On June 10, 2020, the AICPA issued accounting guidance for Paycheck Protection Program (PPP) loans. The guidance in Technical Question and Answer (TQA) 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program includes multiple accounting options, which vary by entity type. Under the guidance, nongovernmental entities other than not-for-profit (NFP) entities may account for PPP loans in accordance with FASB ASC 470, Debt, or, if the entities expect to meet the PPP’s eligibility criteria and conclude that the PPP loans represent, in substance, grants that are expected to be forgiven, they may, by way of analogy, account for the loans under International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. The SEC Staff has indicated that they would not object to SEC registrants utilizing either of these accounting models to account for PPP loans, provided certain conditions are met. The TQA further indicates that if nongovernmental entities other than NFPs expect to meet the PPP’s eligibility criteria and conclude that the PPP loans represent, in substance, grants that are expected to be forgiven, they could also analogize to: (1) FASB ASC 958-605 (i.e. account for the loans as conditional contributions) or (2) FASB ASC 450-30, Gain Contingencies. Under the TQA’s guidance, NFP entities may account for PPP loans in accordance with FASB ASC 470, Debt, or, if the NFP entities expect to meet the PPP’s eligibility criteria and conclude that the PPP loans represent, in substance, grants that are expected to be forgiven, they may account for them in accordance with FASB ASC 958-605. If material, all nongovernmental entities should disclose their PPP loan accounting policies and the related financial statement impacts.

The accounting for PPP loans under the various models discussed above are summarized below.

ASC 470

• Record the loan as a liability
• Record interest at the stated loan rate (i.e., even if the stated rate is below the market rate)
• Continue to record the loan as a liability until the entity is legally released or the loan is repaid
• If legally released, the entity would record the amount forgiven as a gain on extinguishment

IAS 20

• Record the loan as a deferred income liability
• Once it is “reasonably assured” (similar to “probable” in U.S. GAAP) that the conditions for forgiveness will be met, the entity would systematically reduce the liability with an offset to earnings as the related costs are incurred
• The offset to earnings can either be presented as:
  a credit in the income statement:
  in its own financial statement line item, or
  in a general financial statement line item such as “other income,” or
  a reduction in the related expenses

ASC 958-605

• Record the loan as a refundable advance
• Once the forgiveness conditions are substantially met or explicitly waived, the entity would reduce the refundable advance and record a contribution for the amount forgiven

ASC 450-30

• Record the loan as a liability
• When all contingencies related to forgiveness have been met and the amount forgiven becomes realized or realizable, the entity would reduce the liability with a corresponding offset to earnings

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.