Several of our insurance company clients have asked for guidance on the recognition of loan proceeds under the Payroll Protection Program (PPP). The Statutory Accounting Principles Working Group has taken up several issues stemming from COVID-19 and may still take up the matter of PPP loans. As of this article’s writing, the National Association of Insurance Commissioners (NAIC) has not taken up the issue of PPP loans. Under existing guidance, the accounting for loans and extinguishment of related liabilities is governed by SSAP No. 15, Debt and Holding Company Obligations. The following table provides a tabular view of three key aspects of accounting for the loan program and further segregates them by Statutory, GAAP and non-profit reporting.
SSAP No. 15 indicates an exception to the recognition of a gain on extinguishment of a loan from a parent or stockholder, which may result if the parent was the recipient of a PPP loan, and in turn, loaned the proceeds to its subsidiary insurer. Such loan extinguishment would be treated as contributed capital rather than a gain.
This discussion has ignored the treatment of interest, which will not accrue until any unforgiven loan proceeds have been determined.
Some of the references in the article include the following:
International Accounting Standards:
IAS 20 – Accounting for Government Grants Disclosure of Government Assistance
Accounting Standards Codification of the U.S. Financial Accounting Standards Board:
ASC 450 – Contingencies
ASC 470 – Debt
ASC 958 – Not-for-Profit Entities