ACCOUNTANTS’ HANDBOOK VOLUM phần 10 ppt

(iii) Reorganization Value. In some cases accountants for the creditors’ committee develop their own models of the debtor’s operations. Cash flow projections can then be prepared for determining the reorganized entity’s value. Operational changes made by the debtor are entered in the model as are proposed sales or other major actions, providing a basis for the committee’s response to the debtor’s proposals. Evaluation by the creditors’ committee focuses on the im- pact these actions will have on the value of the reorganized entity and on the amount of potential settlement. (iv) Review of Plan and Disclosure Statement. As was noted earlier, the accountant for the debtor provides advice and assistance in the formulation of a plan of reorganization in a Chapter 11 proceeding and a plan of settlement in an agreement out of court. An important function of an accountant employed by the creditors is to help evaluate the proposed plan of action. In a Chapter 11 case where the debtor has not proposed a plan within 120 days, a proposed plan has not been accepted within 180 days after the petition was filed, or where the trustee has been appointed, the accountant may assist the creditors in developing a plan to submit to the court. The accountant is able to provide valuable assistance to the committee because of familiarity with the financial background, nature of operations, and management of the company gained during the audit. In committee meet- ings, a great deal of discussion goes on between the committee members and the accountant con- cerning the best settlement they can expect and how it compares with the amount they would receive if the business were liquidated. The creditors are interested in receiving as much as possible under any reorganization plan. The accountant may work with the creditors’ committee to see that the amount proposed under the plan is reasonable and fair based on the nature of the debtor’s business. First, it must be determined that the plan provides for at least as much as would be received in a chapter 7 liquidation. Second, the creditors must leave for the debtor enough assets to operate the business after reorganization. If a reasonable basis does not exist for future operations, the judge may not confirm the plan because it is not feasible. If an audit has not been performed, the accountant for the creditors’ committee must rely on the information contained in the disclosure statement and in other reports that have been issued. Thus, the content of the disclosure statement may be most important. Also, since the disclosure statement serves as the basic report used by the creditors to evaluate the plan, it is critical that it be properly prepared and contain the type of information that allows the creditors to effectively evaluate the proposed plan. The accountant for the creditors’ committee may be asked to evaluate the disclosure statement. If, in the accountant’s opinion, it does not contain adequate information, the deficiencies may be conveyed to the debtor informally (normally through creditors’ committee counsel) prior to sub- mission of the plan to the court, or an objection to the content of the statement may be raised at the disclosure hearing. In evaluating the information in the disclosure statement, the accountant for the creditors’ committee may be asked to review the financial statements contained in the disclosure statement or others that were issued by the debtor. Special consideration must be made in reviewing pro forma and liquidation statements of financial condition. The pro forma statement provides the creditors with an indication of the debtor’s likely financial condition if the plan is accepted. This statement should show that the creditors will receive more if they accept the plan than they would receive if the debtor were liquidated. The pro forma statement also should demonstrate that the plan is feasible in that, after satisfying the provisions of the plan, the debtor retains an asset base with which to operate. In reviewing the pro forma statement prepared by the debtor, special consideration must be given to the analysis of the assumptions used to prepare it and to the evaluation of the value of the assets (which may differ from book values). If the pro forma statements are based on historical costs, the accountant for the creditors’ committee may want to restate them to reflect the reorganized values of the entity. The creditors’ committee will be able to evaluate the terms of the plan more effectively if it can compare the terms to pro forma statements containing the reorganized value of the entity rather than historical values. 