Accounting for furlough payments
While businesses are focused on managing their cash flow and taking the steps needed to operate in the Coronavirus world, the last thing on their mind will be the accounting treatment of the furlough grants that more than 800,000 employers have been claiming.
However, as some of our clients have been asking us the question, below is our analysis of the accounting rules applicable to furlough grants.
These payments received from the government for furloughed employees are in the form of a grant and the accounting for these are covered in:
- Section 24 of FRS 102, The Financial Reporting Standard for the UK and Republic of Ireland for entities reporting under UK GAAP, or
- IAS 20, Government Grants for entities reporting under IFRS.
As the grant is intended to cover costs, it should be recognised in profit or loss in the same period in which the related expense is incurred.
UK GAAP reporters, under FRS 102 (or FRS 101 or FRS 105) should record this as other income received.
Under IAS 20, there is an option to net the income off against the related expenses, but this is not permitted under UK GAAP.
Payments received from government under the Coronavirus statutory sick pay rebate scheme are treated in the same way as the furlough grants described above.
Tim Gonzaga is Technical & Training Director
tgonzaga@mks.co.uk
020 7566 3835