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The disclosures required for a reporting entity emerging from bankruptcy depend on whether the reporting entity qualifies for fresh-start reporting, as discussed in BLG 4.3.

7.4.1 Reporting by entities qualifying for fresh-start reporting

A reporting entity that qualifies for fresh-start reporting upon emergence from bankruptcy (as discussed in BLG 4.5) should consider the following based on the guidance in ASC 852.
  • Upon confirmation of the plan of reorganization, the confirmation and effective dates should be disclosed. General terms of the confirmed plan should also be included with sufficient detail to provide the reader with a summary of (1) how the plan of reorganization addresses the various creditor classes, (2) how the reporting entity will be restructured under the terms of the plan, and (3) the existence and terms of any other arrangements (such as exit financing, warrants, and contingencies) that will be resolved in the period(s) following emergence.
  • For each balance sheet account, a reconciliation of the impact from the reorganization and application of fresh-start reporting should be provided in a tabular format with the following columns: predecessor balance sheet, reorganization adjustments, fresh-start adjustments, and successor balance sheet.

    The basis for each adjustment presented in tabular format, including the entries reflecting the discharge of debt obligations, issuance of any common and preferred stock as part of the reorganization, and any other adjustments or transactions resulting from the reorganization and application of fresh-start reporting, should be disclosed.

    Footnote descriptions and additional reconciliation tables may also be required to provide sufficient information supporting the balances in the opening balance sheet of the emerging entity based on the significant reorganization and fresh-start adjustments included in the tabular format (see Example BLG 4-2).
  • For fresh-start adjustments, the reporting entity should disclose the methods and assumptions used to calculate fair value, as discussed in BLG 4.4, including (1) a description of how any gains or losses related to the reorganization and the adoption of fresh-start reporting were calculated, and (2) a description of how the amount of “excess reorganization value” or goodwill was determined.

    If the reporting entity emerges from bankruptcy and uses a convenience date to record the adoption of fresh-start reporting, it should disclose this fact as well as the relationship to the actual effective date of the confirmation becoming effective.

    See BLG 4.2 for additional discussion of the use of a convenience date for fresh-start reporting.
  • As discussed in BLG 4.5.1, a vertical “blackline” is required to be presented in the financial statements separating the predecessor reporting entity from the successor reporting entity, highlighting the change in basis between the reporting entities. In the basis of presentation footnote disclosure, we believe a clear distinction should be made to denote that the predecessor entity and the successor entity are separate reporting entities and as such are not comparable. The reporting entity should consider disclosure that discusses any changes in accounting policies or principles, including the adoption of new accounting standards by the successor entity (see additional discussion in BLG 4.5.2).

    Reporting entities qualifying for fresh-start reporting that emerge during an interim period should consider including a complete description of the successor entity’s accounting policies as these are the initial financial statements of the successor entity.

    See FSP 17.6.5 for an illustrative example of “blackline” financial statements.
In addition to these disclosures, a reporting entity should consider the requirements in ASC 852-10-50-7.

ASC 852-10-50-7

Paragraph 852-10-45-21 requires additional information to be disclosed in the notes to the initial fresh-start financial statements when fresh-start reporting is adopted. That additional information consists of the following:
a. Adjustments to the historical amounts of individual assets and liabilities
b. The amount of debt forgiveness
c. Significant matters relating to the determination of reorganization value, including all of the following:
1. The method or methods used to determine reorganization value and factors such as discount rates, tax rates, the number of years for which cash flows are projected, and the method of determining terminal value
2. Sensitive assumptions – that is, assumptions about which there is a reasonable possibility of the occurrence of a variation that would have significantly affected measurement of reorganization value
3. Assumptions about anticipated conditions that are expected to be different from current conditions, unless otherwise apparent.

When determining reorganization value, reporting entities may also consider disclosing the following:
  • Values established by the Court, including any ranges of values considered and the point within the range that was selected
  • A description of how the enterprise value was used to derive the reorganization value (see discussion of reorganization value in BLG 4.3.1)

Reporting entities should also consider the fair value disclosures required by ASC 820, Fair Value Measurements.

7.4.2 Reporting by entities not qualifying for fresh-start reporting

For entities not qualifying for fresh-start reporting, the effects of the bankruptcy are recorded through the financial statements, and a new accounting entity is not created. Therefore, the financial statements are not divided between the pre- and post-bankruptcy periods (i.e., predecessor and successor financial statements are not presented). See additional discussion in BLG 4.6.
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