Millions of small businesses received loans under the Small Business Administration (SBA) Paycheck Protection Program (PPP loans), and questions are being raised on how to account for the funds.
In June 2020, the American Institute of Certified Public Accountants (AICPA), along with the Financial Accounting Standards Board (FASB), created a Technical Question and Answer (TQA) document. The document, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program, addresses accounting for nongovernmental entities which includes business entities and non-profit organizations. The TQA explains that an entity accounting for the PPP loan under Topic 470 (Debt) would do the following:
- Initially record the receipt of the PPP loan funds as a financial liability. Entities would accrue interest in accordance with the interest method under ASC Subtopic 835-30 (Imputation of Interest).
- Do not impute additional interest at a market rate.
- Continue to record the PPP loan proceeds as a liability until either:
- the PPP loan is partly or wholly forgiven and the debtor has been legally released, or,
- the debtor pays off the loan
- Reduce the liability by the amount forgiven and record a gain on extinguishment of debt once the loan is partly or wholly forgiven and legal release is received.
Additionally, among the questions is whether the PPP loans received by non-profit organizations is subject to the Uniform Guidance single audit requirements. The SBA recently clarified that PPP loans received by non-profit organizations is not subject to the Uniform Guidance single audit requirements. However, the SBA stated that funds received under the Economic Injury Disaster Loan are subject to the Uniform Guidance single audit requirements as the funds are disbursed directly from the SBA and considered federal financial assistance.