In a "generic comment letter" to chief financial officers of SEC registered funds, the Chief Accountant of the SEC's Division of Investment Management expressed the view that it was prudent to record the liquidation expenses of a fund promptly to ensure that investors who remain shareholders of the liquidating company do not pay a disproportionate share of the liquidation expenses. He indicated the liabilities should be recorded when reasonably estimable and probable under ASC 450.

The FASB issued ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting, in April 2013. Prior to the release of the new standard, there was minimal guidance in current US GAAP that addressed when it is appropriate to apply, or how to apply, the liquidation basis of accounting. Consequently, there was diversity in practice. The FASB issued the ASU to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities, and requirements for financial statements prepared using the liquidation basis of accounting.

The standard applies to all entities except investment companies that are regulated under the Investment Company Act of 1940 (the 1940 Act). The FASB decided to exclude regulated investment companies, given the 1940 Act contains measurement guidance that would have otherwise been inconsistent with the principles contained within the ASU.

See Asset Management Advisory 2016-02[R]: Amended considerations for private funds in liquidation for additional information and considerations relating to the Liquidation Basis of Accounting and the Bankruptcies and Liquidations guide.