If your business got a sizable forgivable government loan to stay afloat during the pandemic, you better disclose it in your financial statement footnotes, U.S. accounting rulemakers said Wednesday.
“Those companies who are receiving material amounts of government assistance should be disclosing the principles that they’re using for accounting for those material amounts of government assistance,” Financial Accounting Standards Board acting technical director Shayne Kuhaneck said.
FASB, the American Institute of CPAs, and audit firms have been tackling questions about how to account for the billions of dollars of forgivable loans the government is doling out to U.S. companies via the Paycheck Protection Program. U.S. generally accepted accounting principles (GAAP) contains no guidance on how to recognize and measure government assistance, so companies have to wade through several different accounting rules to see which one best fits.
Regardless of the accounting outcome, however, FASB’s ASC 235, which governs notes to financial statements, says companies must describe significant accounting policies they use, Kuhaneck said.
Specifically, ASC 235-10-50-3 calls on companies to describe the accounting principles they follow and the methods of applying those principles if they materially affect the financial position, cash flows, or results of their operations, he said.
These details can direct investors and analysts to the spot in the financial statement where the company recognizes the government assistance, FASB Chairman Russell Golden said.
Paycheck Protection Program loans must be used to keep employees or make mortgage, lease, or utility payments. The third coronavirus relief package (Public Law 116-136) provided $349 billion in funding for these forgivable loans. Congress on April 24 approved an additional $310 billion.
There’s no rulebook for accounting for the unprecedented relief. But investors and analysts also are eager for clarity so they can understand how potentially big grants affect the bottom lines of U.S. companies.