Programmatic Investments, of the AICPA Audit and Accounting Guide, Not-for-Profit Entities

The AICPA issued a working draft of Chapter 8, Programmatic Investments, of the 2024 AICPA Audit and Accounting Guide, Not-for-Profit Entities (Audit Guide), on May 9, 2024, for public comment. The working draft gained feedback from accountants on the application of FASB ASC 326,Financial Instruments—Credit Losses (also known as the current expected credit loss model or CECL), and how CECL applies to programmatic loans. After several months of deliberations, the AICPA released the final version of Chapter 8 in December 2025. Because GAAP doesn’t address programmatic investments, accountants look to the Audit Guide for accounting guidance.

Practical Consideration: Accountants should refer to the most recent version of the Audit Guide, which is available from the AICPA at www.aicpastore.com or on Checkpoint at checkpoint.riag.com.

What Is a Programmatic Loan?

A programmatic loan is a type of financial instrument that provides funds to an individual or entity as a way for an organization to carry out its mission instead of for the purpose of investing for production of income and asset appreciation. Programmatic loans also serve as the most common programmatic investment. Some example programmatic loans that a nonprofit entity could issue include:

A loan that bears a market interest rate and, at origination, all contractual cash flows are expected to be collected. (Audit Guide, para. 8.10)
A loan that is interest free or at a below market interest rate and, at origination, all contractual cash flows are expected to be collected. (Audit Guide, para. 8.11)
A loan issued that the organization has no expectation of repayment. (Audit Guide, para. 8.12)
A loan issued with an expectation that some, but generally not most or all, of the loan will be repaid. (Audit Guide, para. 8.12)

Initial Recording of the Allowance for Credit Losses

Under most circumstances, programmatic loans are reported at amortized cost. (Audit Guide, para. 8.16) Under FASB ASC 326-20-30-1, the allowance for credit losses is a valuation account that is deducted from, or added to, the amortized cost basis of programmatic loans receivable in order to present the net amount the organization expects to collect.

FASB ASC 326-20-30-6 through 30-8 and 30-10 provide that the estimate of expected credit losses is developed based on historical experience, current conditions, and reasonable and supportable forecasts. If the programmatic loan is secured, an estimate of expected credit losses should consider the nature of the collateral, potential future changes in the value of collateral, and historical loss information for programmatic loans that are secured by similar collateral. The remaining contractual life of the programmatic loan, including prepayments, should be considered in the estimate. However, extensions, renewals, or modifications are only considered if included in the original or modified contract at the reporting date, and are not unconditionally cancellable by the organization.

The allowance for credit losses only includes amounts an organization does not expect to collect due to credit risk. Any amounts not expected to be collected for reasons independent of credit losses, such as those connected with the borrower’s employment service to the organization or the achievement of certain performance-based conditions, would not be included in the allowance for credit losses. (FASB ASC 326-20; Audit Guide, para. 8.22)

Elections Available.

An organization is allowed to make the following elections when determining the allowance for credit losses: (Audit Guide, para. 8.24)

Adjust the effective interest rate used to discount expected cash flows to consider the timing (and changes in timing) of expected cash flows resulting from expected prepayments. (FASB ASC 326-20-30-4A)
Not to measure an allowance for credit losses for accrued interest receivable if the organization writes off the uncollectible accrued interest receivable balance in a timely manner. The election is separate from the election in FASB ASC 326-20-35-8A. (FASB ASC 326-20-30-5A)
Write off accrued interest receivable by reversing interest income or recognizing credit loss expense or a combination of both. This election is separate from the election in FASB ASC 326-20-30-5A. (FASB ASC 326-30-35-8A)

Practical Consideration: The Audit Guide provides example calculations for (1) a programmatic loan with a market interest rate and (2) a programmatic loan with a below-market interest rate starting at paragraphs 8.26 and 8.29, respectively.

Subsequent Measurement of the Allowance for Credit Losses

At each reporting date, a nonprofit lender should adjust the allowance for credit losses on programmatic loans that are within the scope of FASB ASC 326-20. A nonprofit lender compares its current estimate of expected credit losses with the estimate of expected credit losses previously recorded. The nonprofit lender reports in the statement of activities the amount necessary to adjust the allowance for credit losses for management’s current estimate of expected credit losses on loan(s). Both the credit loss expense or a reversal of the credit loss expense should be reported within the same natural account classification in the statement of activities. The method applied initially to measure expected credit losses for the loans generally would be applied consistently over time and should estimate expected credit losses for loan(s). (Audit Guide, para. 8.41)

Programmatic Loan Disclosures

If programmatic loans are one of the organization’s major class of programs, the Financial Reporting Executive Committee (FinREC) recommends that, in addition to the disclosures required by FASB ASC 310-10-50, an organization disclose the following: (Audit Guide, para. 8.56)

The number of loans outstanding.
The average face amount and average carrying amount of the loans at origination and the reason for the difference.
The terms of the loans (i.e., do they contractually provide for the forgiveness and, if so, what are those terms?)
Accounting policies for determining what is a programmatic loan versus not.
Amounts recognized as inherent contributions.

An organization should disclose any policy elections made when determining the allowance for credit losses. (Audit Guide, para. 8.24) Other disclosure requirements such as those under FASB ASC 850,Related Party Disclosures, may also apply.

Practical Consideration: Please refer to Chapter 8 of the Audit Guide, paragraphs 8.09 through 8.56, for further details concerning programmatic loans. Also refer to PPC’s Guide to Nonprofit GAAP (NPG), Chapter 42, for further discussion on programmatic investments. The current edition of NPG is based on the working draft. The 2025 edition (fall 2025 release) will be updated for any necessary changes.