The Paycheck Protection Program (PPP) was seen as a lifeline for business when it was created back in March as state governments were shutting down their economies to prevent the spread of coronavirus. The program has certainly helped, but it has not performed as well as expected.
Now, those businesses that have received loans have another problem to confront: How to treat it on their books. Since PPP loans are forgivable, they could be considered a grant for accounting purposes. As the American Institute of CPAs (AICPAs) put it, “Although the legal form of the PPP loan is debt, some believe that the loan is, in substance, a government grant.”
AICPAs recently issued a recommendation saying the loans can be listed as a liability for the business, with the amount of the liability being reduced by the amount the loan is forgiven or paid off.
The problem is AICPAs’ recommendations are not binding. As Robert Freedman at the news website CFODive.com reports, the Federal Accounting Standards Board (FASB) governs accounting practices in the U.S. and it has not issued rules on how to account for the loans.
“(FASB) says it has been looking into creating guidance, but there is no timeline for when any standards might come out, and in the meantime it points to AICPA for ideas on how to proceed,” Freedman wrote this morning. The FASB does advise for-profit businesses to disclose how they’re treating the loan in the notes to your financial reports.
According to an analysis by Focus NJ, NJBIA’s research affiliate, more than 124,000 New Jersey businesses have been approved for PPP loans worth a total of $17.6 billion.