Wiley GAAP: Financial Statement Disclosure Manual. Joanne M. Flood
or may not approximate fair value. The following should also be considered:
Previously unrecognized assets, such as internally generated trademarks and patents, should be recognized. These items may be presented in the aggregate, but must separately record any expected disposal or selling costs. Expected selling costs should be included in the accrual of estimated disposal costs. (ASC 205‐30‐25‐4)
Liabilities should be recognized in accordance with relevant guidance in other Topics. However, some estimates, like timing of payments, may change and should be recorded. In addition, an entity should not assume that it will legally be released from its obligations. (ASC 205‐30‐30‐2)
Estimated costs to dispose of assets or other items to be sold in liquidation should be accrued, but discount provisions should not be applied (ASC 205‐30‐25‐6 and 205‐30‐30‐3). Those costs should be presented in the aggregate, but separate from the related assets or items. If and when it has a reasonable basis for estimation, the entity should accrue costs and income expected to be incurred or earned through the end of the liquidation. (ASC 205‐30‐25‐6 and 7)
Income expected to be collected during liquidation should be accrued, but the entity should exercise care in making that estimate.
The entity must estimate the costs that it will incur during liquidation if it has a basis for the estimation.
Presentation An entity using the liquidation basis of accounting must apply it prospectively from the day the liquidation becomes imminent and change the form of its financial statements to:
A statement of net assets in liquidation, as of the end of the reporting period, that presents the entity's net assets available for distribution to investors, and
A statement of changes in net assets in liquidation that present only changes in net assets occurring during the period since liquidation became imminent.(ASC 205‐30‐45‐1 and 45‐2 and ASC 205‐30‐20)
While the standards do not require a statement of net assets as of the date the liquidation becomes imminent, that information is necessary to prepare a statement of changes in net assets for the first period in which liquidation becomes imminent. (ASU 2013‐07, BC 17)
Disclosure The entity must disclose information required by other Topics relevant to understanding the statement of net assets in liquidation and statement of changes in net assets in liquidation, informing readers about:
The amount of cash or other consideration that the entity expects to collect and
The amount that the entity is obligated or expects to be obligated to pay during the course of liquidation.(FASB ASC 205‐30‐50‐1)The entity must also disclose all of the following for financial statements using the liquidation basis of accounting:That the financial statements are prepared using the liquidation basis of accounting.The facts and circumstances surrounding the adoption of the liquidation basis of accounting and the entity's determination that liquidation is imminent.The entity's plan for liquidation, including a description of:The manner by which it plans to dispose of its assets.Other items it expects to sell that it had not previously recognized as assets (for example, trademarks).The manner by which it plans to settle its liabilities.The expected date by which the entity expects to complete its liquidation.
Methods and significant assumptions used to measure assets and liabilities.
Any subsequent changes to those methods and assumptions.
The type and amount of costs and income accrued in the statement of net assets in liquidation.
The period over which those costs are expected to be paid or income earned.(FASB ASC 205‐30‐50‐2)
The entity should also consider information that would help the reader to better understand the proceedings and where to obtain additional information, including:
Which subsidiaries are included in the filing
The bankruptcy jurisdiction
Key hearings
Agreements reached with creditors
The status of any debtor‐in‐possession and exit financings
It should be noted that disclosures, such as debt covenant violations, required by other Topics may be affected by the filing.
ASC 205‐40, Going Concern
The Codification essentially, with some exceptions, mirrors going‐concern requirements for auditors currently found in PCAOB and AICPA standards. Management must perform, at least annually, an evaluation of the entity's ability to continue as a going concern within one year after the financial statements are issued or, when applicable, available to be issued.
Overall Guidance Management must perform two steps:
1 Evaluate, in the aggregate, conditions and events that are known or reasonably knowable at the evaluation date, and
2 Assess whether it is probable that the entity will be able to meet its obligations that are due within one year after the date that the financial statements are issued or available to be issued.(ASC 205‐30‐50‐3 and 50‐4)
The going concern probability threshold is the same used for accounting for contingencies—more likely than not.
Consideration of Management's Plans When making going concern assessments, management may consider mitigating plans to determine whether substantial doubt is alleviated. These plans can be considered only if both of the following conditions are met:
It is probable that the plan will be effectively implemented with the year.
It is probable that the plan when implemented will mitigate the conditions or events that raise substantial doubt about going concern.(ASC 205‐ 30‐50‐6 and 50‐7)
In order for these plans to be considered, generally, management or those with authority must approve the plans before the issuance date of the financial statements.
Disclosure Requirements
| Management Conclusion | Disclosures |
| Conditions do not give rise to substantial doubt. | No specific disclosures are required. |
| Substantial doubt exists but is alleviated by management's plans. | In a separate note or part of another note, for example, on debt, information that enables users to assess:Principal conditions or events that raised substantial doubt,Management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations, andManagement's plans that alleviated those concerns. (ASC 205‐40‐50‐12) |
| After considering all the facts and management's plans, management concludes that substantial doubt remains. | A separate note with:A statement that there is substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued.Disclosures that allow users to understand:Principal conditions or events that raised substantial doubt,Management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations. andManagement's plans to mitigate the conditions or events. (ASC 205‐40‐50‐13) |
| In subsequent years |
Present the above disclosures in subsequent financial statements as long as substantial doubt exists. If any changes in conditions or |