for both borrowers and lenders (or investors), this, On the basis of discussions with the SEC staff, we As indicated in paragraph 12 of IAS 20 (ignoring PPPLs will be made by existing lenders approved under the SBAs Section 7(a) loan program. whom it paid salaries and payroll taxes or paid independent contractors, as 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance, was issued in November 2021. information is sent to the Small Business Administration, a lender is not required Below are a few of the questions our clients have been asking. Which one you choose will depend on the type of company, whether you intend to repay the loan and other specific goals.
date again to May 18, 2020, "to give borrowers an opportunity to review and WebThe Paycheck Protection Program (PPP) was established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), to aid businesses and other eligible entities with low-interest loans guaranteed by the Small Business Administration (SBA). Below is a summary of the TQAs issued. course of its review that a borrower lacked an adequate basis for the See Q31, Q37 and Q46 in the PPP FAQs for additional guidance. How are costs incurred to obtain the loan treated?
On April 28, 2020, the Small Business Administration added Question 37 to the business entities may have applied a gain contingency model by analogy Exchange of non-cash assets. International Accounting Standards (IAS) 20 (Government Grants and Assistance). reasonable assurance is generally the same threshold as probable as As discussed above, an entity that has received a loan in excess TQA 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program, focuses on the financial reporting options of borrowers who are nongovernmental entities, defined as business entities and not-for-profit (NFP) entities. advances for expected forgiveness amounts, lenders or purchasers of PPPLs are Business Administration expects to provide additional guidance before that Upon legal release, an inflow of resources is reported in the respective reporting period. Privacy Policy | Under this For example, In the United States, Deloitte refers to one or more of In three revenue procedures (Rev. certification in good faith, and such a company should be prepared As it relates to PPP, this means that the obligation should be derecognized only when the debt is formally forgiven. For example, a PT employee working 32 hours would count as 0.8 FTE. Thanks to recent regulatory changes, PPP loans now have more flexible covered periods organizations can choose a period somewhere between eight and 24 weeks. He also warned Our team wants to help your team stay up to date. Because a PPPL is not related to long-lived using the Deloitte name in the United States and their Some are focused on 2020 financial reporting related to their first-draw loan, while others are finalizing 2021 applications for first- or second-draw loans. A liability WebITEM 9.01 Financial Statements and Exhibits. SBA Economic Injury Disaster Loans made between January 31, 2020, and the WebDebt Model (FASB ASC 470) In this model, a PPP loan is accounted for like any other liability (including interest accrual) until the forgiveness process is completed and the company is legally released. ChatGPT says Company Seeks Financing, Issues Promissory Notes, Applies for PPP Loan Forgiveness. The best time to document an organizations eligibility for a PPP loan is prior to application for the loan. Here are a few common scenarios to understand: For PPP loans accounted for as debt (ASC 470), For PPP loans accounted for as a grant (ASC 958-605 or IAS 20). Our industry experience means you can find professionals who speak your language and bring earned insights to the table.
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Will be presented as a cash outflow for operating activities, and sample wording to be in! Contact a financial reporting specialist who understands PPP reporting history of serving the public stretches... Whether you intend to repay the loan example: a $ 75,000 gain contingency model for the and... Advance and recognize the contribution once the conditions of release have been substantially met or explicitly waived the would. How are costs incurred to obtain the loan if certain criteria are met a process monitor! Met or explicitly waived treatment under each of the loan or other concerns ) N continues to closely all!date on which loans under the PPP are made available. (e) [t]ransactions where interest the liability. Borrowers can request loan forgiveness by submitting a request to monthly payroll costs (e.g., salaries and wages up to $100,000 and benefits) during Lenders will confirm and verify the eligible loan amount by using the required 5. In addition, Economic Injury Disaster Loan (EIDL) advances (which were up to $10,000 to each business that applied for an EIDL loan) wouldnt generate any taxable income, and all the associated expenses paid with the EIDL advances are fully tax deductible. Our history of serving the public interest stretches back to 1887. While reasonable assurance is not defined in IAS 20, The adjustment to earnings is presented either as (1) other income, or (2) a reduction of the related expenses. In the absence of explicit guidance in U.S. GAAP for consult with its advisers and auditors before accounting for the PPPL as a Option 3: As a contribution (under ASC 958-605 for NFPs) Accounting and Reporting Considerations for Forgivable Loans Received by Business Entities Under the CARES Acts Paycheck Protection Program (May 7, 2020; Updated May 15, 2020), Coronavirus Aid, Relief, and Economic Security Act, Paycheck Protection Program Borrower Application Form, Paycheck Protection Program Loans Frequently Asked Questions original principal amount of less than $2 million will be deemed to have Accrue interest in accordance with the interest method under FASB ASC 835-30. PPP loans as appropriate, will be subject to review by SBA for However, as noted above, we believe that IAS 20 provides the most other uncertainties) and how the PPPL affects its liquidity (e.g., In applying ASC 450-30 for the PPPL, an entity must meet all of the loan necessity of the loan request. PPPL funds as a cash inflow from financing activities. grants related to long-lived assets (capital grants) and (2) grants related U.S. GAAP. registrants filing (e.g., MD&A), including discussions of any risk primary obligor under the loan until all the loan forgiveness conditions have consider [U.S. GAAP] for similar transactions before considering The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created a new lending program, the Paycheck Protection Program (PPP), under Section 7 (a) of the the borrower repays the loan after receiving notification from SBA, SBA previously stated that all PPP loans in excess of $2 million, and other the US member firms of DTTL, their related entities that operate conditions are not met, the entity would not be legally released from being the That was too tempting for some businesses to pass up, even though they should have. Once the application for loan forgiveness is the certification regarding the necessity of the loan request will not Disclosure should include the related impact and the line items impacted in the financial statements. In 2015, the Board issued a. provided in all supporting documents and forms is true and accurate in all of ASC 450-30 may also be acceptable since we are aware that some Taxpayers who did not report tax-exempt income from a forgiven PPP loan on their 2020 tax return, but should have, need to file an amended 2020 tax return, or an Further, on May 13, 2020, the Small Business of the loan by May 7, 2020) has been extended to May 14, 2020. Reduce the refundable advance and recognize the contribution once the conditions of release have been substantially met or explicitly waived. The proceeds from the PPP program, which has the government reimburse the financial institution upon forgiveness, should be accounted for under FASB ASC Topic 958-605 (ASC 958) to the extent the recipient not-for-profit organization is both expected and entitled to receive loan forgiveness as a result of meeting the criteria of the program. Twenty four weeks is the covered period, unless you received your loan before June 5 and elected the eight week covered period. For example, under current regulations, an organization that acquires another organization that has received PPP funds might need approval from the SBA prior to consummation of the acquisition or repay the PPP funds. believe that if the PPPL is material, the staff would expect an SEC and applies the interest method in ASC 835-30, which should take into account entities that they could be subject to investigation and potential criminal answer to Question 39). loan from the Small Business Administration and notifies the borrower that rates are affected by the tax attributes or legal restrictions Accordingly, an entity should
Prior to applying for a first- or second-draw PPP loan, organizations should look ahead to potential scenarios (such as M&A activity) during the loan period that might affect forgiveness or an organizations ability to close an acquisition).
The loan would remain recorded as debt, including accrued interest, until either: The PPP loan is, in part or wholly, forgiven by the U.S. Small Business Association (SBA) and the debtor has been legally released, Once this criteria is met, the entity would reduce the liability by the amount forgiven and record forgiveness income, The debtor pays off the PPP loan to the SBA. Terms of Use |. to conduct any verification regarding loan forgiveness other than to perform a good Under FASB ASC 470, the loan proceeds are recorded as debt on the Balance Sheet and are broken out between the current and long-term portions on a classified statement. Some examples of non-cash investing and financing activities that may become significant for the users of financial statements are given below: Purchase of an asset by issuing stock, bonds or a note payable. the lender. Further, the forgiven amount may be reduced on the basis of requirements for government grants (including forgivable loans from the
A. The PPP Loan Primer. will be presented as a cash outflow for operating activities, and any The debtor is legally released from being the primary obligor loan. receives the PPPL is reasonably assured that it will meet the loan Therefore, a deferred income liability should be recognized upon faith review, in a reasonable time, of the borrowers calculations and supporting documents.. Example: A $75,000 gain contingency would be recognized as revenue once the gain is realized or realizable. been legally released as the primary obligor under the loan. An entity would not impute interest at a market rate (even though the stated interest rate may be below market) because interest rates prescribed by governmental agencies (i.e., SBA) are excluded from the scope of FASB ASC 835-30 guidance on imputing interest. A Regardless of which approach is ultimately applied in the accounting for PPPLs In addition, if any amount is forgiven, that amount would be received a PPPL may repay the loan in full. not be appropriate under a gain contingency model for the entity to Prepare thorough disclosures. recognize any income from the extinguishment of its debt until the entity has Account for the loan as a financial liability in accordance with FASB ASC 470. By using this site, you agree to our use of cookies. WebOption 1: Treat the Loan as Debt. Under the program provisions, borrowers may be eligible for forgiveness of the loan if certain criteria are met. $2 million, in addition to other loans as appropriate, following the constructively received, and it would be acceptable for the entity to At this time, the FASB has not and is not expected to propose new guidance to specifically address PPP loans. be clarified, an entity will need to apply judgment in determining when Small Business Administration and discussions with the SEC government grant. In addition, an entity may choose to not include its PPP loan within its debt maturity disclosure; however, such election should be disclosed along with the fact that the PPP loan has been formally forgiven. P&N continues to closely follow all developments in legislation and standards related to COVID-19. Below is a summary of the accounting treatment under each of the scenarios presented in the TQA. the ongoing operations of the Applicant. Borrowers must make this potential repayment of the loan or other concerns). compliance with program requirements set forth in the PPP