Accounting Guidance on the First Wave of Funding from the CARES Act
More than 500,000 providers received the first tranche of payments from the $100 billion Public Health and Social Services Emergency Fund provisions within the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) from the U.S. Department of Health & Human Services on April 10, 2020. In this article, we’ll share some of the key provisions that providers may want to consider for this first tranche of funding. The accounting guidance nonprofit, for for-profit and governmental entities differs and is reviewed in more detail below.
- Nonprofit entities should follow Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition, and the funding would be accounted for as a contribution. The entity’s contribution policies would apply to these funds, including recording restricted revenue until qualifying expenses are incurred and identified, and operating versus nonoperating classifications on the statement of operations.
- For-profit entities have several options and should consider following ASC 606, Revenue from Contracts with Customers (Topic 606), by analogy (excluding the amount from patient service revenue, as the amount doesn’t represent a contract with a customer for patient service revenue), or they can correlate ASC 958-605, International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance, or ASC 450, Contingencies, depending on which standard the entity believes most appropriately reflects its circumstances. For-profit entities should adhere to current policies in place. If they don’t have an existing accounting policy related to grants, contributions or government assistance, they should develop a policy now.
- For governmental entities, GASB 33, Accounting and Financial Reporting for Nonexchange Transactions, applies as a government-mandated nonexchange transaction. The entities’ nonexchange transaction policy would apply to these funds, and revenue should be recorded only if all eligibility requirements are met and the resources are available; otherwise, the funding should be classified as unearned revenue until the criteria are met. There is ongoing discussion within the industry regarding operating versus nonoperating classification on the statement of revenues, expenses and changes in net position.
- Based on the information available today, since the funding wasn’t announced prior to April 7, 2020, the revenue shouldn’t be recorded prior to this date. This guidance is applicable to all types of entities.
Accounting guidance for grants and contributions is complex, and these funds represent new government funding streams with limited details available, including if the funding will be subject to the Uniform Guidance standards or other federal program compliance requirements. Therefore, the information included above is based on the information known as of the date of this article and is subject to change.
We recommend entities continue to follow any additional guidance issued related to these funding streams and contact their trusted advisor to discuss these funds received.
As with most topics related to the SARS-CoV-2 virus and incidence of COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication, and the guidance could change as new information becomes available. Visit BKD’s COVID-19 Resource Center to learn more. If you have questions, contact your BKD Trusted Advisor™ or use the Contact Us form below.