Corporate Advisory & Restructuring Services - Grant Thornton LLP

Corporate Advisory &
Restructuring Services:
Fresh Start Accounting
______________________________________________________
Advisory Services
Fresh Start Accounting is a service to assist
entities emerging from bankruptcy with the
adoption of the appropriate emergence
accounting, as governed by the Financial
Accounting Standards Board (“FASB”)
Accounting Standards Codification® (ASC) 852,
Reorganizations. Emergence accounting,
specifically Fresh Start Accounting, is the last
step in a successful emergence from Chapter
11, and can be extremely complex. It is often
one of the most difficult tasks management will
face during a bankruptcy, and planning for
Fresh Start Accounting should begin well in
advance of the emergence date.
Company to prepare financial statements in
what is commonly referred to as the “Four
Column Approach.” The first step is to prepare
the books and records of the predecessor entity
for audit. The next step is to record the Effects
of the Plan of Reorganization. This includes
recording the extinguishment of pre-petition
liabilities (“Liabilities Subject to Compromise”),
extinguishment of the common stock of the
predecessor entity, recoveries to creditors, and
the reorganization gain/loss provided by the
above activities. Step Three involves the
revaluation and balance sheet adjustment of the
assets and liabilities of the entity. The final step
is to prepare the financial statements of the
new entity to reflect all adjustments made
during this process.
Grant Thornton LLP’s integrated approach,
combining the skills of our Corporate Advisory
& Restructuring Services, Accounting, Tax,
Valuation and Strategic Information
Management professionals, helps companies
emerge from bankruptcy prepared to move
forward.
The results of Fresh Start Accounting are
similar to purchase accounting, but require the
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At its core, Fresh Start Accounting is much
more than an accounting exercise. The Fresh
Start Accounting service is broken into four
phases:
Assessment – Define the scope and
develop the plan for accounting for the
emergence.
Review the Plan of Reorganization.
Review the capabilities of a Company’s
general ledger and sub-ledgers and
understand any complexities that may affect
the program for Fresh Start.
Review every account on a company’s trial
balance to determine need for valuation
procedures.
Review tax issues for each entity, including
local, state, federal and any foreign statutory
requirements.
Development of implementation
procedures – Based on the results of
Phase 1, creating the necessary
information and adjustments to
support the emergence.
Identify financial adjustments required to
record the Effects of Plan and the
anticipated impact on the general ledger.
Perform valuation of assets and liabilities of
every entity within a company’s structure (all
Debtors and non-Debtors are revalued in a
Fresh Start scenario), and establish new
balance sheet values, including goodwill.
Design and test processes and plans for
making adjustments in the accounting
systems, including preparing for a possible
mid-year close and making changes to
carrying values and useful lives.
Assist with preparation of preliminary
journal entries and documentation to
support the emergence transactions, and
review them with a company’s auditors to
ensure buy-in and understanding.
Implementation – Prepare the required
adjustments to be made by the
company.
Assist management with adjustments to
financial records, including “push-down” of
Plan Effects and Fresh Start Accounting to
subsidiaries.
Review impact of consolidation and
elimination entries to ensure consolidated
opening financials are in accordance with
Plan of Reorganization.
Assist with preparation of opening financial
statements, any required reporting and
financial statement disclosures.
Follow-up – Assist management on an
as-needed basis.
Finalize valuation adjustments and
allocations.
Participate in discussions with a company’s
auditors to ensure appropriate understanding
of accounting adjustments, emergence
financials, and supporting documentation.
Continued tax review, structuring and
planning, including:
Post-emergence tax planning (year
end cut-off, deconsolidations, forced
consolidations)
Entity tax withdrawal consulting (for
liquidated entities)
Reporting tax implications on postemergence
tax returns and analyzing
state tax implications
Assisting in the withdrawal of debtor
entities from state, local and foreign
jurisdictions upon liquidation
Representative clients for whom we
have provided Fresh Start
Accounting Services include:
Automotive Parts Supplier
Provided day to day oversight of the Firm
and client teams responsible for valuation
and tax adjustments.
Determined applicability of Fresh Start based
on the criteria set forth in ASC 852.
