April 2, 2021

Making Accounting Sense of SBA PPP Loan Borrowings

A CPA firm that has been a long-term client with Collemi Consulting was advising its clients that received funds under the Small Business Administration (SBA) Paycheck Protection Program (PPP) 

They quickly realized that there was a lack of explicit guidance about the accounting and disclosure for the funds received by the clients;or whether they should even be treated as loans or grants. We advised the CPA firm and offered overall guidance about the accounting treatment, including footnote disclosure in the financial statements, and how the CPA firm should draft the proper representation in the management representation letter.


PPP loans were a lifeline to many businesses, providing them with a cash infusion at a time when many companies had to close or restrict their operations under government edicts. The low-interest loans also came with a bonus — they have the potential of being forgiven under certain circumstances. But CPAs soon realized there was a flip side to the good news: in the absence of concrete guidance, the accounting for the loans was a nightmare.


  • It may be accounted for as a financial liability under ASC Topic 470, Debt; Subtopic 405-20 Liabilities—Extinguishment of Liabilities. Under this treatment, although the debtor is legally released from the obligation, interest will be accrued under FASB ASC Sub-Topic 835-30, Interest – Imputation of Interest. Further, a gain on extinguishment will be recorded on the income statement.
  • Under IAS 20, Accounting for Government Grants and Disclosures of Government Assistance, the loan proceeds may be accounted for as other income, or reduction of related expenses on the income statement — and on the balance sheet as a deferred income liability with no accrued interest if there is reasonable assurance that the forgiveness conditions will be met.
  • Under ASC Topic 958-605, Not-for-Profit Entities—Revenue Recognition, the loan proceeds may be accounted for as a contribution received or a grant on the income statement — and on the balance sheet as a refundable advance. Interest will not be accrued, provided loan conditions will be substantially met or explicitly waived.
  • Under ASC Topic 450-30, Contingencies—Gain Contingencies, the loan proceeds may be accounted for as a gain on the income statement — and on the balance sheet as a deferred income liability with no accrued interest, if all contingencies are met and the gain is realized or realizable.


With respect to nonprofit entities,

  • Under ASC Topic 958-605, Not-for-Profit Entities—Revenue Recognition, the loan proceeds may be accounted for as a contribution received or a grant in the income statement — and on the balance sheet as a refundable advance. Interest will not be accrued, provided loan conditions will be substantially met or explicitly waived.
  • Under ASC Topic 450-30, Contingencies—Gain Contingencies, the loan proceeds may be accounted for as a gain on the income statement — and on the balance sheet as a deferred income liability with no accrued interest, if all contingencies are met and the gain is realized or realizable.


We’ve also advised CPA firms that they will need to evaluate all of their clients’ facts and circumstances to ensure the appropriate accounting for any debt modification. For example, modifications to debt arrangements may include any of the following:

  • Reduction (including contingent reductions) of the stated interest rate for the remaining term of the debt
  • Extension of the maturity date, or dates, at a stated interest rate lower than the current market rate for new debt with similar risk
  • Reduction — including contingent reductions — of the face amount or maturity amount of the debt as stated in the debt arrangement or other agreement
  • Reduction, including contingent reductions, of accrued but unpaid interest


Collemi Consulting has examined both FASB and IASB guidance, and we’ve counseled CPAs about determining whether a modification to, or an exchange of a client’s debt arrangement should be accounted for as a troubled debt restructuring (TDR); and whether a nontroubled modification or an exchange of debt with the same creditor is accounted for as an extinguishment of the existing debt and issuance of new debt, or as a modification and continuation of the existing debt.


A TDR generally occurs when a borrower is experiencing financial difficulties and when a lender grants a concession to the borrower that it would not otherwise consider. However, a debt restructuring is not necessarily a TDR — even if the borrower is experiencing financial difficulties. For example, a TDR does not occur if either:

  • The lender reduces the effective interest rate on the debt primarily to reflect a decrease in market interest rates in general, or a decrease in the risk to maintain a relationship with a borrower that can readily obtain funds from other sources at the current market interest rate
  • The borrower issues, in exchange for its debt, new marketable debt having an effective interest rate based on its market price that is at or near the current market interest rates of debt with similar maturity dates and stated interest rates issued by nontroubled borrowers.


At this point in time, our understanding is that a portion of the borrower’s PPP loan (and related interest) will be forgiven — equal to eligible expenses including payroll costs, interest payments on mortgages, and rent and utility payments — made during the loan’s qualifying period, provided that the borrower met all of the loan’s employee-retention criteria. According to the SBA, a borrower, in order to receive forgiveness, must submit an application to the creditor. The creditor will then issue a recommendation to the SBA within 60 days on whether the borrower is entitled to full, partial, or no forgiveness of the PPP loan; and will request payment from the SBA equivalent to the amount for which it recommends forgiveness, including accrued interest.


