Recent guidance provides multiple models for businesses and nonprofits (nongovernmental entities) to use when planning to account for a forgivable loan received under the Small Business Administration Paycheck Protection Program (PPP). A summary of the available options is provided below.
Business Accounting Options
- FASB ASC 470 debt model
Generally speaking, the proceeds from the loan would remain recorded as a liability until the loan is (in part or wholly) forgiven and the debtor has been “legally released” or the loan is paid off.
- International Accounting Standards (IAS) 20 model on government assistance
Under this model, the government assistance would not be recognized until there is reasonable assurance that any conditions attached to the assistance will be met and the assistance will be received. Once there is reasonable assurance, the earnings impact would be recorded over the period(s) in which the expenses are recognized for the related costs in which the assistance is to compensate for. This model can be used if the entity expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents a grant that is expected to be forgiven.
- FASB ASC 958-605 government grant model
Business entities that expect to meet the PPP’s eligibility criteria and conclude the PPP loan represents a grant that is expected to be forgiven, may follow the guidance in this model.
- FASB ASC 450-30 gain contingency model
This guidance may also be followed if PPP eligibility criteria is expected to be met and it is concluded that the PPP loan represents a grant that is expected to be forgiven. Forgiveness of the PPP loan would not be recognized until all uncertainties regarding the final forgiveness of the loan are resolved.
Nonprofit Accounting Options
- FASB ASC 470 debt model
Same as described above (first bullet under Business Accounting Options)
- FASB ASC 958-605 government grant model
If a nonprofit entity chooses not to follow FASB ASC 470 and expects to meet the PPP’s eligibility criteria and concludes the PPP loan represents a grant that is expected to be forgiven, the PPP loan should be accounted for in accordance with FASB ASC 958-605 as a conditional contribution. Contribution revenue would be recognized as qualifying PPP expenses are incurred, assuming conditions are “substantially met.”
Additional Information
For full detail on available accounting options, please refer to the following referenced guidance:
As always, if you have any questions, feel free to reach out to your H2R CPA liaison.
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