2021 Association of International Certified Professional Accountants All

© 2021 Association of International Certified Professional Accountants. All rights reserved. Special Edition March 11, 2021 #AICPATown. Hall

2 Presenters Erik Asgeirsson Robert Durak President & CEO CPA. com AICPA Subsidiary CPA Director, Private Company Financial Reporting AICPA @erikasgeirsson Kari Hipsak Lisa Simpson CPA, CGMA Senior Manager AICPA CPA, CGMA VP, Firm Services AICPA @karihipsak @lisatsimpsoncpa #AICPATown. Hall

3 Agenda 1. Opening 2. Key PPP Developments • Ongoing developments around PPP deadlines • Status on Lender Processing 3. Accounting for PPP 4. Closing Remarks #AICPATown. Hall

American Rescue Plan Act Ready for Biden’s Signature #AICPATown. Hall 4

5 March 31 Deadline Making Headlines #AICPATown. Hall

Congressional Deal on PPP Extension Now Advancing House lawmakers strike bipartisan deal to extend small business loan program

7 Understand Error Code Phases There are multiple phases of SBA validation, compliance checks and decision logic. Three types of error codes can be reported during these different phases. Understanding when an error code is occurring is the first key to understanding what action can be taken to resolve. #AICPATown. Hall

8 Using 2020 Schedule C Draft Returns March 3, 2021 Biden Administration PPP Schedule C Changes: “If you are using 2020 and have not yet filed a 2020 return, fill it out and compute the value” January 19, 2021 SBA Guidance on using draft tax returns for Draw Two: “If the entity has not yet filed a tax return for 2020, the Applicant must fill out the return forms, compute the relevant gross receipts value (see Question 5), and sign and date the return, attesting that the values that enter into the gross receipts computation are the same values that will be filed on the entity’s tax return. ” Borrower Certification on Information Provided: “I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law including fines and imprisonment. ” #AICPATown. Hall

Summary of 2021 PPP Approved Lending as of 3/7/21 9 Top PPP Lenders of 2021 PPP Biz 2 Credit Financial Subsidiary Funding: $284 B allocated, $120 B still available * Overall average loan size is: $68 K #AICPATown. Hall

Accounting for PPP #AICPATown. Hall

11 Center for Plain English Accounting (CPEA) PPP Loans Accounting under the Debt Model #AICPATown. Hall

12 Example Entity Type: Commercial Loan amount: $100, 000 Interest Rate: 1% (Monthly interest of $83, (rounded) Loan Received: June 1, 2020 Year-End: December 31, 2020 Forgiven Date: February 1, 2021 (SBA notification date) #AICPATown. Hall

13 Journal Entries – Debt Model Loan is received Account Debit Credit $ 100, 000 Cash $ 100, 000 PPP loan Interest accrued each month Account Debit $ Interest Expense Credit 83 $ Accrued Interest #AICPATown. Hall 83

14 Journal Entries – Debt Model Loan is forgiven Account Debit PPP Loan $ 100, 000 Accrued Interest $ Credit 666 $ 100, 666 Forgiveness of PPP loan In our case, the loan was not formally forgiven until February 1, 2021, so the entity would need to record an additional month of accrued interest for January 2021 of $83. Combined with the previously recorded $583 for seven months (June through December 2020) , that results in $666 of total interest forgiven. #AICPATown. Hall

15 ? Under the Debt model (FASB ASC 470) can you recognize forgiveness in 12/31 statements if forgiveness is obtained before the audit report is issued? #AICPATown. Hall

16 Subsequent Events • Forgiveness would be a Type II subsequent event • Debt model requires legal release in order for derecognition – LEGAL RELEASE IS A DISCRETE EVENT WHICH DRIVES DERECOGNITION • Application forgiveness is not legal release, and not indicative of an event that took place prior to issuance of statements – Application is not the trigger for derecognition, legal release is • Likely mismatch of expenses and forgiveness between periods – Matching principle is not mandatory in U. S. GAAP #AICPATown. Hall

17 PPP Loans & FASB ASC 470: Legal Release • What does it mean to be “legally released? ” – Debt cancellation notices – Direct confirmation with lenders – Release of collateral (N/A to PPP) • Wording provided by lenders has been varied with ambiguous statements – May require inquiry with legal counsel of lender and recipient #AICPATown. Hall

18 Debt Model – Balance Sheet Presentation • No authoritative guidance, CPEA’s position is that: • Classification under FASB ASC 470 is dependent on facts and circumstances • If entity intends to repay the loan – Classify in accordance with contractual payment terms of the debt – Like any other debt (current vs. long-term) • If entity intends to apply forgiveness, must make a policy election – Classify the entire balance based on contractual terms (FASB ASC 470) – Classify portion expected to be forgiven as current debt if application forgiveness expected to be filed in current operating cycle or has been filed – Any amounts not expected to be forgiven classified based on contractual provisions & ASC 470 guidance #AICPATown. Hall