The SBA then has 90 days to review the request for payment from the creditor. If the SBA agrees with the creditor’s recommendation, the SBA will pay the creditor for the amount forgiven, plus any interest that accrues through the date of payment. The borrower must then remit any amount not forgiven by the SBA to the creditor in accordance with the terms of the PPP loan. If the SBA subsequently determines that the borrower was ineligible for the PPP loan, the borrower must immediately repay the loan to the creditor. 

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By Jennifer Ruf July 16, 2025
Nine months ago, we warned that two new sets of quality control and management standards were coming due on December 15, 2025 and strongly advised public accounting firms not to wait until the last minute to begin implementing them. Well, it’s now the last minute. With just six months left until the the American Institute of Certified Public Accountants’ (AICPA) new Statements on Quality Management Standards (SQMS) and the Public Company Accounting Oversight Board’s (PCAOB) new QC 1000 quality control standards go into force, there’s no time left to delay or procrastinate. Here’s a short overview of each set of standards and what’s necessary, but you can find our full blog for the AICPA’s new SQMS here , and the PCAOB’s new QC 1000 standards here . Both will require extensive effort to come into compliance. The AICPA’s SQMS The SQMS are what we here at Collemi Consulting & Advisory Services like to call the “thinking standards.” This means you really have to think it through and customize it for your attest practice, based on the type of clients you have and the services you provide, as the SQMS now takes an entirely new, risk-based approach to quality. There are now eight SQMS components, including two completely new ones: Risk Control, and Information and Communication. The new risk assessment process requires firms to establish specific quality objectives, meaning they must “identify and assess quality risks, and then they must design and implement responses to those risks that are tailored to the firm’s unique circumstances.” Information and communication requires the establishment of processes that support the SQMS, including reliable internal and external sources of information. It also mandates the creation of a culture that supports and reinforces the responsibility for sharing information with colleagues and the firm. All of the six other quality objectives have new requirements as well: ● Governance and leadership ● Relevant ethical requirements ● Acceptance and continuance of client relationships and specific engagements ● Engagement performance ● Resources (formerly Human Resources) ● Monitoring Firms have three responsibilities between now and December 15: 1) Continue using the extant standard (Statement of Quality Control Standard (SQCS) No. 8 (Redrafted) 2) Perform the risk assessment and gap analysis, and then design and implement the new standards. 3) Consult with your peer reviewer before final implementation Firms then have until Dec. 15, 2026 to carry out an annual evaluation of their new quality management system. The PCAOB’s New QC 1000 Standards The PCAOB’s new QC 1000 standard is intended to make independent registered public accounting firms who audit issuers (public companies) and broker-dealers significantly improve their quality control (QC) systems. It applies to all PCAOB-registered member firms. Those that audit more than 100 issuer clients annually have more extensive requirements to contend with. The new standard enables firms to identify their specific risks and design a quality control system, including policies and procedures to guard against those risks. The goal is to create what the PCAOB refers to as a “a continuous feedback-loop for improvement.” QC 1000 has quality control requirements that do not appear in other QC standards. They tend to be more prescriptive and more tailored to the U.S. legal and regulatory systems. There are 10 areas in which the QC 1000 goes beyond what can be found in other existing standards. These are: ● Evaluation and Reporting ● Governance and Leadership ● Ethics and Independence ● Monitoring and Remediation ● Quality Objectives ● Information and communications ● Resources ● Risk Assessment Processes ● Roles and Responsibilities ● Documentation That’s not even an exhaustive list, and it’s coming into effect at the same time as the AICPA’s SQMS. Our recommendation is to make two completely separate documents rather than trying to roll it all into one giant document. It’ll be too confusing, especially for people who might not have to audit both public companies, broker-dealers and private companies. We also advise you to appoint a separate champion within the firm for each of the two different sets of standards. Otherwise it just gets too complex. Like we said, time is running out. It’s time to get it done or get help doing it. Collemi Consulting leverages over three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101. 
A light bulb with a red question mark inside of it.
By Jennifer Ruf June 12, 2025
When questions or technical issues arise, it’s important that they be resolved in a timely and efficient manner. That means consulting with other members of the engagement team or someone either in the firm or outside of the firm with more expertise or experience. This is especially important when there is a difference of opinion or uncertainty about a technical question, the application of Professional Standards procedure, the application of firm policy, or the application of a rule, regulation, or procedure from a regulatory agency. First off, a CPA firm should have an up-to-date library, as well as industry and other specialized materials related to their client’s industry. This is an important tool for answering questions or settling differences of opinion. As there are many issues/challenges that can cause this kind of question or difference of opinion to arise, and in many cases in-house library resources won’t be enough. When differences arise These difficult or contentious issues begin with any engagement in which a modified or adverse report is likely to be issued. Then there’s any engagement involving material litigation of a first-time or complex technical pronouncement. Other issues that can arise include industries with specialized accounting treatments, auditing or reporting requirements, or with complex or unusual transactions. Emerging practice problems also fall into this category. Having choices among accounting principles generally accepted in the United States of America (U.S. GAAP) either initially or when an accounting change is made is another situation in which questions can arise. So is the need to reissue an audit report, consider omitted procedures after a report has been issued, or the discovery of facts that were not known when the report was issued. More serious issues include any restatement to financial statements upon which a report was issued. These cases require consultation with the managing partner and quality control partner and their approval of the resolution. Restatements are considered contentious or difficult issues, and must be carefully documented at every stage. Then there are questions or differences of opinion about documents to be filed with a regulatory agency, and especially meetings with regulatory agencies in which the firm will be called upon to defend the application of U.S. GAAP or auditing standards generally accepted in the United States of America (U.S. GAAS) that have been questioned. When questions arise First of all, anytime there is a question requiring consultation or a difference of opinion arises either within the engagement team, or between the engagement partner and the engagement quality control reviewer (EQCR), the issues must be discussed between the parties involved. If any member of the team disagrees with the resolution, it should be escalated based on the CPA firm’s quality control policies and procedures. Second, look for people within the firm with the knowledge, seniority or experience to bring expertise to the question. The quality control partner will be a good resource for finding these experts. Third, if someone with the requisite know-how can’t be found within the firm, or that person is unable to satisfy the difference of opinion, it’s time to look outside the firm. CPAs at other firms, consultants, the AICPA Technical Hotline, AICPA Audit Quality Centers,and other professional and regulatory bodies are all sources of quality control services and expertise. When looking for an outside subject matter expert (SME), consider their professional certifications, licenses or other qualifications that demonstrate expertise. Also look at the reputation and standing of the person in question. Of course, look for any relationship with the client. Consulting specialists Certain audit or attestation engagements may require the firm to consult with specialists including actuaries, appraisers, attorneys, and even engineers or geologists, among others. Following the guidance in AICPA Professional Standards at AU‐C 620A and AT‐C 105 when such consultations are necessary is vital. The nature and scope of consultations on contentious or difficult issues should be agreed-upon by all parties. The results of those consultations must be well-documented so as to ensure that the issue which required outside expertise is clearly stated. So must the results of the consultation, the decisions made and the basis upon which they were made, and how those decisions were implemented. The documentation must show that the conclusions reached were understood by both the persons consulting and the consultant. When escalating isn’t enough If the difference of opinion cannot be resolved by any of the aforementioned steps, it’s time to bring the matter to the managing partner and/or quality control partner. The managing partner and/or quality control partner will resolve the dispute, possibly in consultation with other experts or regulatory entities. The resolution must be documented, and the report should not be released until differences of opinion are resolved. At this point, anyone who still disagrees with the outcome will document their difference of opinion on the matter. At every stage of this process, it is the engagement partner who has responsibility for ensuring that differences of opinion are resolved, and that they are properly documented. Collemi Consulting leverages over three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101. 
A man in a suit and tie is holding a piece of paper that says be an active listener.
By Jennifer Ruf May 16, 2025
Being an active listener takes a lot more than just paying attention. It requires understanding the other person, and then conveying that you understand them, are interested in what they are saying and are engaged in the conversation. There’s never been a more important time to be an active listener. With the post-COVID world making remote work conversations a daily occurrence, it’s harder than ever to make — or pick up on — subtle clues that your partner in the conversation is making. As a leader, it’s vital to make sure your reports feel listened to and your clients feel their needs and concerns are being heard. If they don’t they’ll stop sharing information with you — or stop working with you. Participants in a conversation have two goals. The first is to understand what the person is saying, both in terms of the content and the emotion behind it. The second is to convey interest and engagement in what they are saying. As a general rule of thumb, as an active listener you’ll want to spend 80% of the conversation listening and 20% talking. Active listening has three components. The first is paying attention to what is being said and comprehending it. The second is to stay calm and engaged during the conversation, not letting emotional responses break up the flow. The third is conveying that you are interested in what the speaker has to say and understand it, both verbally and non-verbally. Perhaps the most obvious — and possibly the hardest — rule is to actually stay focused on the conversation: Don’t multitask and don’t put yourself in a position to be interrupted or distracted. Here are six tips that will help you become a better listener: A simple but important technique is to repeat people’s last few words back to them. It makes people feel listened to and keeps the conversation on track while giving the speaker and listener a pause to