COVID-19 and CARES Act Technical BulletinProject Description: The objective of this project is to provide application guidance for recognition and presentation issues related to: (1) expenses incurred in response to closures prompted by the COVID-19 pandemic and (2) revenue and liabilities related to certain programs established by the Coronavirus Aid Relief and Economic Security Act of 2020 (CARES Act).
Final Technical Bulletin, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases, issued June 2020.
- Accounting and Financial Reporting Issues
- Project History
- Project staff:
COVID-19 and CARES Act Technical Bulletin—Project Plan
Background: In response to the spread of the virus, state and local governments took various actions that resulted in the incurrence of unplanned costs, such as added public safety measures. Additionally, in response to orders from state governors to “stay at home” governments incurred other types of costs, such as setting up virtual environments to continue the provision of services. Stakeholders have raised questions regarding the presentation of these expenses.
Furthermore, the federal government enacted the CARES Act on March 27, 2020, which established an appropriation at the federal level to provide resources to state, local, and tribal governments through grant programs and other financial assistance from various federal agencies. Several programs included the distribution of resources to governments through allocation formulas. Stakeholders have raised questions regarding whether the appropriate recognition of these funds is as eligibility-driven grants, purpose-restricted grants, or unrestricted grants (shared revenue). Also, stakeholders have asked about the appropriate presentation of these inflows of resources in flows statements of proprietary funds.
Additional concerns exist because there are efforts to encourage Congress to remove the eligibility requirements and other compliance requirements established for some or all CARES Act programs. The question regarding this potential issue is that if Congress takes action after a government’s reporting period end to remove any of the previously established requirements, would the government consider this action as a recognized subsequent event?
As part of the CARES Act a Paycheck Protection Program (PPP) was established. While governments were not eligible to participate in this program, certain not-for-profit entities that meet the definition of a government (as provided in AICPA Auditing and Accounting Guides cleared by the GASB) are eligible to participate in this program. Questions have arisen as to whether the probability of PPP loans being forgiven should be considered for financial reporting purposes before the liability is legally released.
Accounting and Financial Reporting Issues. The project is considering the following issues:
- How should certain outflows of resources be reported?
- How should grant revenue from the various programs established through the CARES Act be presented?
- What are the recognition provisions that would be applicable to the federal support programs given the potential mismatch between initial allocations and allowed costs?
- If amendments were made subsequent to a government’s period end, would the amendment be considered as providing additional evidence about conditions that existed at the date of the financial statements (recognized event) or would it be considered a subsequent event that should be disclosed (nonrecognized event)?
- Certain governmental not-for-profit entities have received loans associated with the PPP. Should the probability of these loans being forgiven be considered for financial reporting purposes before the liability is legally released?
- Added to current technical agenda: June 2020
- Exposure Draft cleared: June 2020
- Comment period: June 2020
- Final Technical Bulletin issued: June 2020
Minutes of Videoconference, June 30, 2020
The Board reviewed stakeholder feedback from the Exposure Draft of the proposed Technical Bulletin. Based on the analysis of stakeholder input, the Board did not request any additional staff research regarding the issues raised in the proposed questions included in the Technical Bulletin. The Board did not object to the project staff’s position that the expected benefits of the final Technical Bulletin justify the perceived costs of implementation and ongoing compliance. Next, the Board considered for clearance a ballot draft of Technical Bulletin No. 2020-1, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases, and provided clarifying edits to the Technical Bulletin. The Board then voted not to object to the issuance of the final Technical Bulletin.
Minutes of Videoconference, June 9, 2020
To address stakeholder questions associated with the recognition and presentation of inflows and outflows of resources related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and coronavirus diseases, the Board added a project to its current technical agenda to provide clarification of the application of existing guidance to the accounting and financial reporting issues.
The Board then reviewed a ballot draft of an Exposure Draft of a proposed Technical Bulletin, Accounting and Financial Reporting Issues Related to the CARES Act of 2020 and Coronavirus Diseases, and discussed issues related to the topics presented and clarifying edits.
The Board then discussed considerations related to the benefits and costs of the project. The Board tentatively agreed that the expected benefits of the proposed Technical Bulletin justify the perceived costs of compliance.
The members of the Board did not object to the issuance of the Exposure Draft of the proposed Technical Bulletin.