PPP lender accounting issues addressed by new TQAs

By Ken Tysiac

Lender accounting issues related to the Paycheck Protection Program (PPP) are discussed in new Technical Questions and Answers (TQAs) issued Tuesday by the AICPA.

TQAs 2130.41 through 2130.44 provide nonauthoritative guidance in answers to the following lender accounting questions:

  • If a creditor restructures a loan due to COVID-19 to include a period of reduced payments, and the restructuring is neither a troubled debt restructuring (TDR) nor required to be accounted for as a new loan, how should a creditor recognize interest income on the restructured loan?
  • Should the lending institution account for an advance under this program as a loan or as a facilitation of a government grant?
  • Is the guarantee from the U.S. Small Business Administration (SBA) considered “embedded” as opposed to a “freestanding contract” and, thus, can it be considered in estimating credit losses on the loan?
  • What is the accounting for the fee received or receivable from the SBA for originating the loan and the potential clawback of the fee?

The TQAs are available on the AICPA website.

The PPP in brief

Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund forgivable loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

The loans are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans.

Congress designed the loans to support organizations facing economic hardships created by the coronavirus pandemic and assist them in continuing to pay employee salaries. PPP loan recipients can have their loans forgiven in full if the funds were used for eligible expenses and other criteria are met.

AICPA experts discuss the latest on the PPP and other small business aid programs during a weekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.

The AICPA’s SBA Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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