AICPA has worked with many of its volunteer members, as well as FASB staff, to develop Technical Questions and Answers (TQA) 3200.18, Borrower accounting for a repayable loan received as part of the Small Business Administration’s paycheck protection program. In addition, SEC staff shared their view that they would not object to having an SEC registrant count a P3 loan under subject 470 or as a government subsidy by analogy with IAS 20 Accounting for government grants and disclosure of government assistance, as long as certain conditions are met.
The TQA deals only with the accounting of non-governmental entities (which include commercial entities and non-profit entities (NFPs)). The TQA explains that an entity which accounts for the PPP loan under theme 470:
- Initially record receipts from the P3 loan as a financial liability and bear interest in accordance with the CSA interest method 835-30.
- Would not attribute additional interest at the market rate.
- Continue to record loan proceeds as a liability until (1) the loan is partially or fully canceled and the debtor has been legally discharged or (2) the debtor repays the loan.
- Reduce the liability by the amount forgiven and record a gain on sunset after the loan is partially or fully forgiven and the legal release received.
According to the TQA, if a non-government entity that is not a NFP (i.e. a commercial entity) expects to meet the PPP eligibility criteria and concludes that the PPP loan represents, in essence , a grant which should be remitted, it can be analogous to IAS 20 to take account of the PPP loan. An accounting entity by analogy to IAS 20 would not be able to recognize government assistance until there is reasonable assurance that the conditions associated with the assistance will be met and the assistance will be received.
Once there is reasonable assurance that the conditions will be met, the impact on the profits of government grants would be recognized systematically over the periods in which the entity recognizes as an expense the related costs for which the grants are intended to compensate.
The TQA also declares that in situations where the eligibility and loan forgiveness criteria of the PPP should be met:
- A commercial entity can also make an analogy with the directives of ASC Subtopic 958-605 or ASC Subtopic 450-30.
- A non-profit organization should account for these PPP loans in accordance with ASC 958-605 as a conditional contribution.
A table included in the AQT summarizes the key concepts of these models.
Congress established the PPP to provide relief to small businesses during the coronavirus pandemic as part of the $ 2 trillion CARES Coronavirus Aid, Relief and Economic Security Act, P.L. 116-136. Legislation authorized the Treasury to use the SBA’s small business loan program 7 (a) to finance loans of up to $ 10 million per borrower that eligible businesses could spend to cover payroll, mortgage interest, rent and public services.
P3 funds are available for small businesses that were active on February 15 with 500 or fewer employees, including tax-exempt non-profit organizations, veterans organizations, tribal concerns, the self-employed, sole proprietorships and independent entrepreneurs. Companies with more than 500 employees can also apply for loans in certain situations.
the AICPA SBA Paycheque Protection Program Resources Page for CPA houses resources and tools produced by AICPA to help deal with the economic impact of coronavirus.
For more news and reports on coronavirus and how CPAs can manage the challenges of the pandemic, visit JofA’S coronavirus resource page.
– Ken Tysiac (([email protected]) is the JofAEditorial director of.