43.6 CHAPTER 11 PLAN 43 • 33 Liquidation statements show what the unsecured creditors would receive if the business were liquidated. The assumptions used in the adjustments to book values must be evaluated carefully. The accountant for the creditors’ committee may be asked to review statements of this nature and to provide advice as to the reasonableness of the analysis. There may be a tendency for the debtor to understate liquidation values in order to make the terms of the plan more appealing to the unsecured creditors. (h) ACCOUNTING FOR THE REORGANIZATION. SOP 90-7 explains how the debtor emerging from Chapter 11 should account for the reorganization both when fresh start reporting should be adopted and when it is not allowed. Fresh start reporting requires the debtor to use current values (going concern or reorganization values) in its balance sheet for both assets and liabilities and to eliminate all prior earnings or deficits. (i) Requirements for Fresh Start Reporting. The two conditions that must be satisfied before fresh start reporting can be used are: 1. The reorganized value of the emerging entity immediately before the confirmation of the plan is less than the total of all postpetition liabilities and allowed claims. 2. Holders of existing voting shares immediately before confirmation retain less than 50% of the voting share of the emerging entity. Paragraph 36 of the SOP indicates that the loss of control contemplated by the plan must be sub- stantive and not temporary. Thus, the new controlling interest must not revert to the shareholders existing immediately before the plan was confirmed. For example, a plan that provides for shareholders existing prior to the confirmation to reacquire control of the company at a subsequent date may pre- vent the debtor from adopting fresh start reporting. Debtors that meet both of the above conditions will report the assets and liabilities at their going concern (reorganization) values. Reorganization value is defined as the “fair value of the entity before considering liabilities and approximates the amount that a willing buyer would pay for the assets of the entity immediately after the restructuring.” The focus in determining the reorganization value is on the value of the assets, normally determined by discounted future cash flows. The reorganization value of the entity may be determined by several approaches depend- ing on the circumstances. 4 In most cases, it is not the responsibility of the accountant to determine the reorganization value of the debtor, but to report in the financial statements the value that is determined through the negotiations by the debtor, creditors’ and stockholders’ committees and other interested parties. Professionals involved in bankruptcy cases have been aware of the limited usefulness of book values for some time. For example, market values are required in the schedules that are filed with the bankruptcy court, and fair market value of assets are determined under Section 506 of the Bankruptcy Code for assets pledged. Reorganization values will be used only when both conditions for a fresh start are satisfied. For example, fresh start reporting will not be used by most nonpublic companies because in most cases there is no change of ownership. Thus, the provisions of the SOP will primarily apply to public companies. (ii) Allocation of Reorganization Value. For entities meeting the criteria discussed above (reorganization value less than liabilities and old shareholders own less than 50% of voting stock of the emerging entity), fresh start reporting will be implemented in the following three ways: 43 • 34 BANKRUPTCY 4 Grant W. Newton, Bankruptcy and Insolvency Accounting, 5th ed. (John Wiley & Sons, New York, 1994). 1. The reorganization value is to be allocated to the debtor’s assets based on the market value of the individual assets. The reorganization value is to be allocated to the debtor’s assets based on the market value of the individual assets. The allocation of value to the individual assets should generally follow the guidelines of FASB Statement No. 141. Any part of the reorganization value not attributable to specific tangible assets or identifiable intangible assets should be reported as an intangible asset (goodwill) and is not amortized but, in accordance with FASB Statement No. 142, will be written down if impaired. Goodwill will be tested for impairment at a level of reporting referred to as a reporting unit at least annually and more often if an event occurs that would more likely than not reduce the carrying value of a reporting unit below its carrying value. FASB Statement No. 142 (pars. 19–20) indicates that a two-step impairment test should be used (1) to identify potential goodwill impairment and (2) to measure the amount of the impairment loss to be recognized. 2. Liabilities that survive the reorganization should be shown at present value of amounts to be paid determined at appropriate current interest rates. Thus, all liabilities will be shown at their discounted values (the practice of discounting debt has not always been followed in the past). 