Fresh Start Accounting Services
- Measuring Reorganization Value
- Capital Structure Complexities
- Tangible & Intangible Asset Valuations
- Liabilities & Debt Obligations
- Financial Reporting
According to ASC (Accounting Standards Codification), Topic 350, etc. Allocation of single-point restructuring value and goodwill to various reporting entities and legal entities (accounting structures) is important as a material misallocation, which could result in a significant risk of impairment of goodwill and long-lived assets.
Therefore, Fresh Start Accounting services relates to providing financial reporting valuations under rules and guidance on business combinations, new accounting treatments, fair value assessments, goodwill, and other asset impairment testing.
We provide a variety of valuation and advisory services related to corporate start-up accounting through to exiting Chapter 11 bankruptcy.
It also helps ensure that all assets and liabilities' final fair value conclusions are included in the opening balance sheet, including electronic ledgers and other supporting documentation, from bankruptcy proceedings.
Why is Fresh Start Accounting important?
Fresh Start Accounting is important because negotiations between interested parties may not reflect fair value.
To assist debtors and the courts, either range or point estimates may help estimate restructuring value and may also be identified. Estimate the fair value of tangible and intangible assets.
In addition, single-point restructuring values and goodwill are assigned to various reporting entities (pursuant to ASC Topic 350, Intangibles – Goodwill and Others) and legal entities (tax structuring).
This step is important as a material misallocation could result in an insignificant risk of impairment of goodwill and long-lived assets.
With their help, include the fair value conclusions of all assets and liabilities in opening balances, including electronic ledgers and other supporting documents, by considering tax and regulatory requirements related to legal entities leading to bankruptcy proceedings can do.
Fresh Start Accounting services assists clients in ensuring all accounting and regulatory matters, including all required documentation.
Accounting Advisory for Fresh Start Accounting
Application of Fresh Start Reporting:
It assists with determining whether the planned reorganisation qualifies for fresh start reporting.
Predecessor Entity Financial Statements:
Preparing the financial statements and reports for the predecessor company for the period immediately preceding the date of certification.
Successor Entity Financial Statements:
Preparing financial statements and footnotes for the new reporting entity to present and explain the impact of the reorganisation plan and the attribution of "reorganisation value".
Push-Down” of Fresh Start Reporting:
Prepare and execute "push-down" accounting entries to apply and record reorganised asset and liability balances to subordinate and statutory books and records.
Technical Accounting Position Papers:
Prepare technical accounting documents and developed analyses to document new reporting entity decisions.
Drafting, updating, and reviewing accounting policies and procedures for new reporting entities.
Who can adopt Fresh Start Accounting (An Example):
As mentioned, once a company has completed Chapter 11, certain criteria must first be met before an accounting can resume.
According to ASC 852-10-45-19, businesses are eligible if:
- The resulting restructuring value of the entity's assets immediately prior to the approval date is less than the sum of all post-application liabilities and granted claims.
- Holders of existing voting shares immediately prior to confirmation will receive less than 50% of the resulting voting shares of the company. Translating this first bullet point into actual English, the FASB states that a company must have bankruptcy records immediately before a reorganisation plan receives its seal of approval.
- In other words, the value of the restructured assets will be less than the sum of the liabilities and permissible receivables after filing for bankruptcy. Suppose both of these criteria are met after the court confirms the company's reorganisation plan.
- In that case, it will either apply fresh start accounting rules or settle all precedents for the plan, whichever is later.
Some Practices and Considerations for Fresh Start Accounting:
A Fresh Start Accounting is really a new start. If so elected, the start-up company may adopt new accounting policies that differ from those of its predecessor company. That doesn't mean you have to abandon your previous choices. Still, at least now you have the opportunity to look at things differently as long as your predecessor and successor have different accounting policies and their operating results are presented together. The disclosure should highlight the differences between the two groups of accounting.