19 Debt Model – Income Statement Presentation • No authoritative guidance on classification of forgiveness of PPP loans on the P&L – Can be netted on same lines as associated expenses, with disclosure of amounts in notes – Can be included as a separate line on the P&L as other income – CPEA preference is to record as a gain on extinguishment to be most consistent with other U. S. GAAP #AICPATown. Hall

20 Debt Model – Cash Flow Statement • Initial proceeds are cash flows from financing activities • Forgiveness of the loan is a noncash financing activity – In order for the cash flow statement to balance, when forgiveness is recognized, the noncash gain is deducted from net income, similar to how depreciation is adjusted for in the cash flow statement #AICPATown. Hall

21 Disclosures – Debt Model • No specific disclosure requirements for PPP loans that would differ from any other debt instrument • Disclose general information about the debt agreement: the amount borrowed, interest rate, repayment provisions, maturity date, and the amount outstanding at year-end • Included in the disclosure which outlines maturities of debts for the five years after the balance sheet date in accordance with the contractual provisions of the agreement when the entity intends to repay the loan • When the entity intends for the loan to be forgiven, amounts which they have classified under the policy election to treat as they would any other long-term debt (including a potential current portion of long-term debt) also should be included within that schedule See PDF of illustrative disclosure at aicpa. org/sba #AICPATown. Hall

22 Center for Plain English Accounting (CPEA) Membership includes: • Timely written responses to technical inquiries • Monthly A&A reports- in plain English • 24 hours of CPE via webcast • Alerts summarizing new accounting guidance • Library of over 400 past reports Learn more at: www. aicpa. org/cpea@aicpa. org #AICPATown. Hall

23 Semi Weekly Live Service Updates Hear from CPA. com and Biz 2 Credit leadership as we explain service and experience updates at the CPA Business Funding Portal Tuesdays and Thursdays 10: 00 -11: 00 am EST CPALoan. Portal. com Click Here to Attend ü CPA Business Funding Portal feature updates and new fixes. ü SBA communications updates and clarifications on error messages. ü Application processing timeline updates. ü Best practices for getting the answers your clients need. #AICPATown. Hall

24 Recent AICPA Town Hall Series • March 4 th AICPA Town Hall • ERC update, review of latest IFR, legislative and lender update with Barry Melancon. • February 26 th Special Edition Recording • Biden PPP announced changes, SBA & Lender processing update, tax news. • February 18 th AICPA Town Hall • Legislative & New Administration update, SBA and Lender processing update, recommendations. • February 4 AICPA Town Hall • Legislative Update, FTE considerations, Hot Tax Topics. • January 28 AICPA Town Hall • Lender update and discussion with ABA; New guidance review; Firm Strategies with Carl Peterson and Dixie Mc. Curley. Note: Replays can also be found at AICPA TV - select the Town Hall Series link. #AICPATown. Hall

AICPA PCPS-developed PPP Program resources Calculators Client Education CPA Resources AICPA. org/SBA Other Tools • Forgiveness platform • Video walkthrough • Patience blogs • CPA service matrix CPAloanportal. com • Loan amounts • Overviews of • Sample AUP • Forgiveness filing • Loan forgiveness engagement Summary outline and FAQs available. letters, decision aid (incl. simple version) Check • Funding option procedures those two first to see if yourreports question is addressed. • Searchable index of • FTEs and safe overviews and calculators • Independence Loan amount are updated. & IFRs and FAQs Resourcescomparisons are dated so you can see when the last update was made. harbors ethics • Fillable forgiveness www. cpaloanportal. com will reflect current information quickly as well. • Accounting applications 25 #AICPATown. Hall 25

CPA. com/PPPresources #AICPATown. Hall 26

27 Upcoming learning opportunities Financial Advice in the Age of COVID Join Dr. Carolyn Mc. Clanahan for the latest on how COVID has affected financial planning projections, emergency planning, insurance planning, estate planning, and the delivery of financial planning services. She will also provide an update on the status of our health care system and upcoming health coverage policies that will affect your clients. All About the Paycheck Protection Program (PPP) The amount of guidance issued since the inception of the Paycheck Protection Program (PPP) in March 2020 has been substantial. Join PPP experts to review key PPP provisions and available AICPA resources to help in understanding this program. March 16 th 1 -2: 45 pm ET CPE: 1. 5 March 17 th 1 -3 pm ET CPE: 2 The American Rescue Plan Act of 2021 is a $1. 9 trillion economic stimulus package allocating money to a wide variety of programs. The legislation includes many tax provisions. Join this webcast for a detailed analysis of these tax and business provisions, and for practical planning and compliance tips for real-world applicability. The session will also provide a very brief overview of other included provisions to give attendees a holistic digest of the Act. Navigating unchartered waters together #AICPATown. Hall March 19 th 1 -2 pm ET CPE: 1

Wrap-up & Next Steps 28 AICPA Town Hall Series • Town Hall scheduled for March 18 th at 3 pm ET – AICPA Members who have attended a Town Hall are auto registered (unless opt-out) – New registrations: – www. aicpastore. com/townhallseries • Stay tuned via Linked. In and Twitter for the latest info #AICPATown. Hall