Page 112 - Bankruptcy Volume 1

Chapter 14

Application of the Accountant’s Reporting Obligations to Bankruptcy Proceed-
ings

Previous sections of this practice aid describe the general financial reporting requirements for entities
operating during bankruptcy. In addition, FASB ASC 852 provides guidance on how entities should ac-
count for debtor activities both during the bankruptcy process and upon emergence from Chapter 11.
However, FASB ASC 852 does not cover the specific role of the accountant regarding his or her prepa-
ration of and potential association with financial information used by entities operating during bankrupt-
cy.

Litigation Consulting Services

As discussed previously within this guide, accountants rendering consulting services to bankrupt entities
are typically considered to be providing litigation consulting services. Both litigation and bankruptcy
consulting services involve negotiations among informed parties. In both environments, the affected par-
ties have the opportunity to question and challenge findings of the other parties, a trier of fact determines
the results, and Statement on Standards for Forensic Services (SSFS) No. 1 (FS sec. 100) fn 1 will apply.
Accordingly, many of the services performed in bankruptcy consulting assignments are treated as litiga-
tion services exempt from the Statements on Standards for Attestation Engagements (SSAEs) and the
Statements on Standards for Accounting and Review Services (SSARSs). fn 2

Bankruptcy services certainly fall within the scope of services included in the litigation services excep-
tion. Bankruptcy services are guided and ultimately are designed to support federal law, as promulgated
under the Bankruptcy Code. The findings of the practitioner are utilized by bankruptcy judges and law-
yers to resolve disputes or to support actions taken between a debtor and its creditors. Similarly, in bank-
ruptcy cases claims related to preferential payments and fraudulent conveyances; negligence of officers,
directors, or professionals engaged by the debtors; or other allegations common to commercial litigation
arise and require financial experts to analyze and interpret the financial underpinnings of the claims. The
bankruptcy court has the ultimate power and authority to value legal claims and resolve litigation.

Although the following list is not exhaustive, some of the more common services provided that fall
within the exception include

fn 1 All FS sections can be found in AICPA Professional Standards.

fn 2 AT-C section 105, Concepts Common to All Attestation Engagements, provides that litigation services and other professional ser-
vices performed in accordance with CS section 100, Consulting Services: Definitions and Standards, are not covered by AT-C section
105. The "Objectivity and Independence" subtopic (ET sec. 0.300.050) presents examples that depict the impact of performing other
services on the accountant’s independence.

All AT-C sections can be found in AICPA Professional Standards.

All CS sections can be found in AICPA Professional standards.

All ET sections can be found in AICPA Professional Standards.

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