Once a reporting entity has filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code, its accounting and financial reporting fall under the scope of ASC 852-10, Reorganizations, which incorporated the guidance in AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). SOP 90-7 was first published in 1990, and through its incorporation into the ASC, its guidance continues to serve as the foundation for accounting and reporting during bankruptcy. ASC 852-10 also includes illustrative financial statements and a glossary of terms.
In this chapter, the primary focus is the accounting and financial reporting for a reporting entity involved in a Chapter 11 bankruptcy proceeding. ASC 852-10 applies only to Chapter 11 proceedings, and it excludes governmental organizations and entities that are in liquidation under Chapter 7 of the Bankruptcy Code or for other reasons. See BLG 6 for considerations around the liquidation basis of accounting.
A key objective of the financial reporting by entities in bankruptcy is to reflect the financial evolution of the bankruptcy proceedings. The guidance requires that transactions and events directly associated with the reorganization be distinguished from the ongoing operations of the business. In addition, ASC 852-10 provides for changes in the accounting and presentation of significant items on the balance sheet, particularly liabilities. This chapter covers the methods for distinguishing the activities of the bankruptcy process and how those various activities are presented in the financial statements.
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