Mandatory US Subsidy Disclosures: Early Evidence

Abstract

In November 2021, the Financial Accounting Standards Board passed ASC 832, mandating disclosure of government subsidy-related information in annual reports. ASC 832 did not prescribe specific measurement, recognition, or presentation guidelines, giving firms discretion to determine compliance practices. In this paper, we provide initial evidence on firms’ disclosures under the new standard. We highlight three key findings. First, both the quantity and quality of subsidy-related disclosures improved following the standard’s implementation, but improvements are concentrated in firms receiving larger subsidies or previously voluntarily disclosing subsidy-related information. Second, despite the standard’s adoption, firms do not disclose substantial subsidies, potentially dampening the standard’s impact. We leverage the observability of non-compliance, unique to our setting, to identify information withholding. Third, given ASC 832’s limited scope, public firms are increasingly pursuing subsidies not subject to the disclosure mandate. Our findings highlight both the immediate impact of the standard and shortcomings of its implementation. 

Keywords: subsidies, disclosure, ASC 832, mandatory disclosure, accounting standards, FASB

JEL Classification: H25, H71, M41