AICPA Issues Accounting Guidance for PPP LendersTechnical Questions and Answers (TQA) under Section 2130

7/2/2020 - By Bill Massey, CPA

The AICPA and its Depository Institutions Expert Panel (DIEP) have released several Technical Questions and Answers (TQA) under Section 2130, Receivables to help lenders appropriately account for the loans they distribute under the Paycheck Protection Program (PPP).

PPP lenders have had many questions about how to account for these types of loans and report on their arrangements. These TQAs provide answers to technical accounting questions that PPP lenders have been asking related to appropriate financial reporting of PPP program loans.

The TQAs issued related to PPP Loans and overview of each are summarized below:

Section TQA 2130.42 Classification of Advances Under the Paycheck Protection Program

This TAQ addresses whether a lending institution should account for an advance under this program as a loan or as a facilitation of a government grant?

The TAQ concludes the instrument is legally a loan with a stated principal, interest, and maturity date. The institution is expected to collect amounts due from either the borrower or the Small Business Administration (SBA) as guarantor and the institution should account for this instrument as a loan.

Section TQA 2130.43 Consideration of the SBA Guarantee Under the Paycheck Protection Program

This TAQ addresses whether the guarantee from the SBA is considered “embedded” as opposed to a “freestanding contract” and, thus, can it be considered in estimating credit losses on the loan?

The TAQ concludes the guarantee should be considered “embedded” and therefore would be considered in estimating credit losses on the loan.

Section TQA 2130.44 Accounting for the Loan Origination Fee Received From the SBA

This TAQ addresses the accounting for the fee received or receivable from the SBA for the originating the loan and the potential clawback of the fee.

The TAQ concludes that upon funding of the loan, the fee should be accounted for as a nonrefundable loan origination fee and it should be offset against loan origination costs and deferred in accordance with FASB ASC 310-20-25-2 and amortized over the life of the loan (or estimated life if prepayments are probable and the timing and amount of prepayments can be reasonably estimated and the entity qualifies and elects to apply the guidance in paragraphs 26–32 of FASB ASC 310-20-35) as an adjustment to yield in accordance with FASB ASC 310-20-35-2.

The TAQ also addressed the potential clawback of the fee from the SBA. The AICPA Staff concluded the clawback provisions would not cause the fee to be considered refundable and, as a result, a lender should consider the guidance in FASB ASC 450, Contingencies related to fees that may be subject to clawback or not received. Therefore a lender should establish a loss contingency when it is probable that events or conditions precedent to a loss have occurred, and the resulting loss is estimated.

The AICPA also issued TQA 2130.41 Determination of the Effective Interest Rate that addresses how creditors that restructured 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.

Questions?

If you have questions regarding the TQAs discussed above, please contact us at thebankadvisors@saltmarshcpa.com or contact a member of our team.

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