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The economics and accounting for COVID-19 wage subsidy and other government grants

The economics and accounting for COVID-19 wage subsidy and other government grants This paper aims to examine the economic rationale for the COVID-19 wage subsidy and grants related to assets and the accounting for these wealth transfers under NZ IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. The principal contribution is presenting an economics–accounting nexus for government assistance to firms during a pandemic and for the nation’s economic development.Design/methodology/approachThis is a descriptive study that draws on the economic theory of regulation to understand the rationale for wealth transfers, then examining the accounting for the wealth transfers by analyzing the financial statements of NZX 50 companies that received the wage subsidy and SkyCity and Chorus that received substantial grants to develop and operate the New Zealand International Convention Centre and building a large part of New Zealand’s Ultra-Fast Broadband fiber optic network, respectively.FindingsFirst, the 10 NZX 50 companies that received the government’s wage subsidy were justified to receive it from the legal, ethical and moral perspectives. However, some non-NZX 50 companies, while legally entitled to the wage subsidy, took advantage of the wealth transfer when they were profitable and paid dividends. This latter group of companies was not seen as behaving ethically and morally. Second, the government granted millions of dollars to SkyCity and Chorus for building critical infrastructures that are economically beneficial for the nation and that are unlikely to attract private investment, and these companies accounted for the grants related to assets in accordance with NZ IAS 20.Research limitations/implicationsThe financial statement impacts of the wage subsidy are based on a subset of NZX 50 companies with available information at the time of writing. However, they do not compromise the external validity of the findings because the wage subsidy applies to all businesses. Similarly, the manner in which SkyCity and Chorus accounted for the grants related to assets would apply equally to any entity that is a recipient of such a grant.Originality/valueThis paper presents an economic understanding for the existence of government grants and how the accounting mirrors the economic rationale for the “grants related to income” and “grants related to assets.” This paper demonstrates the importance of the economics–accounting nexus. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

The economics and accounting for COVID-19 wage subsidy and other government grants

Pacific Accounting Review , Volume 33 (2): 13 – Aug 10, 2021

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0114-0582
eISSN
0114-0582
DOI
10.1108/par-10-2020-0189
Publisher site
See Article on Publisher Site

Abstract

This paper aims to examine the economic rationale for the COVID-19 wage subsidy and grants related to assets and the accounting for these wealth transfers under NZ IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. The principal contribution is presenting an economics–accounting nexus for government assistance to firms during a pandemic and for the nation’s economic development.Design/methodology/approachThis is a descriptive study that draws on the economic theory of regulation to understand the rationale for wealth transfers, then examining the accounting for the wealth transfers by analyzing the financial statements of NZX 50 companies that received the wage subsidy and SkyCity and Chorus that received substantial grants to develop and operate the New Zealand International Convention Centre and building a large part of New Zealand’s Ultra-Fast Broadband fiber optic network, respectively.FindingsFirst, the 10 NZX 50 companies that received the government’s wage subsidy were justified to receive it from the legal, ethical and moral perspectives. However, some non-NZX 50 companies, while legally entitled to the wage subsidy, took advantage of the wealth transfer when they were profitable and paid dividends. This latter group of companies was not seen as behaving ethically and morally. Second, the government granted millions of dollars to SkyCity and Chorus for building critical infrastructures that are economically beneficial for the nation and that are unlikely to attract private investment, and these companies accounted for the grants related to assets in accordance with NZ IAS 20.Research limitations/implicationsThe financial statement impacts of the wage subsidy are based on a subset of NZX 50 companies with available information at the time of writing. However, they do not compromise the external validity of the findings because the wage subsidy applies to all businesses. Similarly, the manner in which SkyCity and Chorus accounted for the grants related to assets would apply equally to any entity that is a recipient of such a grant.Originality/valueThis paper presents an economic understanding for the existence of government grants and how the accounting mirrors the economic rationale for the “grants related to income” and “grants related to assets.” This paper demonstrates the importance of the economics–accounting nexus.

Journal

Pacific Accounting ReviewEmerald Publishing

Published: Aug 10, 2021

Keywords: Economics of regulation; Crises and solutions; COVID-19 wage subsidy; Grants related to assets; Accounting for government grants; NZ IAS 20

References