In this case, the provider of the funds is the revenue which obviously meets this ‘government’ definition.

The Glossary to FRS 102 also defines what operating activities mean in the above definition ‘The principal revenue-producing activities of the entity and other activities that are not investing or financing activities.’ In the case of the TWSS/wage subsidy scheme it is evident that the money received from the revenue under the scheme is provided based on conditions being met relating to the trade of the business (e.g. turnover requirements etc. etc. as discussed below) – in short, the TWSS scheme is a scheme which provides funds to the Company in order to reduce the cost of employees wages for a specified period.

As stated in Section 24.3 of FRS 102, Section 24 does not cover government assistance that is provided for an entity in the form of benefits that are available in determining taxable profit (tax loss), or are determined or limited on the basis of income tax liability. Examples of such benefits are income tax holidays, investment tax credits, accelerated depreciation allowances and reduced income tax rates. Section 29 Income Tax covers accounting for taxes based on income.

In this case, it is evident that the wage subsidy scheme is not dependent on what profits are made by the business, the scheme applies regardless of what profits are made – the key requirement for the scheme is that there is an expectation that COVID-19 will have a significant negative impact on the Company and it is expected that there will be a reduction of at least 25% in turnover for quarter 2 2020. The subsidy is not taxable on the Company – these points support the fact that this does not come within the definition of Section 29 of FRS 102 but instead comes within the definition of government grants in Section 24.1.

To add, as the subsidy scheme has specified conditions (as discussed above) to be met in order to receive this funding, then this further meets the requirement in Section 24.1/ the definition of government assistance (i.e. transfer of resources to an entity in return for past or future compliance with specified conditions relating to the operating activities of the entity).

Section 24.3A of FRS 102 makes it clear that Government grants, including non-monetary grants, shall not be recognised until there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received. in this case, we will assume that these conditions are met (if subsequently, it changes then liability should be recognised to reflect the repayment as per Section 24.5A FRS 102). On the audit file, you should document how management have shown that it is probable that conditions will be met if the year-end is during Q2 2020.

As this is a revenue grant then in accordance with Section 24.5D of FRS 102, the Grants relating to revenue (i.e.. the funds received from revenue to pay to the employees) shall be recognised in income on a systematic basis over the periods in which the entity recognises the related costs for which the grant is intended to compensate. In this case, as the funds are to cover costs for March to June during the Coivd 19 crisis, then the grant will be recognised during that period also as the amounts will be paid out to employees during this time.

The aforementioned assumes the accruals model accounting policy is adopted. If an entity applies the performance model, it should only recognise the grant at the end of Q2 2020 (or such other date if this is changed where the scheme is extended), that being the date when it is evident that the turnover requirement etc. has been met and all other conditions have been met (it will stay as a liability in that case until the conditions are met as per Section 24.5B FRS 102).

In relation to where the grant is disclosed in the financial statements, it is evident that Section 24.5D refers to it being recognised in ‘Income’. For this reason, the grant should be shown on the face of the P&L within the line ‘other operating income’ above the operating profit line – it is not netted against the wage/salary cost for this reason.

To cover off the disclosure the requirements of Section 24.6 must be met assuming full FRS 102 applies:

An entity shall disclose the following:

(a) the accounting policy adopted for grants (accruals or performance model)

(b) the nature and amounts of grants recognised in the financial statements;

(c) unfulfilled conditions and other contingencies attaching to grants that have been recognised in income; and

(d) an indication of other forms of government assistance from which the entity has directly benefited (this could include some of these enterprise Ireland grants etc. etc).

For the purposes of completeness, Section 28 of FRS 102 deals with employee benefits. The Glossary to FRS 102 defines employee benefits as all forms of consideration given by an entity in exchange for service rendered by employees. Section 28.7 of FRS 102 makes it clear that an entity shall recognise the cost of other (non-accumulating) shorter-term compensated absences when the absences occur. In cases, where the employees are not working, but still getting paid (whether just the subsidy amount or subsidy plus top-up) as would be the case for many employees during the shutdown, this would appear to meet the definition of compensated absences. For this reason, we believe it is appropriate for the subsidy element that is paid out to the employees through payroll to be classified as employee benefits/wages in the P&L. In order to avoid revenue queries, it could be classified as employee benefits as opposed to wages and salaries in the wage note.