Expenditure-Driven Grants and Other Financial Assistance Revenue
? Many grants and other financial aid programs are on a costreimbursement basis, whereby the recipient government “earns” the grant revenue when it actually makes the expenditures called for under the grant. This type of arrangement is described as “expenditure-driven” revenue, since the amount of revenue that should be recognized is directly related to the amount of expenditures incurred for allowable purposes under the grant or other contractual agreement. (Of course, the amount of revenue recognized under a grant or contract should not exceed the total allowable revenue for the period being reported, regardless of the amount of expenditures.) Updating the terminology for GASBS 33, making the expenditure is simply an eligibility requirement. To be eligible for the grant revenue, you must make the expenditure.
In accounting for expenditure-driven revenue, governments typically make the expenditures first and then claim reimbursement from the grantor or other aid provider. In this case, a receivable should be established, provided that the criteria for recording revenue under the modified accrual basis of accounting are satisfied. For expenditure-driven revenues, determining whether the “available” criterion is met is difficult for some grants and other sources of aid. First, there will be a time lag
from when the government actually makes the expenditures under the grant, accumulates the expenditure information to conform with some predetermined billing period, and submits the
claim for reimbursement to the grantor or other aid provider. Sometimes the grantors and other aid providers delay disbursing payments to the recipient organizations while they review the reimbursement claims submitted by the recipient organization. In some cases, the aid providers even perform some limited types of audit procedures on claims for reimbursement. Often,the actual receipt of cash for expenditure-driven revenues exceeds the period normally considered “available” to pay current obligations. Governments, however, do record the receivable from the grantor or other aid provider and the related grant revenue, despite it being unclear as to whether the “available” criterion
will be met. The reason for not requiring that the available criteria be met is that the government has already recognized the expenditures for these grants and other aid programs. Without recognizing the related grant revenue, the governmental fund’s operating statements will indicate that there was a use of resources for these grants and other programs, when in fact, these programs are designed to break even and result in no drain of financial resources on the government. In practice, it is uncommon for the recognition of revenue related to reimbursement grants to be deferred based on the availability criterion of modified accrual accounting. Nevertheless, deferral may be considered
in situations where reimbursement is not expected within a reasonable period.
SUMMARY
Understanding how governments record revenues from nonexchange transactions is key to understanding the governmentwide and fund financial statements. This chapter addresses some
of the more technical rules as to revenue recognition and discusses some of the more common nonexchange revenue transactions often found in a government’s financial statements.
Taken From : Governmental Accounting Made Easy