The AICPA recently released a Technical Question and Answer (TQA) on the matter, while the TQA does indicate that gain contingency guidance is acceptable, it also opens the door to an alternate conclusion (see the link above and excerpt below). This is meaningful because the AICPA and the SEC indicates here that a borrower “may” be permitted to view the loan as a government grant (think conditional contribution and recognize the revenue as you incur the allowable expenses). This creates a very different result than the gain contingency guidance above. There is not yet authoritative guidance on this issue, however this TQA is a clear indication that borrowers may have multiple options available to account for this loan. We will continue to monitor this as it evolves. Additionally, Not for profit organizations will also need to consider placement on the statement of activities (operating vs. nonoperating). We are evaluating these new interpretations and will provide further guidance in the near future.
TQA 3200.18: “How should a nongovernmental entity account for a forgivable loan received under the Small Business Administration Paycheck Protection Program (PPP)?”
Answer: “Given the unique nature of the PPP, questions have arisen relating to how a borrower under the program should account for the arrangement. Although the legal form of the PPP loan is debt, some believe that the loan is, in substance, a government grant.” In addition, the Staff of the SEC’s Office of the Chief Accountant has indicated that they “would not object to an SEC registrant accounting for a PPP loan under FASB Accounting Standards Codification (ASC) 470, Debt, or as a government grant by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.”
Reminder Section: (what should I be doing):
- Call your Payroll Company about claiming the payroll tax deferrals and employee retention credits that were made available in the CARES Act – see previous emails.
- Talk to your Payroll Company about the qualified sick/family leave legislation (FFCRA, passed prior to the CAREs Act) – see previous emails.
- Consider speaking with your lender to discuss changes to terms of existing debt facilities. The banking system remains strong.
- If you have already received a PPP loan, start forecasting how you intend to spend the funds and how to qualify for the highest amount of forgiveness possible.
This information is provided by Withum. Visit Withum’s COVID-19 Resource Center for insights to help you and your business during this challenging time.