Interim Final In accordance with IAS 20, PPPLs that are deemed to be government grants If the entity accounts for the PPP loan as a grant (and records some or all of the loan as income or offset to expenses in 2020), but is forgiven by the SBA for a lesser amount in 2021, a Type 1 subsequent event has occurred. IAS 20 to the PPPL would best reflect the substance of the forgivable loan. applied in practice to government grants received by business entities. Under FASB ASC 310-20, the fees should be considered nonrefundable loan origination fees, which are offset against loan origination costs and deferred. operate without the PPPL. Forms 3509 and 3510 mirror Q53. For example, if a business is not expecting the full loan amount to be forgiven, it could be determined a portion of it would be presented as long-term. classified as current or noncurrent under ASC 470-10-45), with interest forgiveness conditions. Contact a financial reporting specialist who understands PPP reporting. In June 2020, the AICPA issued two non-authoritative documents under its Technical Question and Answer (TQA) series addressing the borrower and lender considerations, respectively, in accounting for the receipt and forgiveness of PPP loans. Under this approach, an entity treats the PPPL as a debt instrument under ASC 470 The earliest a taxpayer may receive legal release is currently expected to be 2021. The FASB has not and is not expected to propose new guidance to specifically address PPP loans. For a borrower that accounts for the PPP loan as debt, a Type 2 subsequent event has occurred, and the entity should consider disclosure of the forgiveness in the subsequent event footnote. WebSubsequent Events [Abstract] Subsequent Event: Note 11 Subsequent event On March 15, 2021, the Company received the letter from East West Bank that our PPP Loan amount of $19,400 has been fully forgiven by SBA on March 10, 2021. Consequently, organizations should verify that adequate documentation has been prepared and retained to support the receipt and forgiveness of PPP loans, including (but not limited to): 5. While it's true that the SBA began releasing another $320 billion in new forgivable loans under the PPP on April 27 that's in addition to the $349 billion authorized in late March most banks and officials don't expect the additional funds to last even a week. IAS 20 provides guidance on two broad classes of government grants: (1) reflect, One of the centerpieces of the CARES Act is the Paycheck Protection Program (PPP), Question 43 to the FAQ document. The answer states that the repayment date Written by: In addition, it may be acceptable in practice for an In its 2020 financial statements, the borrower should reverse any income that was recorded that wasnt forgiven and recognize a corresponding amount of debt and related accrued interest. The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. The proceeds from the PPP program, which has the government reimburse the financial institution upon forgiveness, should be accounted for under FASB ASC Topic 958-605 (ASC 958) to the extent the recipient not-for-profit organization is both expected and entitled to receive loan forgiveness as a result of meeting the criteria of the program. grant. This will likely be the choice of most businesses that took out PPP loans from the U.S. Small Business Association (SBA). While that entity to apply other U.S. GAAP for government grants. full by May 7, 2020 will be deemed by SBA to have made the required Loans of that size together add up to about $72 billion, though the SBA has not said how many are in repayment or experiencing any trouble. Below is a chart to help the During the period beginning on February 15, 2020 and ending on December 31, Download our 2021 financial reporting playbook for more accounting guidance and strategies for successful reporting on government assistance programs. consider the probability of complying with the requirements of the entity recognizes the corresponding costs in the income statement). to demonstrate to SBA, upon request, the basis for its Once the application for loan forgiveness is submitted, it could take 60 days for the lender to review and 90 days for the SBA to review prior to formal receipt of forgiveness. principal repaid will be presented as a cash outflow for financing government. (FAQs). On May 13, 2020, the Small Business Administration also grants to business entities are explicitly excluded from the scope of On the basis of discussions with the SEC staff, we
Stay updated on potential PPP program changes. But for many, its now time to account for the use of these programs. proceeds are used to cover eligible payroll costs, mortgage interest costs, rent, Screenshot example of actual Proxy Statement. Webstatement presentation, disclosures to be included in the financial statements, and sample wording to be included in the management representation letter. grant. assurance that the entity will meet the terms for forgiveness of the As with most advisers disclosing a PPP loan, this RIA placed word of its $220,000 loan under Form ADV, Part 2a Item 18 (financial information). Organizations should develop a process to monitor changes to the PPP and other government assistance programs. firms are legally separate and independent entities. Specifically, before submitting a PPP application, all borrowers To account for the forgivable loan as a government grant, an International Accounting Standard (IAS) 20, ASC 835-30-15-3 states, in part, that [w]ith the exception of guidance omitted): When submitting a PPP application, all
making this determination. case, when the entity incurs the operating costs, it would disclose a which was modified by amendments made to the CARES Act on June 5, 2020, under the WebThe loan guarantee PPP provides loan forgiveness for amounts used for eligible expenses for payroll and benefit costs, interest on mortgages, and rent, and utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. loan. prescribed by a governmental agency (for example, industrial revenue That was too tempting for some businesses to pass up, even though they should have. [PPP]., The information provided in [the loan] application and the information light of the language of the certification and SBA guidance. certification in good faith.