However, forgiveness is contingent on application. Contrary to prior guidance, ASU 2018-08 states that a probability assessment about whether the recipient is likely to meet the stipulation is not a factor when determining whether a barrier exists. Given the complexity of the calculation and multiple factors in addition to eligible costs, would the process of calculating and applying for the potential forgiveness be a specified event that indicates a measurable performance barrier?
There is likely to be great diversity in practice with accounting for PPP bad credit loans in NE loans by nonprofit organizations
On , the U.S. Small Business Administration (SBA) posted an interim final rule to adopt additional criteria for loan forgiveness and set forth the loan forgiveness process. The interim final rule explicitly states that a borrower shall not receive forgiveness without submitting all required documentation to the lender. The interim final rule states that a lender must issue a decision to SBA on loan forgiveness within 60 days of receiving the completed loan forgiveness application, at which time the lending institution requests payment from the SBA. The SBA has 90 days to remit payment to the lending institution. Does the lender’s approval of the forgiveness application represent a measurable performance barrier for forgiveness? Does SBA’s approval and funding of the loan, which likely clears the nonprofit from any liability associated with the PPP Funding, represent a measurable performance barrier?
So the question remains – When is it appropriate for a nonprofit organization to recognize revenue from a PPP Loan? In contrast to the CPEA report, we do not think the terms of these agreements are consistent with cost reimbursement grants we regularly see in practice where restrictions are placed on the conduct of an activity by the OMB or other regulatory agencies. Additionally, the existence of other factors, such as employee count and rate comparisons, add elements beyond the mere incurrence of costs.
Submission of the application by a nonprofit organization to the lender may be the most appropriate measurable performance barrier to consider. It is a requirement for forgiveness as indicated by the loan agreements, the application itself, and the SBA interim rule from . It also coincides with the nonprofit organization’s quantification of eligible forgiveness, a calculation that is more complex than simply determining eligible costs. Submission of a report is generally considered an administrative stipulation that is not a performance barrier if it does not affect the extent to which the recipient is entitled to the contribution. However, in this situation, the application process, and calculation that coincides, has a significant effect on the nonprofit organization’s right to loan forgiveness. As a result, we think the submission of the application to the lender by the nonprofit organization is the point when the conditions are substantially met, and the PPP liability is recognized as revenue.
Approval of the application by the lender and SBA, and ultimate funding of the obligation by SBA, may represent performance barriers; however, the nonprofit organization is not an active party to those processes and, therefore, it may not be considered a measurable performance barrier by the nonprofit
The forgiveness process is still in its early stages and is still evolving. Adding to the complexity of the problem is that with the extension of the covered period from 8 weeks to 24 weeks, it is likely that the PPP covered period will span multiple reporting periods for certain fiscal-year nonprofits. We recognize that each situation may have unique factors to consider which creates disparity with the AICPA’s CPEA report on how a nonprofit organization accounts for PPP Loans. We recommend you reach out to your accounting professional to do so.