Once a company has filed a petition for bankruptcy (e.g. under Chapter 11 of the Bankruptcy Code), its accounting and financial reporting falls under the scope of ASC 852-10. In addition, the company will have to file detailed financial reports and supplemental schedules to the bankruptcy court every month. Preparation of these reports is time consuming and very prone to errors. Therefore, it is a good practice to consult with an experienced CPA firm while preparing such reports.
There are some unique requirements for financial reporting during bankruptcy as discussed below.
Presentation of Liabilities
Liabilities are separated into two parts: pre-petition liabilities (obligations incurred prior to the filing of the bankruptcy petition) and post-petition liabilities (obligations incurred after the filing). Pre-petition liabilities are further segregated into those that are subject to compromise and those that are not subject to compromise.
Statement of Operations
The statement of operations reflects changes due to the evolution of the bankruptcy process. Items related to the bankruptcy should be presented separately in the financial statements.
Only incremental costs directly related to the company’s bankruptcy filing, such as professional fees, would be presented as a reorganization item.
Monthly Operating Reports
During the bankruptcy process, the company is required to send monthly operating reports to the U.S. Bankruptcy Court. These reports normally include Balance sheet, Income statement, Cash flow statement, Schedule of post-petition liabilities, Ageing of accounts receivable and post-petition liabilities, Cash receipts and disbursements, Cash account reconciliation, List of payments to insiders and professionals, etc. It requires meticulous records, reconciliations, and preparation in order to generate such reports correctly.
CMCD LLC has helped its clients to satisfy the bankruptcy court’s requirements relating to the monthly operating reports. If you have any questions or need our assistance, please feel free to contact us.