Nonprofit Accounting Considerations for Stimulus Relief Dollars

  • Accounting and Financial Statement Guidance
  • 4/28/2020

From accounting considerations to debt covenant implications, here are a few items nonprofit organizations should consider regarding stimulus relief funds.

Key insights

  • Understand accounting considerations for stimulus relief dollars specific to nonprofit organizations
  • Be aware of potential single audit and debt covenant implications posed by this funding

    CLA can help you navigate accounting issues posed by the receipt of stimulus funds.

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    Our recent article, “Accounting and Financial Reporting Considerations for Stimulus Relief Dollars,” discussed broad accounting considerations for COVID-19 relief funds. While much of that guidance can be applied across various organizations, let’s review a few industry-specific considerations for nonprofit organizations.


    Loan and grant programs

    Low-interest and Paycheck Protection Program (PPP) loans are common forms of stimulus funds, and they have the potential to help many nonprofit organizations. Initially, these funds would be recorded as a liability and you would only recognize income when the lender provides formal approval of loan forgiveness, pursuant to the accounting guidance for debt forgiveness.

    As an alternative, nonprofits could evaluate the forgivable loans under ASC 958-605. The loans include both a barrier (a minimum portion of the funds must be used for payroll and maintenance of full-time equivalents) and a right of return (if they are not used for qualifying expenses, they need to repaid). Under ASC 958-605, these loans would be considered conditional, which means you would report the loan as a liability until the conditions have been met — i.e., until the lender approves the application for forgiveness. At that time, your loan will be reduced and recognized as a contribution. Due to the timing of when the forgiveness will be approved, many nonprofit organizations with fiscal years ending on June 30 will likely still show this liability on their balance sheet at this fiscal year-end.

    If your nonprofit receives any grants for COVID-19 relief, you would also evaluate them under ASC 958-605 as noted above. Consider whether the grant contains restrictions on its use that would require you to include the grant in “net assets with donor restrictions” until the restrictions are satisfied.

    As discussed in a previous article, determine whether to report this income as an operating or non-operating expense by evaluating it based on your organization’s policies.

    Single audit and debt covenant considerations

    For single audits, there are currently more questions concerning the treatment of COVID-19 relief funds than answers. For example, will PPP loans and other Coronavirus Aid, Relief and Economic Security (CARES) Act funding be considered federal financial assistance? If so, the funds would fall within the scope of a single audit.

    For those organizations that receive other forms of federal financial assistance, additional questions have been posed regarding changes in allowable cost, compliance requirements, and the effect of PPP loans when there is other funding. The AICPA Governmental Audit Quality Center has recently posed those and other questions to the Office of Management and Budget (OMB). We will continue to monitor this situation and will share additional OMB guidance when it is released. Of course, it will be important to be aware of any implications such guidance could pose for fiscal year 2020 audits.

    Finally, organizations with underlying debt covenants should discuss with their lender how these specific COVID-19 relief funds or unexpected costs on their financial statements should be treated in their covenant calculations.

    How we can help

    There is still much to learn in the ever-evolving COVID-19 situation. CLA is here to assist you as you navigate through any accounting and audit issues posed by the receipt of stimulus funds. For more information, please reach out.

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