Audit Procedures for Government Grants and Subsidies:

Government grants and subsidies are financial assistance provided by government entities to support specific activities or initiatives undertaken by businesses or organizations. These grants can take various forms, such as cash grants, tax incentives, or non$-$monetary assistance. Audit procedures for government grants and subsidies ensure proper recognition, measurement, and disclosure in the financial statements. Here are some key audit procedures:

Identification and Classification: Auditors identify and classify government grants and subsidies received by the entity, distinguishing between capital grants and revenue grants. Capital grants are typically related to the acquisition or construction of long$-$term assets, while revenue grants are intended to support ongoing operations.

Verification of Eligibility Criteria: Auditors verify that the entity meets the eligibility criteria specified by the government for receiving grants and subsidies. This may involve reviewing relevant documentation, such as grant agreements or application forms, to ensure compliance with eligibility requirements.

Assessment of Recognition and Measurement: Auditors assess whether government grants and subsidies are recognized in accordance with applicable accounting standards, such as International Financial Reporting Standards $($IFRS$)$ or Generally Accepted Accounting Principles $($GAAP$).$ They verify that grants are recognized as income when there is reasonable assurance of compliance with grant conditions and that subsidies are measured at fair value.

Review of Compliance: Auditors review the entity's compliance with the terms and conditions of government grants and subsidies. This includes ensuring that funds are used for their intended purposes and that any restrictions or obligations imposed by grant agreements are adhered to$.$

Disclosure Requirements: Auditors evaluate the adequacy and accuracy of disclosures related to government grants and subsidies in the financial statements and footnotes. This includes disclosing the nature and extent of government assistance received, any conditions attached to the grants, and the impact on the entity's financial position and performance.

Objective Type Question:

Based on the audit procedures for government grants and subsidies, which audit procedure involves verifying that government grants and subsidies are recognized in accordance with applicable accounting standards?

A$)$ Identification and Classification

B$)$ Verification of Eligibility Criteria

C$)$ Assessment of Recognition and Measurement

D$)$ Review of Compliance