If you are eligible for resumption of accounting and approval happens to occur on an unusual day, use a more favourable date for accounting purposes if you consider the intervening period to be immaterial to both your predecessor and the new reporting entity is appropriate. For example, he meets all the required criteria, and he happens to be approved on March 26th. If there are no significant changes over the next five days, April 1st can be used as the basis for the new start.
The public sector segment report is subject to change for new starts. As stated in ASC 280, the new reporting entity does not necessarily have the same organisational structure as the previous reporting entity, so important differences between the old and new segment reporting should be considered.
Lease Contract Modification:
Lease contract changes within a reorganisation plan may require some consideration. For example, if a plan modifies lease terms, those lease classifications should only sometimes be carried forward. Classifications typically need to be reassessed based on changes in terms resulting from court proceedings.
Stock Comp Plans:
Stock-based compensation plans require additional consideration. This is because previous awards typically become worthless, and courts often void them as part of bankruptcy proceedings.
ASC 718 outlines certain accounting considerations when awards are cancelled, and no replacement awards are issued. It's common in situations like this. On the other hand, if new stock awards are granted, the succeeding entity will account for them as new awards, also in accordance with his ASC.
Measurement Period – Or Lack Thereof:
As mentioned, the similarities between start-up and business combination accounting are quite common. However, the primary difference between the two is that fresh start accounting under ASC 805 has no measurement period. ASC 852 provides this period for making adjustments because the bankruptcy process itself is very lengthy and generally gives ample time to gather all relevant facts and information.
Reorganisation Report – When You Don’t Quality:
Even if you do not meet the criteria for start-up accounting, you must record the impact of your bankruptcy restructuring plan on your current annual financial statements. Of course, there is no new reporting entity, in this case, so everything discussed in fresh start accounting does not apply.
How ESPECIA helps in Fresh Start Accounting:
Here at ESPECIA, we understand that your business may be in difficult times right now. After all, you're probably not just reading this to kill time.
Whether your favourite trope is a phoenix rising from the ashes, a butterfly emerging from its cocoon, or an equally cheesy but relatable trope, they all apply to your business.
That is, as long as you understand how to proceed. And that's what we care about. We understand requirements and coordinate activities and processes—a new start event involving the implementation of plans by reorganisation and revaluation of company assets and liabilities.
We also understand how to manage the process of reconciling and allocating debt at risk of bankruptcy and beyond to limit the future impact on the company.
ESPECIA also provides its clients with the service which assists in determining and validating system-related activities necessary to record the Plan of Reorganisation events and balance sheet revaluations and finally assists in recording the tax impact to the appropriate legal entities.
With this extensive experience in all areas of valuation, ESPECIA provides the experience and services that companies need to ensure compliance with New Beginnings accounting principles.
Depending on the situation, there may be other considerations or issues when initiating a "reboot".
However, these points certainly apply to the most common problem areas. Whatever your current situation — a struggling company reading the tea leaves, an organisation already kneeling in restructuring,
A post-Chapter 11 company making sure you did everything right — this is a clean slate—one opportunity to start with a state or at least something close to it.
A fresh start accounting allows a company for under gone legal reorganisation essentially to erase its prior accounting records and start anew, by establishing a new basis of accounting for all individual assets and liabilities and new accounting policies that are appropriate for a new company.
a). A balance sheet just prior to the confirmation of the plan,
b). Reorganisation adjustments,
c). Fresh start adjustments,
d). The closing balance of the predecessor company.
Bankruptcy occurs when a company goes bankrupt but can make plans to reorganise its liabilities and assets and pay off all or part of its creditors.
Liabilities mainly refer to borrowed money, while accounts payable are financial obligations. Liabilities can become liabilities, but not all liabilities become liabilities. What are debts? Liabilities represent amounts borrowed from individuals, businesses, or organisations.
At ESPECIA, we have the expertise to meet your needs. Our talented team provides our clients with the best lending expertise.