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A PDF version of this publication is attached here: Bankruptcies and liquidations guide - December 2021 (PDF 2.54mb)
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)
  • 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 December 2021
BLG 4, Emerging from bankruptcy
  • BLG 4.4.2 was enhanced to clarify the guidance around accounting for debt issuances in conjunction with a bankruptcy and to provide guidance on ASU 2021-08.
  • Example BLG 4-2 in BLG 4.4.4 was enhanced to discuss debt issued upon emergence.

Revisions made in August 2021
BLG 6, Liquidation basis of accounting
  • BLG 6.4 was enhanced to clarify the guidance around when the liquidation basis of accounting should be applied.
  • BLG 6.5.4 was updated to provide examples of certain events that have unique accounting considerations that may occur in connection with a liquidation.

Revisions made in July 2021
BLG 5, Alternatives to reorganization
  • BLG 5.2.3 was updated to reference the guidance related to the accounting for a seller’s disposal of a bankrupt entity’s nonfinancial assets and a sale of a business if the disposed assets constitute a business.

BLG 7, Common disclosures for entities in bankruptcies or liquidation
  • BLG 7.2 was updated to include additional discussion of disclosures required during a period of financial distress that may result in a bankruptcy filing.
  • BLG 7.3 was updated to include additional discussion of incremental disclosures for entities in bankruptcy.
  • BLG 7.4 was updated to include discussion of disclosures of a reporting entity’s summary of significant accounting policies and the guidance in ASC 852-10-50-7.
  • BLG 7.6.3 was added to discuss pro forma financial information that may be prepared in an SEC registration statement, proxy statement, Form 8-K, or other document.

Revisions made in June 2021
BLG 1, An introduction to bankruptcy proceedings
  • BLG 1.2 was updated to discuss the new Subchapter V of Chapter 11 of the Bankruptcy Code.

BLG 2, Accounting and reporting prior to entering bankruptcy
  • BLG 2.2.2 was updated to reflect the revised effective dates for adoption of ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
  • BLG 2.3.2 was added to discuss accounting for leases under ASC 842 (pre-bankruptcy).
  • BLG 2.3.2A was added to discuss accounting for leases under ASC 840 (pre-bankruptcy).
  • BLG 2.3.3 was added to discuss accounting for other contractual arrangements under ASC 420 (pre-bankruptcy).

BLG 3, Accounting and reporting during bankruptcy
  • BLG 3.6 was enhanced to discuss an alternative approach to account for costs related to debtor-in-possession financing.
  • BLG 3.8 was added to discuss accounting for leases under ASC 842 (during bankruptcy).
  • BLG 3.8A was added to discuss accounting for leases under ASC 840 (during bankruptcy).
  • BLG 3.9 was added to discuss accounting for other contractual arrangements under ASC 420 (during bankruptcy).
  • BLG 3.10.1 was updated to further discuss the nature of reorganization items.

BLG 4, Emerging from bankruptcy
  • BLG 4.5.1 was updated to discuss retrospectively adjusting predecessor financial statements.

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.

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