The 501 S(c)ene

The latest view on not-for-profit accounting issues

Update on nonprofit accounting for a PPP loan

On May 29, I wrote an article on this topic, which was before official guidance had come out from the FASB. You may think the accounting for PPP funding would be straight forward, but unfortunately, it is not. Here are some questions a nonprofit organization should be asking.

What options does a nonprofit organization have for deciding how to record the PPP funding?

Based on guidance from the AICPA, nonprofit organizations have two choices: (1) Account for the funding as a loan in accordance with ASC 470; or (2) Account for the funding as a conditional contribution in accordance with ASC 958-605.

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What if we choose to account for it as a loan?

It should be recorded as a loan and not recognized as income until the legal obligation is released, which will be when the SBA approves the forgiveness. Keep in mind that funding greater than $2M is required to go through SBA audit. The lender may take up to 60 days to approve forgiveness after the application is received, and the SBA has another 90 days to make their decision.

What is the “condition” if we account for it as a conditional contribution?

Is the “condition” the incurring of eligible expenses?  Or is the condition the lender/SBA forgiveness? At Henry+Horne, we believe that if the organization knows it has eligible expenses and expects eventual forgiveness, the condition would be the incurring of those expenses. We also believe that if the loan doesn’t have significant uncertainties with forgiveness, the lender’s approval of forgiveness would not be a condition, but instead an administrative requirement. Per ASC 958-605, administrative requirements are not considered to be conditions.

What should I consider in choosing one of these 2 options?

Since there most likely will be a long time period between incurring the eligible expenses and receiving SBA forgiveness approval, an important consideration is the matching of the expenses against the income within the same fiscal year. As a conditional contribution, the organization would be able to match the expenses to the income.

If I record the funding as a conditional contribution, what else do I need to consider?

A nonprofit organization needs to consider the FTE headcount requirement and the limitation on reduction in compensation as of the date of fiscal year-end in determining how much income can be recognized for the fiscal year, as these are both additional conditions to be met. In other words, you can’t forecast where you will be with these requirements in the future, when you apply for forgiveness. If those additional conditions are not met as of the fiscal year-end, the organization should be able to partially recognize income to the extent these conditions have been met.

For more information and resources on COVID-19, see our coronavirus page. Feel free to contact your Henry+Horne nonprofit adviser with any questions.

Subject to change as updates become available

Colette Kamps, CPA

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