Fifty jobs, three years
Updated: 10 hours ago
When is a grant conditional on keeping jobs recognised, and what happens if the jobs target is missed part-way through?
Shannonside Medical Devices Ltd opens a new plant in Athlone. A state development agency agrees to pay an employment grant of €600,000 for 50 new jobs. The money is paid on 1 January 2026, once all 50 jobs are filled. The condition: the 50 jobs must be kept until 31 December 2028. If headcount is below 50 at that date, the agency reclaims €12,000 for each job short.
Two questions follow. When does the €600,000 go to profit or loss? And what happens when, in 2027, a large customer leaves and the plant ends the year with 44 people?
Recognition: reasonable assurance, not receipt
IAS 20.7 allows a grant to be recognised only when there is reasonable assurance that the entity will comply with the conditions attached to it and that the grant will be received. Receiving the cash is not enough on its own: it does not prove that the conditions have been or will be met (IAS 20.8).
Shannonside has the cash, the 50 jobs are filled, and its budgets and order book support keeping them. That is reasonable assurance. Had the agency paid in advance, before the jobs existed, the cash would have been a liability, deferred income not yet released, until reasonable assurance was there.
Release: over the costs the grant pays for
A grant is recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the costs it is meant to compensate (IAS 20.12). It is not income on the day it arrives, and it is not income only when the last condition is met.
Read the agreement to see what the money is for. An employment grant that requires jobs to be kept for three years usually compensates the cost of employing those people over that period, so Shannonside releases it evenly over 36 months: €200,000 a year. If an agreement were really paying for something else, such as recruitment and training at the start, or a building, the pattern would follow that cost instead. The release can be shown as other income or deducted from the related expense, here staff costs (IAS 20.29).
Year two: the target is missed
At 31 December 2027 Shannonside employs 44 people at the plant. The restructuring was approved by the board, and there is no plan to rehire before the end of 2028. Shannonside no longer has reasonable assurance that it will keep all of the grant. It expects to repay six jobs × €12,000 = €72,000.
IAS 20.32 deals with this directly. A grant that becomes repayable is accounted for as a change in accounting estimate under IAS 8, not as a prior-period error: 2026 is not restated. For a grant related to income, the repayment is applied first against any unamortised deferred income for that grant. Only the excess, or the whole repayment if there is no deferred income left, goes immediately to profit or loss.
Pro-rata clawback. Shannonside released €200,000 in 2026 and €200,000 in 2027, leaving €200,000 of deferred income at 31 December 2027. It moves €72,000 of that to a liability for the repayment. The remaining €128,000 is released in 2028. No immediate charge arises, because the deferred income covers the repayment.
Pro-rata clawback (€) | Released to profit or loss | Deferred income at 31 Dec | Grant repayable |
2026 | 200,000 | 400,000 | – |
2027 | 200,000 | 128,000 | 72,000 |
2028 | 128,000 | – | 72,000 |
Total | 528,000 |
Over the three years Shannonside recognises €528,000: the grant it keeps. The 2027 release stays at €200,000 because the change in estimate is made when the facts change, at the end of 2027, and applies from then on.
Full clawback. Many agreements are harsher: miss the target and the whole grant is repayable. With €200,000 of deferred income left and €600,000 to repay, the excess of €400,000 goes straight to profit or loss in 2027.
Full clawback, 2027 (€) | Amount |
Release for 2027, as before | 200,000 |
Repayment set against the remaining deferred income | (200,000) to deferred income |
Excess over deferred income, charged to profit or loss | (400,000) |
Net effect on 2027 profit | (200,000) |
Liability for repayment at 31 December 2027 | 600,000 |
Over 2026 and 2027 the grant's net effect on profit is nil, which is the point: Shannonside ends up keeping nothing.
Before you book the repayment
A shortfall at one year end does not automatically mean a repayment. Read the agreement and look at the facts:
When is the condition measured? At the end of the period only, at every year end, or continuously? A dip in year two matters less if the test is at the end of year three and the jobs can be refilled in time.
Can the shortfall be made good? If Shannonside had firm plans and the order book to rehire six people in 2028, it might still have reasonable assurance of keeping the grant. A hope is not enough; an approved, funded plan might be.
How is a breach measured? Pro rata per job, pro rata per job-year, a sliding scale, or all or nothing. The amount you expect to repay drives the accounting.
Has the agency waived or varied terms? A written variation or waiver counts. An expectation that the agency usually negotiates does not give reasonable assurance by itself.
If repayment is possible but not expected, nothing is booked. Once a grant is recognised, a related contingent liability is dealt with under IAS 37 (IAS 20.11), so a possible repayment is disclosed as a contingent liability unless the possibility is remote.
And if the trigger for the shortfall was a lost customer or a restructuring, check the plant itself: the same event may be an indicator of impairment under IAS 36. Our CGU impairment template covers that test.
What to disclose
IAS 20.39 requires the accounting policy and presentation method for grants, the nature and extent of grants recognised, and the unfulfilled conditions and other contingencies attached to them. Shannonside's note at 31 December 2026 explains the 50-job condition to the end of 2028 and that the directors expect it to be met. At 31 December 2027 it explains the shortfall, the €72,000 expected to be repaid and where it sits in the statement of financial position. The repayment is a change in estimate, so IAS 8.39 also applies: disclose its nature and amount.
Whether reasonable assurance remains after a shortfall can be one of the significant judgements in the accounts. The Tipping Point helps document it, and the Disclosure Review tool checks the note.
If you report under FRS 102
Many Irish and UK companies with grants like this report under FRS 102, not IFRS. FRS 102 lets them choose the accrual model, which works much like IAS 20, or the performance model. Under the performance model, a grant that imposes specified future performance-related conditions is recognised in income only when those conditions are met (FRS 102.24.5B). For Shannonside that would mean holding the whole €600,000 as a liability until the end of 2028. Same grant, very different profile.
The audit angle
Auditors read the grant agreement, not just the bank statement. They agree headcount to payroll records at the measurement dates, read correspondence with the agency, challenge management's plans to make good any shortfall, and check that expected repayments are recognised and contingent ones disclosed. A grant released in full while the condition is visibly failing overstates both income and equity.
Our Audit Risk Matrix and Audit Procedure Builder help plan the work on grants.
In short
Recognise a grant only when there is reasonable assurance that you will meet its conditions and receive it. Cash in the bank does not prove that (IAS 20.7–20.8).
Release it over the periods of the costs it compensates: for a three-year jobs grant, usually evenly over the three years (IAS 20.12).
If part of the grant becomes repayable, treat it as a change in estimate. Set the repayment against the remaining deferred income first and charge only the excess to profit or loss (IAS 20.32).
A possible but unlikely repayment is a contingent liability. Disclose the unfulfilled conditions either way (IAS 20.11 and 20.39).
Template
Our Government grants template keeps a register of up to 15 grants in Excel. It recognises each grant only when there is reasonable assurance, releases it over the related costs, deals with repayments under IAS 20.32, and gives the deferred income roll-forward with the current and non-current split, the journals and the IAS 20.39 disclosure figures and wording. Its worked example includes an employment grant with a jobs condition and a partial repayment.
The IAS 20 Government Grants note in the Learning Hub covers recognition, presentation and repayment, with practice questions.
Shannonside Medical Devices Ltd and the grant terms are fictional. Real grant agreements vary: always read the conditions and clawback terms of the agreement in front of you. References are to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, IAS 8 and IAS 37.
