PwC is pleased to offer our Bankruptcies and liquidations guide. This guide furthers our aim of helping our clients and other interested parties to implement the accounting and reporting standards applicable to bankruptcies and liquidations.
While the accounting guidance for bankruptcy accounting has not been updated for a number of years and is unique, it remains relevant given the continued volume of bankruptcy filings. This guide explains the fundamental principles of bankruptcy and liquidation-basis accounting, as well as considerations prior to entering bankruptcy, for companies that prepare financial statements under US GAAP, and provides our perspectives on the application of those principles.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues. The PwC guides should be read in conjunction with the applicable authoritative accounting literature.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide focuses on bankruptcy and liquidation-basis accounting and financial reporting considerations. It supplements information provided by the authoritative accounting literature and other PwC guidance. This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
- Business combinations and noncontrolling interests (BCG)
- Consolidation (CG)
- Derivatives and hedging (DH)
- Equity method investments and joint ventures (EM)
- Fair value measurements (FV)
- Financial statement presentation (FSP)
- Financing transactions (FG)
- Foreign currency (FX)
- Income taxes (TX)
- Inventory (IV)
- Leases (LG)
- Loans and investments (LI)
- Property, plant, equipment and other assets (PPE)
- Revenue from contracts with customers (RR)
- Stock-based compensation (SC)
Summary of significant changes
Following is a summary of recent noteworthy revisions to the guide. Additional updates may be made to future versions to keep pace with significant developments.
Revisions made in June 2023
BLG 6, Liquidation basis of accounting
- BLG 6.2 was updated to replace the guidance from superseded FASB Concepts Statement 1 with guidance from FASB Concepts Statement 8.
- BLG 6.6 and Figure BLG 6-4 were edited to clarify the discussion of financial statements required under the liquidation basis of accounting.
- BLG 6.8 was added to discuss accounting and financial reporting considerations related to employee benefit plans under the liquidation basis of accounting.
Revisions made in February 2023
BLG 3, Accounting and reporting during bankruptcy
- BLG 3.3 and Figure BLG 3-3 were enhanced to clarify the discussion of liabilities subject to compromise.
- Question BLG 3-5 was edited to clarify the discussion of when unsecured and undersecured liabilities may be reclassified from liabilities subject to compromise.
- Figure BLG 3-5 was updated to clarify the sample income statement under ASC 852-10.
- BLG 3.10.1 was updated to clarify considerations related to accounting for reorganization items during bankruptcy.
- BLG 3.16 was enhanced to add guidance from ASC 718-20-35 for accounting for stock-based compensation during bankruptcy.
- BLG 3.18 was updated to remove discussion of rare scenarios in which a solvent parent continues to consolidate a subsidiary in bankruptcy given its limited applicability in practice.
BLG 4, Emerging from bankruptcy
Revisions made in October 2022
BLG 1, An introduction to bankruptcy proceedings
- BLG 1.2 was updated to discuss the enactment of the Bankruptcy Threshold Adjustment and Technical Corrections Act.
BLG 2, Accounting and reporting considerations prior to entering bankruptcy
- Certain sections of BLG 2 were reordered.
- BLG 2.2.5 replaced the discussion of leases under ASC 842 and ASC 840 that was previously included in BLG 2.3.2 and BLG 2.3.2A, respectively.
- BLG 2.2.7 (formerly BLG 2.2.8) was updated to include discussion of a reporting entity’s consideration of a customer’s credit risk as it relates to measuring impairment losses for accounts receivable and contract assets in accordance with ASC 310 or ASC 326, once adopted.
- BLG 2.3 was reorganized to only include discussion of employee-related matters. The content formerly in Figure BLG 2-2 was moved to BLG 2.3.1, and BLG 2.3.2 was added to discuss equity-based compensation awards under ASC 718.
- BLG 2.4.3 was removed as the FASB cancelled the project and the proposed ASU related to simplifying the current versus noncurrent classification of debt in a classified balance sheet.
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.