A group of people are working on a financial success plan on a table.
A person is typing on a laptop computer with a graph on the screen.
April 2, 2021

Making Accounting Sense of SBA PPP Loan Borrowings

A CPA firm that has been a long-term client with Collemi Consulting was advising its clients that received funds under the Small Business Administration (SBA) Paycheck Protection Program (PPP) 

They quickly realized that there was a lack of explicit guidance about the accounting and disclosure for the funds received by the clients;or whether they should even be treated as loans or grants. We advised the CPA firm and offered overall guidance about the accounting treatment, including footnote disclosure in the financial statements, and how the CPA firm should draft the proper representation in the management representation letter.


PPP loans were a lifeline to many businesses, providing them with a cash infusion at a time when many companies had to close or restrict their operations under government edicts. The low-interest loans also came with a bonus — they have the potential of being forgiven under certain circumstances. But CPAs soon realized there was a flip side to the good news: in the absence of concrete guidance, the accounting for the loans was a nightmare.


  • It may be accounted for as a financial liability under ASC Topic 470, Debt; Subtopic 405-20 Liabilities—Extinguishment of Liabilities. Under this treatment, although the debtor is legally released from the obligation, interest will be accrued under FASB ASC Sub-Topic 835-30, Interest – Imputation of Interest. Further, a gain on extinguishment will be recorded on the income statement.
  • Under IAS 20, Accounting for Government Grants and Disclosures of Government Assistance, the loan proceeds may be accounted for as other income, or reduction of related expenses on the income statement — and on the balance sheet as a deferred income liability with no accrued interest if there is reasonable assurance that the forgiveness conditions will be met.
  • Under ASC Topic 958-605, Not-for-Profit Entities—Revenue Recognition, the loan proceeds may be accounted for as a contribution received or a grant on the income statement — and on the balance sheet as a refundable advance. Interest will not be accrued, provided loan conditions will be substantially met or explicitly waived.
  • Under ASC Topic 450-30, Contingencies—Gain Contingencies, the loan proceeds may be accounted for as a gain on the income statement — and on the balance sheet as a deferred income liability with no accrued interest, if all contingencies are met and the gain is realized or realizable.


With respect to nonprofit entities,

  • Under ASC Topic 958-605, Not-for-Profit Entities—Revenue Recognition, the loan proceeds may be accounted for as a contribution received or a grant in the income statement — and on the balance sheet as a refundable advance. Interest will not be accrued, provided loan conditions will be substantially met or explicitly waived.
  • Under ASC Topic 450-30, Contingencies—Gain Contingencies, the loan proceeds may be accounted for as a gain on the income statement — and on the balance sheet as a deferred income liability with no accrued interest, if all contingencies are met and the gain is realized or realizable.


We’ve also advised CPA firms that they will need to evaluate all of their clients’ facts and circumstances to ensure the appropriate accounting for any debt modification. For example, modifications to debt arrangements may include any of the following:

  • Reduction (including contingent reductions) of the stated interest rate for the remaining term of the debt
  • Extension of the maturity date, or dates, at a stated interest rate lower than the current market rate for new debt with similar risk
  • Reduction — including contingent reductions — of the face amount or maturity amount of the debt as stated in the debt arrangement or other agreement
  • Reduction, including contingent reductions, of accrued but unpaid interest


Collemi Consulting has examined both FASB and IASB guidance, and we’ve counseled CPAs about determining whether a modification to, or an exchange of a client’s debt arrangement should be accounted for as a troubled debt restructuring (TDR); and whether a nontroubled modification or an exchange of debt with the same creditor is accounted for as an extinguishment of the existing debt and issuance of new debt, or as a modification and continuation of the existing debt.


A TDR generally occurs when a borrower is experiencing financial difficulties and when a lender grants a concession to the borrower that it would not otherwise consider. However, a debt restructuring is not necessarily a TDR — even if the borrower is experiencing financial difficulties. For example, a TDR does not occur if either:

  • The lender reduces the effective interest rate on the debt primarily to reflect a decrease in market interest rates in general, or a decrease in the risk to maintain a relationship with a borrower that can readily obtain funds from other sources at the current market interest rate
  • The borrower issues, in exchange for its debt, new marketable debt having an effective interest rate based on its market price that is at or near the current market interest rates of debt with similar maturity dates and stated interest rates issued by nontroubled borrowers.


At this point in time, our understanding is that a portion of the borrower’s PPP loan (and related interest) will be forgiven — equal to eligible expenses including payroll costs, interest payments on mortgages, and rent and utility payments — made during the loan’s qualifying period, provided that the borrower met all of the loan’s employee-retention criteria. According to the SBA, a borrower, in order to receive forgiveness, must submit an application to the creditor. The creditor will then issue a recommendation to the SBA within 60 days on whether the borrower is entitled to full, partial, or no forgiveness of the PPP loan; and will request payment from the SBA equivalent to the amount for which it recommends forgiveness, including accrued interest.


