In some cases, a reporting entity may file for bankruptcy because of a single event, such as a significant unfavorable litigation judgment or other severe financial event. In other cases, a bankruptcy is preceded by a continued decline in financial condition that gives rise to certain accounting considerations that might not be present when a reporting entity is profitable. Some of the indicators of financial distress include:
Market share
Management and employee turnover
Revenue / EBITDA
Unit costs
Shareholder pressure
Creditor pressure
Capital expenditures
Leverage ratios
Credit ratings
Risk of debt covenant defaults
Demand for product/services
Collateral requirements
While this guide focuses on accounting and reporting considerations for an entity in bankruptcy, this specific chapter highlights items for any reporting entity to consider when it is experiencing significant financial difficulties. As such, users of this guide should also review the applicable US GAAP and PwC Guides referenced herein for further information regarding these and other items that may be impacted when a reporting entity is in financial distress.
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