GAAP Considerations During a Global Pandemic

As mentioned in our previous post on preparing for your year-end financial statement audit, this year’s audit may look a little different than it has in the past. Our team at Christianson encourages you to be aware of the following U.S. Generally Accepted Accounting Principles (GAAP) considerations as you prepare for your year-end audit.

• Accounting for PPP loans – know your options
  • Current financial reporting guidance allows PPP loans to be recorded as a liability or recognized as income (subject to meeting certain forgiveness eligibility criteria prior to the legal release from the SBA). The expenses that were offset by your PPP loan will be recognized in the year incurred.
  • Keep in mind the tax implications of PPP loans. Current IRS guidance states that PPP loan forgiveness is excluded from gross income and the related expenses are not tax-deductible.
• Evaluate asset valuations for potential impairment
  • You may need to consider testing assets for impairment if your business operations or investments held by your business were negatively impacted by COVID-19. Consult your auditor as impairment models under U.S. GAAP vary depending on asset type.
• Review accounting estimates
  • U.S. GAAP requires the use of estimates. Consider whether assumptions used to develop accounting estimates in previous years need to be revisited in light of the current economic environment.
• Financial reporting implications
  • As a consequence of COVID-19, your financial statements may include additional disclosures to address requirements set forth by the Financial Accounting Standards Board (FASB). Examples include:
    1. Risks and uncertainties that could significantly affect the amounts reported in your financial statements in the near term or the near-term functioning of your business.
    2. Subsequent events representing significant events or transactions that occur between year-end and the date financial statements are issued.
    3. Substantial doubt about an entity’s ability to continue as a going concern within one year of the financial statement issuance date must be disclosed in the notes to the financial statements, and may require modification to the auditor’s report and use of the going concern basis of accounting, depending on the circumstances.

The team at Christianson wants to ensure you are equipped with the knowledge you need to be prepared for the many changes you may have to face. Contact our experts with questions as you prepare for your audit. We’re here to help.