September 11, 2020

Public Company PPP Loans: How Many Gave the Money Back?

Public companies took a lot of heat for taking PPP funds, but despite some well-publicized decisions to return the funds, this Bryan Cave blog says that the vast majority of public company borrowers decided to keep the money:

Based on a review of SEC filings, Bryan Cave Leighton Paisner identified over 850 borrowers who indicated that they had received PPP loan approvals. 107 of these borrowers, or roughly 12 percent, subsequently indicated that they either ultimately did not accept the loan, or returned the loan proceeds. About 25% of public companies who returned their loans had PPP borrowings that were less than the $2 million threshold for review indicated above.

Of the 759 public companies that elected not to return their PPP funds, approximately 73% received $2 million or less, while the remaining 27% had PPP loans of more than $2 million. About 8% of the public company recipients received less than $100,000, while over 55% received less than $1 million.

By our calculations, about 200 public companies with PPP loans in excess of $2 million elected to retain their PPP loans. About 60% of these loans were for between $2 and $5 million, 36% were for between $5 and $10 million, and 4% were for in excess of $10 million.

While public companies taking out PPP loans were sometimes unfairly criticized, other large borrowers took some heat as well. Stlll, the blog says that despite all the sound & fury, over 75% of PPP borrowers approved for a PPP loan in excess of $5 million decided to keep the money.

Supply Chain Finance: The Accounting Backstory

When I first saw the references to “supply chain financing” in Corp Fin’s Covid-19 guidance, I wasn’t really sure what the big deal was. I’m guessing that some others were also a little surprised to see how prominently supply chain financing featured in that guidance – and in recent Staff comment letters.

If you’re wondering where this all came from, check out this Jim Hamilton blog, which discusses the history of Staff concerns about accounting and disclosure issues surrounding supply chain financing, and says they can be traced all the way back to 2003. The basic issue is the appropriate classification of the obligation that arises when a purchaser gets financing from a lender to pay its vendors. The trouble is, as the Big 4 pointed out in a 2019 letter to FASB, U.S. GAAP currently offers little guidance on the question of how to account for these arrangements.

The blog reviews the accounting issues involved and the comment letters that the SEC has issued addressing supply chain financing disclosure. This excerpt summarizes the results of that comment letter review:

SEC staff have engaged in some comment letter dialogs with companies regarding supply chain financing. The theme of these dialogs is that SEC staff saw something unusual in the company’s filings, the company replies that the supply chain issue is nonmaterial, and the SEC accepts the companies’ promises of additional disclosure in future filings.

As Liz noted in her recent blog on this topic, the Staff’s interest pre-dates the pandemic, because it began issuing comments on supply chain financing in mid-2019. Perhaps it’s not a coincidence that the Big 4 reached out to FASB looking for guidance on the topic at around the same time.

Restatements: Common Reasons for “Big Rs” & “Little Rs”

Everybody makes mistakes, but when the accountants do, it’s terrifying. This Audit Analytics blog takes a look at how companies opted to correct errors in financial statements during 2019, and identifies the leading causes of “Big R” restatements and “Little R” out-of-period adjustments.

The five most common issues cited in Big R restatements in 2019 were revenue recognition (16.7%), cash flow statement classification errors (16.1%), securities – debt, quasi-debt, warrants & equity (15.3%), taxes (13.0%) and liabilities (12.2%). By way of comparison, the five most common issues cited in Little R restatements in 2019 were taxes (22.3%), revenue recognition (16.3%), expense recording (9.9%), inventory (9.9%), and value/diminution of PPE intangibles or fixed assets (7.4%)

Everyone involved in the SEC reporting process breathes a sigh of relief when it is determined that a particular error can be corrected through an out-of-period adjustment, because that means the prior period financial statements don’t have to be restated. (Okay, the fact that the CFO’s probably not going to prison either also may help explain the sighs of relief.)

But the blog points out that irrespective of their scale, restatements and out-of-period adjustments negatively impact the financial reporting of a company – and that even immaterial errors may predict future material weaknesses and errors in financial statements.

John Jenkins