In June 2020, AICPA and FASB worked together to answer stakeholder’s questions regarding how PPP should be accounted for in accordance with GAAP. The official Technical Q&A (TQA) can be found in the link below:

https://www.aicpa.org/content/dam/aicpa/interestareas/frc/downloadabledocuments/tqa-sections/tqa-section-3200-18.pdf

The TQA explains that a nongovernmental entity (i.e. businesses and not-for-profit entities) should account for PPP loan in accordance with Topic 470 as follows:

  • Initially record the cash flow from the PP loan as a financial liability and would accrue interest in accordance with the interest method under ASC 835-30
  • Not impute additional interest at market rate
  • Continue to record the PPP loan as a liability until:
    • Loan is partially or wholly forgiven and the debtor has been legally released
    • Loan is paid off
  • Reduce the amount of liability forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and entity is legally released.

The TQA also provides additional clarification that other guidance may also be applied for the treatment for these PPP loan, including the following:

“If a nongovernmental entity that is not a not-for-profit entity (NFP) (that is, it is a business entity) expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents, in substance, a grant that is expected to be forgiven, it may analogize to IAS 20 to account for the PPP loan [as government assistance].

If a nongovernmental entity that is not an NFP (that is, it is a business entity) expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents, in substance, a grant that is expected to be forgiven, the AICPA staff observes it can also analogize to the following guidance: (1) FASB ASC 958-605 or (2) FASB ASC 450-30.

If an NFP chooses not to follow FASB ASC 470 and it expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents, in substance, a grant that is expected to be forgiven, it should account for such PPP loans in accordance with FASB ASC 958-605 as a conditional contribution.”

It is our view that the use of IAS 20, FASB ASC 958-605, or FASB ASC 450-30 would be less common in the small to medium size businesses industry.

For any addition questions on this topic, please reach out to your Larson advisor.