Page 115 - Bankruptcy Volume 1

constituents. In addition, PFI is typically included in disclosure statements filed with the court to assist
stakeholders in their evaluation of the restructuring and to analyze its feasibility. The attestation stand-
ards in AT-C section 305, Prospective Financial Information, fn 4 generally provide that an examination,
compilation, or agreed-upon procedures engagement should be performed whenever an accountant sub-
mits PFI to clients or others. However, paragraph .A2 of AT-C section 105, Concepts Common to All At-
testation Engagements, provides an exemption when an engagement involves PFI used solely in connec-
tion with litigation support services. As discussed previously, this exemption is provided because,
among other things, the accountant’s work in such proceedings is ordinarily subject to detailed analysis
and challenge by each party to the dispute.

If the debtor’s accountant is also the debtor’s auditor, fn 5 the accountant should undertake a careful
evaluation of the rules contained in the "Independence Rule" (ET sec. 1.200.001) and AT-C section 105
to determine the effect that the services to be provided with respect to the PFI may have on the account-
ant’s independence.

If the accountant is also the debtor’s auditor, the accountant would not be considered independent if the
accountant assisted the debtor in preparing financial projections included in the disclosure statement or
distributed for other purposes. The auditor or accountant’s participation in the "assembly" of PFI, as de-
fined in paragraph .A64 of AT-C section 105, fn 6 would impair the accountant’s independence because
these activities are viewed as analogous to the accountant providing bookkeeping or other services relat-
ed to preparing the accounting records or financial statements of the audit client. The auditor or account-
ant’s independence would not be compromised if the accountant performed compilation procedures or
examination procedures. Additionally, independence generally would not be impaired if the accountant
summarized or otherwise analyzed management’s projections (such as performing scenario analyses) as
part of providing bankruptcy consulting services. However, as described previously in regard to report-
ing requirements, clearly communicating the nature and extent of the accountant’s association (or lack
thereof) with the PFI in any analysis containing management’s projections is a recommended practice.

Determining the value of the business is another important part of the bankruptcy and restructuring pro-
cess in which the accountant’s assistance may be requested. Similarly to the development of PFI, if the
accountant is also the debtor’s auditor, the accountant should undertake a careful evaluation of the re-
quirements contained in the "Independence Rule," the "Nonattest Services" interpretation (ET sec.
1.295) under the "Independence Rule," and AT-C section 305 to determine the effect that the valuation
services being contemplated may have on the accountant’s independence.

For public companies, the SEC has determined that the auditor or accountant’s preparation of valuations
for an attest client will impair the accountant’s independence (See Rule 2-01(b) of SEC Regulation S-
X). Additionally, as discussed, the auditor or accountant’s role in the development of the PFI underlying
the valuation may also impair independence.

fn 4 AT-C section 305 contains performance and reporting requirements and application guidance for a practitioner examining or per-
forming agreed-upon procedures on prospective financial information.

fn 5 References to the debtor’s accountant and the debtor’s auditor in this section are to the firm, rather than to an individual, because
the requirements described herein are generally applied collectively to all members and employees of a firm.

fn 6 Paragraph .A64 of AT-C section 105 states, "The completion of the assembly of the final engagement file is an administrative
process that does not involve the performance of new procedures or the drawing of new conclusions."

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