Legal Dig

sary plans to the mediator in advance of the mediation session. Certain key documents should also be provided to the mediator in advance of the session along with your attorney’s mediation statement.

Break-Out Sessions

The mediator will conduct private discussions with the parties in virtual break-out rooms, which fulfill the role of separate conference rooms in an in-person mediation. The parties may choose to send only the person with authority to settle, reserving the option to call in others as needed (e.g., the project manager), but without the restrictions of shared physical space, it may be beneficial for all individuals with first-hand knowledge of the project to participate in virtual break-out sessions. Sometimes those individuals can spot factual discrepancies or are willing to admit a weakness in the case to the owner of the company in the privacy of a break-out room. Both of these scenarios can be important for analyzing settlement options. However, in advance of the hearing, the mediator should require the parties to identify all individuals who will participate so that the adverse party is aware of their attendance, and the attorney for each party should identify all participants at the beginning of the session. At the conclusion of a live mediation session, the participants might need to get home or even catch a plane, but with virtual sessions, it is possible to hold another session if it seems worthwhile without having everyone return to the mediator’s offices for another session.

Conclusion

The changes that virtual mediations have brought will likely not affect whether a case will settle, but you should bear in mind the differences in the format—the good and the bad—when you prepare for the virtual session.

Adrienne L. Isacoff, Esq., serves Of Counsel in the firm of Florio, Perrucci, Steinhardt, Cappelli, Tipton & Taylor LLC, and serves as an arbitrator and mediator for the American Arbitration Association and the New Jersey Superior Court mediation program.

2020 will leave its mark on 2021 business strategies

By: jack callahan, cpa, national leader, cohnreznick construction practice group

It is difficult to comprehend fully the impact of the events of 2020, let alone set forth a vision for 2021. The full effect of the pandemic, the election, and other world events on the business community is impossible to gauge. Therefore, my focus here will be on assessing how 2020 occurrences might have implications for your financial statements, tax returns, and business planning strategies going forward.

CARES Act

While offering financial relief through payment deferment of the employer portion of Social Security, the most impactful provision of the CARES Act was Paycheck Protection Program (PPP) loans. Contractors with fewer than 500 employees impacted by COVID-19 were eligible to receive these powerful loans, which were based on a formula of 2.5 times an average monthly payroll up to $10 million.

Construction was the third largest industry sector granted PPP loans. These loans contain a provision that, if a contractor can show that the loan proceeds were used for specified costs in an 8-or 24-week period, the entire loan could be eligible for forgiveness. These 24-week periods have mostly expired, and forgiveness applications must be submitted to the lending bank. While we have seen some loan forgiveness granted by a bank and affirmed by the Small Business Administration, most contractors are still waiting for their loan forgiveness.

The roll-out of guidance for the forgiveness component of PPP loans has been confusing, although we have recently received some clarification on the tax treatment of loan forgiveness. In the latest COVID-19 relief package signed by the President in December, Congress confirmed that the forgiveness will not be taxable. Moreover, it reversed an IRS position and affirmed that the expenses covered by the loan forgiveness will be tax deductible. This clarification alleviated a great deal of confusion over PPP loan forgiveness—a major benefit that is welcome during this critical time.

The Economic Necessity Questionnaire (ENQ) has been a much-debated issue and remains uncertain. When submitting a PPP loan application, a contractor needed to certify that they had been impacted by COVID-19. There was a subsequent question and answer process that resulted in a heightened determination of impact and economic uncertainty. Banks now have an ENQ that must be completed by all contractors with loans of $2 million or more filing for loan forgiveness. Through lobbying by the AGC and other contractor trade groups, there has finally been clarification on the use of these questionnaires. How the SBA will use the data from those responses and how the responses will impact loan forgiveness is still uncertain. My advice is to proceed with caution when completing the questionnaire and forgiveness application. Also, be sure to consult with your core team of trusted advisors.

Financial Statements and Audits

Financial Statement treatment of PPP loan forgiveness is another important issue. The accounting standards body provided guidance that these loans should be reflected on the books as a liability until they are formally forgiven by the SBA. Since most loan forgiveness applications have not been finalized, many companies will have a short-term loan reflected on their year-end financial statements. I am confident that the banks and sureties will fully understand the nature of these loans, look to disclosure the loan’s subsequent forgiveness in assessing a contractor’s financial condition, and expect the loan forgiveness to be reflected in the subsequent year. However, I am not as confident about how these loans will be treated by state prequalification agencies. The impact on working capital, and thus on the bidding capacity of a contractor, could be significantly impacted. Not surprisingly, some contractors and their accountants have sought to classify PPP loans as grants instead of loans. The Accounting Standards Board applies a more liberal treatment to grant forgiveness, allowing a grant to be reported as forgiven if “more likely than not” criteria are met. We are still waiting to see if the SEC comes back with comments for those publicly-traded contractors who have used this treatment for interim reporting. We expect more clarification on the accounting treatment before statements are finalized for issuance.

What we—as your auditors and accounting departments—have had to contend with is the new reality of performing audits with restricted access to our clients’ offices and job sites. We have needed to adjust our risk assessments and have been challenged in our efforts to perform all essential audit procedures and then document those procedures. Despite having an arsenal of outstanding technical tools, working remotely has required a new approach to audits.