Page 114 - Bankruptcy Volume 1

countant may prefer to prepare the analysis showing the procedures performed and the results, similar to
the format for the agreed-upon procedures report. For another example, the accountant auditing the fi-
nancial statements of companies operating during bankruptcy is required to disclose any association
with those financial statements. It is clear that whenever an accountant is involved with a company in
bankruptcy proceedings and is associated with financial statements that were compiled, reviewed, or au-
dited pre-bankruptcy, that accountant’s reporting requirements continue unaffected; that is, if an ac-
countant (properly) discloses his or her association with a debtor company’s financial statements pre-
bankruptcy, he or she should continue to disclose that same association during the bankruptcy. Thus, the
SSAEs apply to audited financial statements, and the SSARSs apply to accounting services involving a
compilation or review engagement. Ultimately, the accountant involved in the work decides whether at-
testation or other standards apply.

Although these examples illustrate the two extremes — situations in which attestation standards do not
apply, such as in the preference analysis, and situations in which attestation standards do apply, such as
an audit — a significant amount of the work falls within the gray area where there is no specific guid-
ance as to the kind of action that the accountant should take. For example, should the attestation stand-
ards apply to the operating reports that are issued by the debtor to the court and to the U.S. Trustee and
thus made available to current and prospective investors? In many cases, the debtor’s accountant is asso-
ciated with these statements. Some accountants issue a report indicating financial statement compilation.
Other accountants prepare the financial statements and give them to the debtor for signature.

The accountant may be engaged to prepare the operating reports that the U.S. Trustee and the bankrupt-
cy court require and not specifically engaged to perform an audit or review of the financial records or
even to compile the financial statements in accordance with professional reporting standards. Of course,
if the practitioner is engaged specifically to prepare the operating reports in accordance with the SSAEs
or SSARSs, then professional reporting standards apply.

Although specific hearings are generally not scheduled to review the operating reports or the details un-
derlying the operating reports required by the U.S. Trustee and the bankruptcy court, creditors or other
parties in interest generally have an opportunity to ask questions regarding the operating reports, request
access to the supporting underlying data, or raise objections to the reports’ contents. The preparation or
review of monthly operating reports required by the court is one service rendered by accountants per-
forming bankruptcy services.

Reporting Requirements

Interested parties often question whether, if the attestation standards do not apply, the accountant should
prepare a brief report or management should indicate that the accountant prepared the data. Frequently,
the debtor includes in the disclosure statement financial information and financial statements prepared
by the accountant without referring to the accountant or otherwise indicating the level of service provid-
ed by that accountant. The reader can determine that the financial information was prepared by the ac-
countant only by looking at a fee application.

Preparation of Financial Projections and Valuations

An essential part of bankruptcies and restructurings is the development of prospective financial infor-
mation (PFI). PFI is used as part of most negotiations with lenders, committees of creditors, and other

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