3. Deferred taxes are to be reported in conformity with generally accepted accounting principles. Benefits realized from preconfirmation net operating loss carryforwards should be used to first reduce reorganization value in excess of amounts allocable to other intangi- bles. Once the balance of the intangible assets is exhausted, the balance is reported as a di- rect addition to the additional paid-in capital. SOP 90–7 indicates that three basic entries are needed to record the adoption of fresh start reporting in the accounts: 1 Entries to record debt discharge 2. Entries to record exchange of stock for stock 3. Entries to record the adoption of fresh start reporting and to eliminate the deficit (iii) Disclosure Requirements. Paragraph 39 of the SOP indicates that when fresh start reporting is adopted, the notes to the initial financial statement should disclose the following: • Adjustments to the historical amounts of individual assets and liabilities • The amount of debt forgiven • The amount of prior retained earnings or deficit eliminated • Significant matters relating to the determination of reorganization value The SOP indicates that the following are some of the other significant matters that should be disclosed: • The method or methods used to determine reorganization value and factors such as discount rates, tax rates, the number of years for which cash flows are projected, and the method of determining terminal value • Sensitive assumptions (those assumptions about which exists a reasonable possibility of the occurrence of a variation that would significantly affect measurement of reorganization value) • Assumptions about anticipated conditions that are expected to be different from current conditions, unless otherwise apparent (iv) Reporting by Debtors Not Qualifying for Fresh Start. Debtors that do not meet both of the conditions for adopting fresh start reporting should state any debt issued or liabilities compromised by 43.6 CHAPTER 11 PLAN 43 • 35 confirmed plans at the present values of amounts to be paid. Thus, the debtor will no longer have the option to elect to discount or not to discount debt issued in a Chapter 11 case. These provisions apply only to Chapter 11 cases. However, in out-of-court workouts where liabilities are generally restated, it will be difficult to justify accounting for issuance of new debt in a manner different from the discounting procedure described in the SOP. (i) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS UNDER CHAPTER 11. Companies that qualify for fresh start reporting will value all of the assets at their fair value. If a company does not qualify for fresh start reporting, the provisions of FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, must be followed. FASB Statement No. 121 amends FASB No. 67 to eliminate the lower of cost or net realizable value (NRV) measurement for impaired assets held for develop- ment or sale. Patterson notes that “[t]his standard is the most important real estate accounting rule in the last 13 years.” 5 FASB No. 121 not only covers plant and equipment, but also provides recognition and measurement criteria for the impairment of assets held for investment and sets forth strict guidelines to follow when measuring the subsequent value of impaired assets for sale. FASB Statement No. 142, as described above, provides guidance for the reporting of the impairment of goodwill. The accounting for impairment of assets follows a three-step approach for financial statement recognition and valuation: 1. Evaluate conditions. Initially, the person who prepares the financial statements consid ers whether conditions exist that indicate an inability to fully recover the carrying amount o f an asset held and used. 2. Review for impairment. If such conditions exist, the company will look for possible impairment by estimating the future cash flows from the asset. The estimated cash flows are undiscounted and without interest. 3. Recognition of loss (determination of trigger). If the sum of the estimated future cash flows is less than the asset’s carrying amount, generally an impairment loss must be recognized in earnings. The loss from impairment of the assets will be the difference between the carrying amount and the fair value of the assets. For example, assume that a manufacturing facility is potentially impaired by use of the plant to manufacture a product different from the original design for plant use. This change in the nature of the product was caused by technological advancements in the industry. The company reviews for impairment by estimating the expected future net cash flows for the asset undiscounted and without interest. For example, if the carrying value of the plant is $3 million and the further cash flows are less than $3 million, then the asset is impaired. The plant is written down to its fair value based on the concept of a “willing buyer and willing seller” as used in FASB State- ment No. 15. For example, if the future cash flows were expected to be $2.5 million and the fair value of the plant was determined to be $1.7 million, a loss of $1.3 million would be reflected even though the difference between the cash flows and the carrying value of the plant is only $.5 million. This process is viewed as one only of cost allocation; as a result, subsequent increases in the value of the asset may not be reflected in the accounts. The rules described here also apply to assets that will be disposed of. Prior practice allowed the entity to reflect these assets to be disposed of at their net realizable value; if there was an increase in their value, a gain was reflected in the accounts to the extent of a previous write-down. This practice will no longer be allowed, except in a case in which Opinion No. 30 applies. In the case of disposi- tion of assets associated with discontinued operations, under Opinion No. 30 the assets will continue 43 • 36 BANKRUPTCY 5 George F. Patterson, “FASB 121: New Rule is Most Significant Change to Real Estate Accounting in More than a Decade,” Real Estate Finance Journal, Fall 1995, p. 41. to be measured at their realizable value. In order not to delay the issuance of FASB Statement No. 121, the FASB allowed this inconsistency to exist. At the time a bankruptcy petition is filed, it may appear that assets are impaired and carrying value should be materially reduced. However, with the filing of the petition, there will be a complete analysis of the viability of the business and of the various segments of the business. Until the assessment is complete, the company should avoid the impulse to materially reduce the carrying value of assets. 43.7 REPORTING REQUIREMENTS IN BANKRUPTCY CASES Accountants often issue various types of reports and schedules as part of services rendered in the bankruptcy and insolvency area. These services include the preparation of operating reports, evaluation or de- velopment of a business plan, valuation of the business, and search for preferences. Many of the reports or schedules produced would generally be classified as financial statements. Because financial statements are issued, the accountant must determine if a compilation, review, or audit report must be issued, or if the service that generated the statements is exempted from professional standards related to compilation of financial statements from the records and the attestation standards. This issue has involved considerable controversy among accountants that practice in the bankruptcy and insolvency area. (a) LITIGATION SERVICES. When the accountant begins an engagement involving bankruptcy or insolvency issues, a decision needs to be made as to application of the attestation standards. Sec- tion 9100.48 of Attestation Engagements Interpretation, “Applicability of Attes tation Standards to Litigation Services,” excludes litigation services that “involve pending or potential formal legal or regulatory proceedings before a trier of fact in connection with the resolution of a dispute between two or more parties. . . .” Guidance in this area is provided by the AICPA’s Management Consulting Division, in Consulting Services Special Report 93-1, “Application of AICPA Professional Standards in the Performance of Litigation Services” (CSSR 93-1). This report concludes in paragraph 71/105.03 that “[b]ankruptcy, forensic accounting, reorganization, or insolvency services, as prac- ticed by CPA’s, generally are acceptable as forms of litigation services.” CSSR 93-1 notes that the role of the accountant in a litigation engagement is different from the role in an attestation services engagement. When involved in an attestation engagement, the CPA firm expresses “a conclusion about the reliability of a written assertion of another party.” In the performance of litigation services, the accountant helps to “gather and interpret facts and must support or defend the conclusions reached against challenges in cross-examination or regulatory examination and in the work product of others.” Appendix 71/B of CSSR 93-1 describes the delivery of reorganization services to include items such as the following: • Preparing or reviewing valuations of the debtor’s business • Analyzing the profitability of the debtor’s business • Preparing or reviewing the monthly operating reports required by the bankruptcy court • Reviewing disbursements and other transactions for possible preference payments and fraudulent conveyances • Preparing or reviewing the financial projections of the debtor • Performing financial advisory services associated with mergers, divestitures, capital adequacy, debt capacity, and so forth • Consulting on strategic alternatives and developing business plans • Providing assistance in developing or reviewing plans of reorganization or disclosure statements 6 43.7 REPORTING REQUIREMENTS IN BANKRUPTCY CASES 43 • 37 6 CSSR 93-1 notes that the words “review” and “reviewing” are not intended to have the same meaning as they do in the AICPA SSARSs. CSSR 93-1 then concludes that bankruptcy services similar to those listed above that are provided by CPA’s generally are accepted as a form of litigation services. Appendix 71/B of CSSR 93-1 provides that: This acceptance is due to many fundamental and practical similarities between bankruptcy services and the consulting services associated with other forms of litigation. Bankruptcy law, as promulgated by the Bankruptcy Code and case law, is applied by bankruptcy judges and lawyers to resolve disputes between a debtor and its creditors (for example, distribution of the debtor’s assets). Bankruptcy cases frequently include actions related to claims for preferential payments and fraudulent conveyances; negligence of officers, directors, or professionals engaged by the debtors; or other allegations common to commercial litigation. The bankruptcy court has the power and au- thority to value legal claims and resolve such common litigation as product liability, patent in- fringement, and breach of contract. The decisions of bankruptcy judges can be appealed as can the decisions of other courts. The above guidelines according to CSSR 93-1 should also apply to services rendered