The AICPA recently released technical guidance for accounting for PPP loans by non-governmental entities. The guidance, which can be found at the link below provides not-for-profit entities two options for accounting for the loans.

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

Option 1: The PPP Loan may be accounted for as a financial liability (debt) in accordance with FASB ASC 470 Debt

i. This would mean that the proceeds from the loan would be recorded as a liability and interest would be accrued until either:
a. The loan is, in part or wholly, forgiven and the debtor has been “legally released”, or
b. The debtor pays off the loan to the creditor

ii. Loans that are forgiven and have received legal release would have the liability reduced by the amount forgiven and a record a gain on extinguishment.

Option 2: The PPP Loan may be accounted for as a conditional grant in accordance with FASB ASC 958-605 Not for Profit Entities – Revenue Recognition. This option would only be chosen if the NFP expects to meet the eligibility criteria and have some or all of its loan forgiven.

  1. The initial receipt would be accounted for as a refundable advance (liability)
  2. Contribution revenue would then be recognized once the conditions of the release have been substantially met or explicitly waived

Under option 2, the NFP could recognize revenue to the extent it has incurred qualifying expenses that it expects to be forgiven. With this option, there is a risk that revenue recognized may need to be reversed in the subsequent period if it is determined that the criteria for forgiveness has not been met or if the forgiveness is denied by the lender. If you do choose this option, please let us know in advance so we can discuss your ability to have us audit this information. In order for us to audit your estimated forgiveness at your fiscal year-end, we will need to obtain and review documentation that supports the amount of forgiveness your organization is recognizing as revenue. This would include but may not be limited to:

  1. Your detailed calculations of the amount anticipated to be forgiven, including documented explanations of how those expenses meet the criteria for forgiveness.
  2. Payroll records and salary/wage information for the current and prior year.
  3. Supporting documents for nonpayroll expenses claimed
  4. Records to support that expenses to be forgiven were not also claimed for reimbursement under other funding sources (i.e. “double-dipping”).

Option 1 is the more conservative accounting treatment and the one we anticipate most nonprofits will choose.

With either method that your organization chooses, you will want to make sure you have sufficient records to support the amount of forgiveness you intend to claim.

Nonprofits also should consider how the request for forgiveness will impact their other funding sources. It is not likely that other government grants would allow a nonprofit to claim reimbursement for expenses that are also being reimbursed under the PPP program. The Federal Office of Management and Budget issued guidance on June 18, 2020, specifically stating that payroll costs paid with PPP loans or any other Federal CARES Act programs must not also be charged to current federal awards as it would result in the Federal government paying for the same expenditures twice. Similarly, donor-restricted funding sources should not be released for funds that were reimbursed by PPP funds. Although we have not seen any clear guidance from state and local government funding sources regarding double-dipping and PPP loans, most funding sources are not willing to reimburse an organization for expenses that are already reimbursed by another source.

If you have any questions about these options, please let us know.