Page 79 - Bankruptcy Volume 1

Reorganization items 49

Net cash flow from operating activities before reorgan- $ 147
ization items
Reorganization items:
Interest received on cash accumulated because of the 1
Chapter 11 proceeding
Professional fees for services rendered in connection (50)
with the Chapter 11 proceeding
Net cash utilized by reorganization activities $ 49
Net cash provided by operating activities $ 98

Any reorganization items included in financing and investing activities are disclosed separately. For ex-
ample, cash flows from the sale of assets not needed by the reorganized company are shown as a reor-
ganization item in the investing section of the statement of cash flows.

FASB ASC 852-10 provides guidance on how companies reorganizing under Chapter 11 should prepare
financial reports. Although the attestation standards may not apply to financial statements issued in the
rendering of litigation services that might include some of the services rendered in Chapter 11, FASB
ASC 852-10 would still apply. The application of the attestation standards to bankruptcy work is de-
scribed in chapter 14, "Application of the Accountant’s Reporting Obligations to Bankruptcy Proceed-
ings," of this practice aid. Some of the specific services rendered in bankruptcy proceedings involving
the issuance of financial reports are discussed in the following paragraphs.

Postpetition Trustee Supporting Services

The accountant may prepare financial statements, including supplemental schedules, and analysis to
support actions taken by creditors’ committees, debtors in bankruptcy proceedings, or both. FASB ASC
852-10 applies to the extent that financial statements are issued during the reorganization. For example,
if a balance sheet is prepared for a period ending after the petition is filed, the debt that is subject to
compromise should be shown separately from the debt that is not subject to compromise and postpeti-
tion liabilities. Situations that may require financial information include the following:

 Motions to appoint trustee or remove management. An analysis of financial information may
support a position regarding management’s competence.

 Motions for use of cash collateral. The accountant may use cash flow projections demonstrating
the impact on operations of the release of various amounts of cash collateral to determine the
terms of a cash collateral agreement. The accountant often prepares special schedules that
demonstrate how the cash will be utilized at the time of the request for the release of cash collat-
eral and subsequent schedules that trace the use of the cash released.

 Motions for approval of debtor-in-possession financing. Information similar to that prepared for
utilizing cash collateral may assist in deciding on a credit extension.

 Motions for relief of stay. Financial information helps to establish the debtor’s current financial
condition and value of assets and to estimate the debtor’s future financial condition.

 Recovery of preferences or fraudulent transfers. Analysis of the debtor’s solvency at the time of
various transfers will help to determine preferential or fraudulent transfer status.

© 2020 Association of International Certified Professional Accountants 77