Accounting for change
How Deloitte helped one company emerge from bankruptcy
RESETTING A
FRESH BALANCE SHEET
AFTER BANKRUPTCY
The Situation
A company headquartered outside the United States found itself needing to restructure its debts and contracts. To do so, however, it had to file for Chapter 11 in the United States, the home of many of its financiers. That dynamic—a foreign entity filing for bankruptcy in the United States—created some significant financial reporting challenges.
The entity adheres to International Financial Reporting Standards (IFRS®), not US Generally Accepted Accounting Principles (GAAP). With GAAP, reorganized companies that qualify for Fresh Start accounting remeasure their assets and liabilities for both debtors and non-debtors. IFRS does not follow Fresh Start accounting.
While Fresh Start requires that the assets and liabilities of the emerging entity be reset to fair value, IFRS generally prohibits companies from remeasuring their assets and liabilities to fair value or resetting their opening equity balances.
This meant the company required knowledge and insights to help them solve two basic questions: Could it achieve an IFRS financial reporting result that was akin to Fresh Start accounting? And could the company reset its balance sheet and present itself, post-bankruptcy, as a new reporting entity without any disparities in guidance between the two geographies it served?
In addition to the two major questions at hand, the company determined that it was redomiciling its parent to the United Kingdom and needed help understanding the new reporting requirements in that country as well.
THE SOLVE
CREATING A FRESH BALANCE SHEET AMID A RESTRUCTURING
The Impact
Ultimately, Deloitte successfully helped the client achieve its goal of having a clean balance sheet with the emerged entity presenting its accounts at a fair value. Deloitte also assisted the client with meeting reporting requirements, including further assistance with updates in the measurement window allowed under IFRS.
Because of the bankruptcy, the company had bandwidth issues to make the needed accounting modifications; Deloitte filled those gaps so it would not face a delay in that process either.
Now a brand-new entity, the company has a new basis of accounting for its assets and liabilities and a new way to process and track reporting in a new country.
Deloitte helped the company create a clean balance sheet with the emerged entity, presenting its accounts at a fair value.
LET'S CONNECT.
Do these challenges sound familiar?