The SBA then has 90 days to review the request for payment from the creditor. If the SBA agrees with the creditor’s recommendation, the SBA will pay the creditor for the amount forgiven, plus any interest that accrues through the date of payment. The borrower must then remit any amount not forgiven by the SBA to the creditor in accordance with the terms of the PPP loan. If the SBA subsequently determines that the borrower was ineligible for the PPP loan, the borrower must immediately repay the loan to the creditor. 

Learn More

It’s Time For Year-End Audits

December 20, 2024
Are you prepared?
A woman's hands holding a microphone

Shake It Off

December 9, 2024
Conquer your fear of public speaking and present like a pro
Man with hand by his ear straining to listen.

Hear, Hear!

December 4, 2024
Boost your business by becoming adept at active listening.
Open calendar book laying on desk next to open laptop with time on screen

There’s Only One Year Left to Implement the PCAOB’s New Quality Control Standards

November 18, 2024
ADDITIONAL GUIDANCE: Since this blog was first published, the PCAOB released two new guidance documents. The Nov. 26 updates can be found here: An additional overview of the requirements of QC 1000 and staff guidance for firms about how to comply with the standard. This document provides additional staff insights on scope and applicability, responding to engagement deficiencies, and documentation for AS 2901, Responding to Engagement Deficiencies After Issuance of the Auditor’s Report. The Public Company Accounting Oversight Board (PCAOB) recently announced a new set of quality control standards designed around a risk-based approach. And there’s only one year to design and implement them. The PCAOB’s new QC 1000 standard is more than two decades in the making, as it replaces the quality control standards it adopted on an interim basis back in 2003 from the American Institute of Certified Public Accountants (AICPA). The new standard is intended to make independent registered public accounting firms significantly improve their quality control (QC) systems. QC 1000 applies to all PCAOB-registered member firms, with more extensive requirements for those that audit more than 100 issuer clients annually. It has been approved by the U.S. Securities and Exchange Commission (SEC) and goes into effect on December 15, 2025. The new requirements and the work required to implement them will be extensive, and the larger public accounting firms require external oversight of the QC system. Therefore, it is strongly recommended that firms do not put it off until the last minute. At its core, the new standard is intended to enable firms to identify their specific risks and design a quality control system including policies and procedures to guard against those risks. The overall goal is to establish what the PCAOB calls “a continuous feedback-loop for improvement.” In this, the new standard differs from the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Quality Management No. 1 (ISQM 1) and the AICPA Statement on Quality Management Standards No. 1 (SQMS 1). An extensive but not comprehensive comparison document of the three standards may be found here, but is presented only as a reference tool. New requirements QC 1000 has requirements that do not appear in other QC standards. They can be more prescriptive or more specifically tailored to the U.S. legal and regulatory environment. There are 10 main areas in which the QC 1000 standards go beyond other, existing standards. These are: Evaluation and Reporting: QC systems must be evaluated annually and reported to the PCAOB. They must be certified by specific individuals with responsibility and accountability for the firm’s QC system. Governance and Leadership: Firms must create and maintain clear lines of responsibility and supervision. Larger firms must have outside oversight and a confidential complaint system. Ethics and Independence: Quality objectives must be tailored to the U.S. regulatory environment. Larger firms must implement an automated system for identifying securities investments that could impair independence. Monitoring and Remediation: QC 1000 divides monitoring into engagement and QC system levels. Engagement and QC deficiencies are defined, including requirements for their determination. Larger firms must (and smaller ones should) monitor in-process engagements. Quality Objectives: The firm’s personnel must comply with its policies and procedures Information and Communication: Quality objectives for communication with external parties are established at the firm and engagement level. Communication of the firm’s QC system’s policies and procedures must be communicated in writing. Resources: The firm’s personnel must adhere to standards of conduct. Policies and procedures must address both enumerated and circumstance-specific competencies. Mandatory training, licensure and technological resource requirements are established Risk Assessment Processes: Quality risks must be identified and assessed annually. Roles and Responsibilities: A single person must be assigned responsibility for each role and responsibility in the QC 1000 standard. Documentation: With respect to the QC system’s operation, documentation that allows an experienced auditor to evaluate the operation of quality responses must be provided. Documentation must be retained for at least seven years. That’s not an exhaustive list, but it does give an indication of how much work will be involved. And it’s happening at the same time as the AICPA extensive new Statements on Quality Management Standards (SQMS) requirements are coming into effect . Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.
More Posts
Share by: