With the beginning of the CARES Act, our firm established a library of aids, mostly concentrated on the Paycheck Protection Program (PPP), to help beings, including nonprofit organizations, steer the post-pandemic setting. However, wanting the sea of resources is authoritarian regarding how nonprofit organizations should account for the PPP accounts they earn. This is due to the unusual nature of the agreement. The details are encompassed on Payroll Protection Program page of the SBA website.
A summarized part is presented as follows:
This allocation exemplifies a loan, with the likeliness to be let off based on the payment or incurrence of competent costs during a given “covered period,” with otherwise capable costs considered to be not eligible if workers earned in any pay period during 2019 a previously quoted amount on a yearly basis considered to be in abundance of certain thresholds, subject to a probable reduction of amounts pardoned if employee levels are not retained related to certain reference points in time, subject to more deductions of amounts forgiven if income levels are not maintained compared to certain reference points in time, however, if you employ, or endeavor to rehire, employees before a given time limit, your reduction in leniency is not a rebate after all.
With the intricacy of commerce, the question of how to adequately account for the funds is guaranteed.
Luckily, there are limited tools for us to contemplate in inferring the accounting procedure by nonprofit organizations. In what now seems to be an extremely timely allotment, in June 2018, FASB issued ASU 2018-08 to elucidate the breadth of accounting guidance for donations received. This news relating to accounting standards is beneficial for 2019 calendar reporting years and furnishes the rationale for assuming proper accounting.
Extra advice came from the AICPA on May 13, 2020, in an outstanding report from its Center from Plain English Accounting (CPEA). The CPEA Report references FASB ASC 958-605 and remarks that conditions should be majorly met before the receipt of properties is comprehended as a contribution. Some prizes are conditioned on organizations’ incurring certain qualifying expenditures (or costs). Those pledges become unconditional and are recognized to the importance that the expenses are incurred.
So the question remains – When is it reasonable for a nonprofit organization to comprehend revenue from a PPP Loan? In contrast to the CPEA report, we do not think the terms of these pacts are compatible with cost compensation grants we regularly see in the exercise where constraints are placed on the conduct of an action by the OMB or other regulatory mechanisms. Also, the validity of other factors, such as employee tally and rate comparisons, expands elements beyond the sheer incurrence of costs.
The forgiveness process is yet in its initial stages and is still unfolding. There is a potential to be a great assortment in practice with accounting for PPP loans by nonprofit organizations. Piling on to the complexity of the difficulty is that with the expansion of the covered period from 8 weeks to 24 weeks, it is probable that the PPP covered period will stretch several reporting periods for specific fiscal-year nonprofits. We advise you reach out to your accounting professional to do the same.