in an out- of-court workout, as described in the following paragraph from Appendix 71/B: Out-of-court restructuring holds the potential for litigation. Therefore, the settlement process is generally conducted with the same scrutiny, due diligence, and intense challenge as that of a formal court-administered process. Furthermore, bankruptcy services provided by CPAs are typically not three-party attest services (the three parties in attest services are the asserter, the attester, and the third party). Instead, affected parties have the opportunity to question, challenge, and provide input to the bankruptcy findings and process. For services to be exempted, they must be rendered in connection with the litigation, and the parties to the proceeding must have an opportunity to analyze and challenge the work of the accountant. For example, when the CPA expresses a written conclusion about the reliability of a written assertion by another party, and the conclusions and assertions are for the use of others who will not have the opportunity to analyze and challenge the work, the professional standards would apply. Also, when the CPA is specifically engaged to perform a service in accordance with the attestation standards or accounting services standards (SAARS), professional standards are applicable. (b) DISCLOSURE REQUIREMENTS. If it is determined that the analysis or report that will be issued comes under the guidelines as a form of litigation services, it is advisable to explain both the association and the responsibility, if any, through a transmittal letter or a statement affixed to documents distributed to third parties. Appendix 71/B of CSSR 93-1 suggests the following format for a statement that would explain the association of the CPAs and their responsibility, if any: The accompanying schedules (projected financial information; debt capacity analysis; liquidation analysis) were assembled for your analysis of the proposed restructuring and recapitalization of ABC Company. The aforementioned schedules were not examined or reviewed by independent accountants in accordance with standards promulgated by the AICPA. This information is limited to the sole use of the parties involved (management; creditors’ committee; bank syndicate) and is not to be provided to other parties. If it is determined that the service does not qualify as litigation service, any financial statements that might be issued from the services rendered should be accompanied with an accountant’s report based on the compilation of the financial statements. Prior to the issuance of a compilation report, the format and nature of the report must be cleared with the firm administrator. (c) OPERATING REPORTS. Another area where there is considerable uncertainty is in the issuance of operating reports. All regions of the U.S. trustee require monthly operating reports be 43 • 38 BANKRUPTCY submitted to the court as well as annual operating reports. Among those items that were listed in CSSR 93-1 that might fall under litigation services was the preparation or review of the monthly operating reports required by the bankruptcy court. These reports, especially for larger public companies, are often prepared in accordance with generally accepted accounting principles, including SOP 90-7. For example, in the region of New York, Connecti cut, and Vermont, the U.S. trustee has issued guidelines that require the statements to con form to SOP 90-7. Other U.S. trustees have on request by the accountant allowed the statements to be prepared in the format that conforms to the manner in which the accountant normally prepares monthly financial statements. Additionally, the accountant is asked to prepare supplemental data not generally presented in monthly financial statements such as an aging schedule of postpetition payables and a schedule of postpetition taxes paid and accrued. As noted above in CSSR 93-1, the professional standards would apply under two conditions: 1. When the CPA expresses a written conclusion about the reliability of a written assertion by another party, and the conclusions and assertions are for the use of others who will not have the opportunity to analyze and challenge the work 2. When the CPA is specifically engaged to perform a service in accordance with the attestation standards or accounting services standards In most situations, the second requirement—specifically engaged to perform attestation or compilation services—is not satisfied. Thus, based on this condition, the professional standards would not apply. Certified public accountants are generally engaged to prepare the operating reports that the U.S. trustee and the bankruptcy court require and not specifically to perform an audit or review of the financial records or even compile the financial statements in accordance with the professional standards. It is the first requirement—expressing a written conclusion about the reliability of a written assertion by another party who will not have the opportunity to analyze and challenge the work— that needs further consideration by the profession. While no specific hearing is scheduled to review the reports, creditors or other parties in interest might raise objections to the content of the reports. Objections to the operating reports have been raised, but rarely. The preparation or the review of monthly operating reports that are required by the court is one of the items listed in the services that are rendered by accountants in the performance of reorganization services. CSSR 93- 1 notes that “[b]ankruptcy services provided by CPAs generally are accepted as a form of litigation services.” Since operating reports are considered a form of litigation services, a compilation report should not be issued on the reports. Rather, the following statement should be included in a transmittal letter or affixed to the operating reports. The accompanying operating reports for the month of were assembled for your analysis of the proposed restructuring of the ABC Company under Chapter 11 of the Bankruptcy Code. The aforementioned operating reports were not examined or reviewed by independent accountants in accordance with the standards promulgated by the AICPA. This information is limited to the sole use of the parties in interest in this Chapter 11 case and is not to be provided to other parties. If, on the other hand, it is determined in a particular engagement that professional standards are applicable and the CPA is associated with the financial statements, then a compilation report should be issued based on the prescribed form as set forth in SAARS No. 3. As noted above, prior to the issuance of a compilation report the format and nature of the report must be reviewed for conformity to applicable standards. (d) INVESTIGATIVE SERVICES. Preference analysis or other special investigative services performed in a bankruptcy proceeding, receivership, or out-of-court settlement are considered a 43.7 REPORTING REQUIREMENTS IN BANKRUPTCY CASES 43 • 39 litigation service. As a result, the accountant is not required to issue an agreed-upon procedures report. This would not preclude the professional from issuing a report that described the procedures performed and the results ascertained from the performance of the stated procedures. For example, using the above format, a report issued to a trustee based on an analysis of preferences might be worded: The accompanying analysis of preferential payments was assembled (or prepared) for your analysis (or consideration) in conjunction with the proposed reorganization of under Chapter 11 of the Bankruptcy Code. The aforementioned analysis of preferential payments was not examined or reviewed by independent accountants in accordance with standards promulgated by the AICPA. This information is limited to the sole use of the trustee in this Chapter 11 case and is not to be provided to other parties. (e) FINANCIAL PROJECTIONS. Section 200.03 of the AICPA, “Statements on Standards for Attestation Engagements,” states that the standards for prospective financial statements do not apply for engagements involving prospective financial statements used solely in connection with litigation support services. CSSR 93-1 clearly indicates that prospective financial information qual- ifies as a litigation service. CSSR 93-1 states that parties-in-interest can challenge prospective financial information during negotiations or during bankruptcy court hearings often dealing with the plan’s feasibility and adequacy of disclosure. Projections that are included in a disclosure statement would not be subject to the attestation standards since there is a hearing on the disclosure statement and the court must approve the disclosure statement before votes for the plan can be solicited. Par- ties-in-interest have an opportunity to challenge the prospective information included. Any projections provided for the debtor or for the creditors’ committee that is used in the negotiations of the plan would also not fall under the attestation standards. CSSR 93-1 does, however, indicate that in situations where the users of the prospective financial information cannot challenge the CPA’s work, the attestation standards apply. CSSR 93-1 suggests that the attestation standard might apply in situations where exchange offers are made to creditors and stockholders with whom the company has not negotiated or who are not members of a creditor group represented by a committee. Section 200.03 of the AICPA, “Statements on Standards for Attestation Engagements,” indicates that if the prospective financial statements are used by third parties that do not have the opportunity to analyze and challenge the statements, the litigation exception does not apply. Section 200.02 of the AICPA, “Statements on Standards for Attestation Engagements,” indicates that when an accountant submits, to his client or others, prospective financial statements that he has assembled (or assisted in assembling) or reports on prospective financial statements that might be expected to be used by third parties, a compilation, examination, or agreed-upon procedures engagement should be performed. Thus, for prospective financial statements that do not qualify for the litigation exception, the engagement must be in the form of a compilation, examination, or agreed-upon procedures if the accountant is associated with the financial statements. The determination of the reorganization or liquidation values to be included in