{ Nonprofit Accounting | COVID-19 funding }
THE PANDEMIC EFFECT Important COVID-19 funding leads to new challenges for not-for-profit organizations.
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OVID-19 funding and its related impact on not-for-profit organizations (NPOs) continues to challenge both the NPOs who receive the funding and the CPAs who advise their NPO clients. Challenges include navigating what funds to apply for; By Jason how to account for those funds Stephens, CPA once received; and not running afoul of federal, state and county requirements, particularly when funding is received from multiple sources.
Paycheck Protection Program (PPP) loans The most popular and prevalent of the funding under the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the Paycheck Protection Program. Administered by the Small Business Administration (SBA), businesses could apply for a low-interest loan to keep workers on their payroll. Loans could be used to fund payroll costs among other eligible expenses. If all employee retention criteria are met, along with eligibility of expenses, the SBA will forgive the loans. Some of these loans also included an Economic Injury Disaster Loan (EIDL) Advance of $10,000. Recent legislation allows for this advance to also be forgiven. The vast majority of NPOs expect for the entirety of these loans to be forgiven. If an NPO expects that the loan represents a grant that is expected to be forgiven, the two most likely models it can use are provided under FASB ASC 958-605 (Government Grant Model) or FASB ASC 470 (Debt Model). While the Debt Model involves recording the PPP loans as debt with extinguishment of the debt not being recognized until it has been legally
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released, the model most commonly preferred for NPOs is the Government Grant Model. Under this model, the timing of the recognition is dependent on whether contributions are conditional or unconditional. PPP loan funds are conditioned based upon their use to pay eligible expenses in a defined time frame. The initial recording involves the loan being recorded as a refundable advance liability on the statement of financial position. When PPP expenses have been incurred, contribution revenue would be recorded on the statement of activities. However, some may also interpret that the contribution revenue should not be recorded until the NPO submits the forgiveness application or even receives legal forgiveness, as those may be considered barriers to entitlement.
Employee Retention Tax Credit The Consolidated Appropriations Act signed into law on December 27, 2020, retroactively expanded the Employee Retention Tax Credit (ERTC). Businesses can now
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