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7.3 Disclosure during the bankruptcy period
Publication date: 30 Jul 2021
us Bankruptcy & liquidation guide 7.3
In the period following the filing of the bankruptcy petition, and before emergence, ASC 852-10-45 and ASC 852-10-50 require the following incremental disclosures for entities in bankruptcy:
- The effects of the application of ASC 852 on the financial statements of the debtor, specifically the required disclosures for the following significant items:
- The basis for determining what accounts are included within liabilities subject to compromise and the significant items within that category
- The basis for determining what items are included within reorganization items and the significant items within that category
- The condensed combined financial statements of the entities involved in the bankruptcy if the consolidated financial statements include one or more entities in bankruptcy and one or more entities not in bankruptcy. These should include statements of operations and cash flows covering the period while in bankruptcy and a balance sheet as of the date of the consolidated balance sheet.
- Details of operating cash receipts and payments resulting from the reorganization if the statement of cash flows is prepared using the indirect method. Such details may be included in the notes to the financial statements or disclosed in a supplementary schedule to the statement of cash flows.
- Claims that are not subject to reasonable estimation under ASC 450-20, Contingencies. In addition, companies in bankruptcy often receive claims from creditors that are not valid. In this situation, the amounts of the total claims submitted, the process for considering those claims, and the amount of these claims that are expected to be rejected should be disclosed. If the reporting entity has not finished its assessment of valid claims, it should clearly disclose this fact as well as the amount of claims which have not yet been assessed.
- The difference between reported interest expense and the amount that would have been accrued absent the limitations for accruing interest under bankruptcy law. This can be included on the face of the statement of operations (see BLG 3.9) or in the notes to the financial statements. Additionally, disclosure of interest income earned by a reporting entity in bankruptcy that would not have been earned except for the proceedings is also required to be reported within reorganization items.
- Earnings per share if required by ASC 260, Earnings Per Share. If it is probable that the reorganization plan will call for the issuance of common stock or common stock equivalents, thereby diluting current equity interests, that fact must be disclosed.
- The status of the plan of reorganization and voting by the creditors.
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