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Prepared integrated models and schedules to
support journal entries and footnotes for
Plan of Reorganization and valuation
adjustments.
Assessed general ledger and sub-ledger
impact and capability of these systems to
meet the needs of Fresh Start accounting.
Provided support for determining the
appropriate Fresh Start emergence and
reporting date.
Met with auditors to discuss impact on the
predecessor entity, plan of reorganization
and Fresh Start adjustments of decisions and
recommendations made by management
related to treatment of specific accounts.
Created supporting documentation for
adjustments made.
Bally Total Fitness
Assisted with the implementation of
accounting as defined by Generally Accepted
Accounting Principles for the Plan of
Reorganization.
Provided tax advice on the recording and
impact of the Plan of Reorganization.
Valued the Company’s assets, including
furniture, fixtures, and equipment as well as
intangible assets, as applicable.
Computer Hardware Manufacturer
Coordinated activities of Company’s tax,
accounting and restructuring professionals
with respect to planning and reporting of
Fresh Start Accounting.
Reconciled claims reports to general ledger to
ensure gains on debt forgiveness were
calculated appropriately.
Reviewed general ledger and sub-ledgers and
discussed capabilities with the Company’s IT
department to determine best methodology
for recording adjustments.
Discussed changes to depreciable lives,
capitalization thresholds of assets, changes in
inventory methods and other accounting
items with management, and determined
effects of the changes on the Successor
Entity financials.
Provided information on best practices for
handling necessary accounting adjustments in
the ledgers and sub-ledgers.
Calculated impact of Stock Rights Offering
on Reorganization Value of the emerging
entity and determined adjustments required
to ensure the capture of excess cash in the
final equity value of the Successor Entity.
Provided auditors with training on Fresh
Start Accounting and discussed the impact of
Fresh Start adjustments on the timing of
their audit.
Provided auditors with a timeline of
requirements for review of financials and
preparation of SEC filings.
Reviewed Fresh Start Accounting financials,
including the Fresh Start Accounting
footnote, Predecessor and Successor Entity
balances sheets, income statements and cash
flows.
Energy Partners, LTD.
Engaged to perform valuation work related
to emergence from Chapter 11.
Interfaced with IT to discuss effects of
valuation adjustments on systems.
Analyzed key issues and value drivers of
assets and liabilities.
Identified and discussed appropriate
valuation assumptions with management.
Allocated values of assets to reporting units.
Provided documentation and support for
valuations, methodologies and assumptions.
Idearc Inc.
Assisted with financial statement
preparations and disclosures.
Prepared applicability testing of Reporting as
required by Fresh Start Accounting
principles.
Identified entries needed to account for the
effects of the Plan of Reorganization.
Anticipated potential issues with external
auditors.
Assisted in creation of supporting
documentation for the audit.
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Analyzed tax implications of cancellation of
debt, new legal entity structure, “push down”
adjustments, and the transfer of assets.
Advised the Company on statutory reporting,
deferred taxes, inter-company transactions
and preserving net operating losses.
Assessed the scope and methodology for
assets and liabilities to revalue.
Provided fair value appraisals for tangible
and intangible assets.
Addressed impairment and valuation
allowance issues.
Identified necessary steps to effectuate
entries to the Accounts Payable, General
Ledger and Sub-ledger systems.
Analyzed the effect of changes on the
reporting and budgeting processes to
minimize disruption.
Advised on the processes to address
bankruptcy and emergence reporting.
Major Telecommunications Provider
Created models to estimate impact of Fresh
Start Accounting on consolidated entity and
multiple international subsidiaries.
Reviewed Plan of Reorganization to
determine recoveries to creditor classes and
gains on debt forgiveness.
Developed methodology for determining
that a change of control would occur, and the
entity would qualify for Fresh Start
Accounting.
Directed activities of third party valuation
firm related to valuation of all tangible assets.
Modeled effects of various intercompany
actions and created hybrid methodology for
determining recoveries on intercompany
balances.
Prepared documentation to provide the
Company and their external auditors with
support for Fresh Start financials.
Assessed impact on the Company’s general
ledger and sub-ledgers of actions taken to
effect the Plan of Reorganization and
incorporate the valuation and tax
adjustments.
