Companies will have a little more accounting guidance to go on when it comes to the accounting for their Paycheck Protection Program (PPP) loans. The American Institute of Certified Public Accounts (AICPA) recently weighed in on the matter, providing guidelines that companies could follow for their potentially forgivable government loans.
As previously discussed, the accounting treatment for this loans was somewhat murky because U.S. Generally Accepted Accounting Principles (U.S. GAAP) guidance only specifically addresses how not-for-profit organizations should account for forgivable government loans. All other organizations can evaluate their position and analogize to the not-for-profit guidance if their situation fits a similar set of facts or circumstance or they can follow debt accounting standards. The AICPA’s guidance provides a little more clarity for recipients of PPP loans in a few key ways.
Takeaways from the AICPA Guidance
The AICPA staff took on the issue of the PPP loans in a questions and answer document. Similar to the stance the Securities and Exchange Commission (SEC) took, the AICPA confirmed that an entity could apply the debt accounting standard, ASC Topic 470, Debt, or analogize to the International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.
In the Q&A document, the AICPA clarifies that the nongovernmental entity that receives a PPP loan would be able to account for the loan as a financial liability under the debt guidance and would not be required to account for additional market rate interest because the government is setting the interest rate for these loans. Such a scenario is specifically carved out of the guidance on interest rates in the ASC Topic 835, Interest.
The AICPA staff also noted that a business entity may draw comparisons to the not-for-profit guidance in ASC Topic 958, Not-for-Profit Entities and account for it as a conditional contribution or follow the guidance ASC 450-30, Gain Contingencies and account for the amount expected to be forgiven as a gain contingency. Entities that apply a gain contingency model would initially record the PPP loan proceeds as a liability and continue to record them as a liability until the PPP loan proceeds are realized or realizable. At that point, the organization would recognize the earnings impact of the PPP loan.
More Clarification Likely
As new developments emerge, we will keep you up-to-date. For more information on how the AICPA’s position affects your accounting for PPP loans, please contact us.
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