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With the passing of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) comes additional challenges for many companies from an accounting and reporting perspective. The act included many provisions, such as grants, employer retention credits and the infamous Small Business Administration’s (SBA) Paycheck Protection Program (PPP) that will have a significant impact on the financial reporting of companies applying U.S. Generally Accepted Accounting Principles (GAAP). To assist your company in navigating the accounting complexities, Doeren Mayhew shares input on where guidance related to these provisions stands today.
Many businesses are taking advantage of government assistance to survive the economic impact of the COVID-19 pandemic. But how should a company account for these?
Due to the employee retention credits and grants enacted by the CARES Act not being accounted for under ASC 740, there is still much uncertainty for how a business should account for these government assistance elements under GAAP. Without formal guidance, there is not a correct answer and will likely be handled differently on a case-by-case basis by analyzing the nature of the assistance and the conditions on which it is predicted.
Unless further guidance is provided, we recommend leveraging the decision-making framework laid out by GAAP by looking for similar transactions and applying that guidance. If this transaction is truly unique, a company may request guidance from an outside source. Companies can also look to both IAS 20 and ASC 958-605 for guidance, as they differ in accounting for government grants. Of the two, IAS 20 contains “probable” verbiage and doesn’t define “reasonable assurance,” ASC 958-605 does not permit probability and income is only recognized when conditions have been substantially met.
Within the CARES Act are loan packages, which specifically includes a new provision that caps the interest rate for certain loans to businesses through the SBA’s PPP. Eligible borrowers have the opportunity to receive below-market rate loans to sustain payroll and pay other debts.
Currently, there is no guidance under U.S. GAAP specifically addressing the accounting for a forgivable loan from a government entity. Until expected guidance is released, PPP loans should be accounted for as a debt instrument keeping in mind the below:
Doeren Mayhew will continue to monitor accounting guidance related to provisions of the CARES Act and will update you with any anticipated forthcoming regulatory clarifications. In the meantime, should you have questions on how the accounting of these new stimulus provisions should be handled for your entity, contact Doeren Mayhew’s CPAs.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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