Major Grocery Chain
Managed end to end implementation of
Fresh Start Accounting.
Reviewed balance accounts with valuation
professionals to determine every account that
would require an adjustment.
Recommended adjustments required to the
Company’s PeopleSoft Accounting system to
retain historical data required for budgeting,
calculating commissions and management
reporting.
Discussed stock options issues with the audit
team to determine the appropriate timing for
the cancellation of existing stock options.
Created allocation model for new equity
distribution to creditors based on estimated
liabilities subject to compromise and Plan of
Reorganization classes.
Discussed Sarbanes-Oxley issues associated
with changes in the accounting processes
and control environment, and provided
appropriate documentation to support the
adjustments.
Reviewed Company’s methodology for
reporting book versus tax impact, and
provided the tax department with detailed
information on the adjustments being made
to the books to understanding of permanent
tax differences.
Tax services provided to emerging
entity
Prior to filing bankruptcy
Reviewing debt modifications for tax
implications.
Analyzing Chapter 11 bankruptcy versus debt
reorganizations outside of Chapter 11.
Pre-filing tax structuring and planning.
Providing tax planning to maximize cash
refunds/recoveries and minimize tax
liabilities.
Analyzing the state tax implications of the
above items.
During bankruptcy
Assisting with all aspects of the Plan of
Reorganization.
Estimating cancellation of indebtedness
income
Preservation of tax attributes under IRC
108/1017
Analysis of ownership changes
Analysis of consolidated return implications
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Modeling the tax implications of various plan
settlement options
Calculating IRC 382(l)(5) vs (l)(6)
implications
Working closely with other financial advisors
to advise the Debtor.
Amending tax returns for carryback claims or
prior period errors.
Supporting management with IRS or state
tax controversies.
Addressing federal, state, local and foreign
tax claims filed against the debtor.
Supporting management or the creditors’
committees with understanding the tax
implications of the plan.
Calculating stock basis and gains on
assets/entities to be sold, foreclosed, etc.
Optimizing structures for tax and operational
efficiency before emergence.
Addressing non-income tax
issues/opportunities such as sales, property,
excise, etc.
Preparation of returns in bankruptcy.
Analyzing the state tax implications of the
above items.
Post-emergence
Post-emergence tax planning (year end cut
off, deconsolidations, forced consolidations).
Entity tax withdrawal consulting (for
liquidated entities).
Liquidating trust formation, consulting and
compliance.
Calculating or auditing fresh start balance
sheet tax provisions.
Analyzing bankruptcy costs for tax
deductibility.
Reporting tax implications on postemergence
tax returns.
Analyzing the state tax implications of the
above items.
Assisting in the withdrawal of debtor entities
from state, local and foreign jurisdictions
upon liquidation.
Contact details
Nate Vander Hamm
Managing Director, Fresh Start Accounting
T 816-412-2427
E Nate.VanderHamm@us.gt.com
Joseph DiSalvatore
Managing Director, Forensic and Valuation Services
T 212.624.5300
E joseph.disalvatore@us.gt.com
Bryan Benoit
Partner, Economic Advisory Group
T 832.476.3620
E Bryan.Benoit@us.gt.com
Scott Davis
Partner, Corporate Advisory & Restructuring
Services
T 704.632.3540
E Scott.Davis@us.gt.com
April Little
Partner, Tax Accounting and Risk Advisory Services
T 832.476.3730
E april.little@us.gt.com
Forrest Frazier
Partner, Business Advisory Services
T 704.632.6801
E Forrest.Frazier@us.gt.com
Paul Kanneman
National Managing Principal, Business Advisory
Services
T 214.562.2256
E Paul.Kanneman@us.gt.com
Johnny Lee
Director, Corporate Advisory & Restructuring
Services
T 212.542.9778
E Johnny.Lee@us.gt.com
Susan Nunamaker
Senior Manager, Economic Advisory Services
T 704.632.6946
E Susan.Nunamaker@us.gt.com
David Rader
Managing Director, Business Advisory Services
T 408.346.4330
E David.Rader@us.gt.com
Sharon Whittle
Principal, Compensation and Benefits Consulting
T 704.632.6884
E Sharon.Whittle@us.gt.com
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