regroup and collect their thoughts. At the same time, avoid interrupting the speaker. Keep your break-ins natural and brief. Don’t try to immediately fill a void while the speaker is collecting their thoughts. Putting what has been said in your own words shows comprehension. Paraphrasing is an effective way of being sure you actually understand what they are saying, and makes clear to the speaker that you are paying attention. Non-verbal clues are vital, both giving and receiving. As the listener you want to nod, use a facial expression, make and maintain eye contact, and use open body language to convey that you are interested in what is being said. At the same time, pay attention to the unspoken part of the conversation. Look for body language and tone of voice to see what the motivation is and what emotions are behind it. Ask questions. Then ask more questions. This not only conveys that you are listening and comprehending, it helps ensure that you actually are understanding what’s being said. Try not to ask questions with a simple yes or no answer as that can break the conversation’s flow. Instead ask open-ended questions like “can you tell me more about that?” or “what do you think is the best path moving forward?” Don’t be judgemental, display emotion or interrupt with counter-arguments, which can be frustrating to the speaker. Let them finish. Be open to new ideas. Becoming a good active listener takes time and practice, but you’ll find the benefits are worth the effort. Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.
Looking up at a group of tall buildings with a blue sky in the background.
By Jennifer Ruf April 30, 2025
The wave of mergers and acquisitions in the accounting industry over the past five years or so shows no sign of abating as small and mid-size public accounting firms seek to gain the size that lets them invest in new technology and recruitment, and gain other advantages of economies of scale. While there are lots of arguments to be made in favor of joining forces with other CPA firms, it’s still a fraught process with many potential hurdles. And it’s not just other public accounting firms doing the merging and acquiring. The private equity firms that have been rolling up small and mid-size CPA firms into larger ones come with plenty of benefits, notably the ability to make the investments needed to compete at a time when automation and artificial intelligence (AI) are bringing a sea change into the accounting business, and competitors are getting bigger. But they also come with their own baggage, such as questions of conflicts of interest and compliance with the auditor independence rules, as well as a focus on the more profitable tax and advisory service side of the firms. The money from an acquisition can be enticing, but it’s important to go into it knowing that there’s a price to be paid for it, and what that price is. And how to go about paying it if you do decide to join forces with a private equity firm. Private equity pros Private equity firms have been competing to invest in large public accounting firms, but also to buy out and roll up small and mid-size firms for two core reasons. One is a steady and predictable revenue stream, particularly on the audit side, which is very enticing to them. The other is the revenue potential of expanding the more lucrative tax and consulting side of the business. But they also see the opportunity to grow the CPA firms and make them more profitable by investing in things like staff training, recruitment and cutting edge technology like AI that can transform the accuracy and efficiency of audit processes. And, of course, strategic acquisitions that can further strengthen the business. Another thing they can do is centralize certain auditing tasks like data processing or routine testing, even moving it offshore for cost efficiency. This can give the core auditing team more time for the deep dive and the ability to focus on more value-added services. Private equity cons On the con side, the focus on consulting can lead to the auditing quality side being given less priority for investment and growth. With a focus on short-term profit, private equity funding can come with pressure to focus attention on the higher margin consulting side of the business. Private equity firms are often eager to scale up the tax and consulting sides of the business, to the point of sometimes creating an alternative practice structure (APS) by investing in or acquiring just those parts of a firm and leaving the audit side, with its need for independence and smaller margins, alone. Which calls into question the benefits of a private equity investment, at least on the auditing side of the business. Then there’s the threat to auditor independence of having an owner or partner with a large portfolio of companies like tech firms that can provide other services to audit clients. And even when there is no actual threat, these perceived conflicts of interest can be a red flag to audit regulators and standard-setters. Private equity questions When you’re looking at an investment or acquisition by private equity there are questions to be asked that aren’t always obvious, or at least that don’t have simple answers. It’s easy enough to start a conversation about auditor independence and the appearance of impairment or conflicts of interest with the auditing side of the business, but it’s also easy enough to promise that these issues won’t be a problem. You have to be aware of the other types of services that they're planning to provide to that same client, because that could have an impact on whether or not you can perform the audit or the review work that you’re doing without violating the AICPA’s Code of Professional Conduct. That’s particularly true with small CPA firms focused on the auditing side of the business instead of consulting, which will suddenly find themselves paired with a large and aggressive tax and consulting business. But whatever size your practice is, you’ll have to update policies and procedures and be cognizant of the need to create an infrastructure that acknowledges the potential conflicts that come with a private equity firm’s offer. Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. 
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