the disclosure statement or to be used by the debtor or creditors’ committee in the negotiations of the terms of a plan, as well as other services that involve financial projections, would fall under the litigation exception. If it is determined that the report regarding the issuance of financial projections would not fall under litigation services, the format and nature of the report must be reviewed for conformity to applicable standards. The following wording might be in the transmittal letter or in a statement affixed to the documents: The accompanying projected financial statements (or information) were assembled for your analysis of the proposed restructuring and reorganization of under Chapter 11 of the Bank- ruptcy Code. The aforementioned statements were not examined or reviewed by independent accountants in accordance with standards promulgated by the AICPA. This information is limited to the sole use of and is not to be provided to other parties. 43 • 40 BANKRUPTCY 43.8 SOURCES AND SUGGESTED REFERENCES Accounting Principles Board, “Interest on Receivables and Payables,” Accounting Principles Board Opinion No. 21. AICPA, New York, 1971. , Accounting Standards Executive Committee, Statement of Position (SOP) No. 90-7, Financial Report- ing by Entities in Reorganization Under the Bankruptcy Code. AICPA, New York, 1990. , Business Valuation in Bankruptcy. , Providing bankruptcy and Reorganization Services. Behrenfield, William H., and Biebl, Andrew R., “Bankruptcy/Insolvency,” The Accountant’s Business Manual. AICPA, New York, 1989. Countryman, “Executory Contracts in Bankruptcy,” Minnesota Law Review, Vol. 57 (1973), pp. 439, 460. Financial Accounting Standards Board, “Reporting Gains and Losses from Extinguishment of Debt,” Statement of Financial Accounting Standards No. 4. FASB, Stamford, CT, 1975. , “Accounting for Contingencies,” Statement of Financial Accounting Standards No. 5. FASB, Stamford, CT, 1975. , “Business Combinations,” Statement of Financial Accounting Standards No. 141. FASB, Norwalk, CT. 2001. , “Disclosures about Segment of an Enterprise and Related Information.” Statement of Financial Ac- counting Standards No. 131. FASB, Norwalk, CT 19. , “Goodwill and Other Intangible Assets,” Statement of Financial Accounting Standards No. 142. FASB, Norwalk, CT. 2001. , “Accounting by Debtors and Creditors for Troubled Debt Restructurings,” Statement of Financial Ac- counting Standards No. 15. FASB, Stamford, CT, 1977. King, Lawrence P., ed., Collier Bankruptcy Manual. Matthew Bender, New York, 1994. Newton, Grant W., Bankruptcy and Insolvency Accounting, 6th ed. John Wiley & Sons, New York, 2000 (updated annually). , Corporate Bankruptcy: Tools, Strategizing, and Alternatives, John Wiley & Sons, New York, 2002. Patterson, George F., Jr., and Newton, Grant, “Accounting for Bankruptcies: Implementation SOP 90-97,” Jour- nal of Accountancy, Vol. 46, April 1993. Securities and Exchange Commission, “Push Down” Basis of Accounting for Parent Company Debt Related to Subsidiary Acquisitions,” Staff Accounting Bulletin No. 73. SEC, Washington, DC, 1987. , “Views Regarding Certain Matters Relating to Quasi-Reorganizations, Including Deficit Eliminations,” Staff Accounting Bulletin No. 78. SEC, Washington, DC, 1988. Summers, Mark Stevens, Bankruptcy Explained: A Guide for Businesses. John Wiley & Sons, New York, 1989. 43.8 SOURCES AND SUGGESTED REFERENCES 43 • 41 [...]... Settlement Analysis (g) Pretrial (h) Trial 3 3 3 3 3 4 4 4 4 4 4 5 5 5 5 6 6 7 7 7 44.4 PROFESSIONAL STANDARDS RELEVENT TO LITIGATION CONSULTING 7 (a) AICPA Code of Professional Conduct (i) Rule 101 : Independence (ii) Rule 102 : Integrity and Objectivity (iii) Conflicts of Interest (iv) Rule 201: General Standards (v) Rule 202: Compliance with Standards (vi) Rule 203: Accounting Principles (vii) Rule 301: Confidential... Services Practice Aids 44.5 FEDERAL RULES OF EVIDENCE (a) Federal Rule of Evidence Rule 702 (b) Effect of Daubert v Merrell Dow Pharmaceuticals (c) Federal Rule of Civil Procedure 26 8 8 8 8 9 9 9 9 9 10 10 11 11 11 11 12 The authors would like to thank the following PricewaterhouseCoopers partners for their contribution by having authored the predecessor chapter on forensic accounting and litigation... relevant and reliable and that assist the trier of fact (i) Rule 101 : Independence When performing a litigation service engagement, independence is not required However, the practitioner should be sensitive to the appearance of independence so that the trier of fact will accept conclusions and judgments as objective and impartial (ii) Rule 102 : Integrity and Objectivity Although independence is not required... impartial (ii) Rule 102 : Integrity and Objectivity Although independence is not required in a litigation consulting engagement, the accountant is required to comply with Rule 102 of the AICPA Code of Professional Conduct Rule 102 requires that members shall, in the performance of any professional service, maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly... issue for a client will 1 AICPA Consulting Services Special Report No 93–2, Conflicts of Interest in Litigation Services Engagements, ¶ 2 /105 .16, AICPA, 1993 2 AICPA Consulting Services Special Report No 93-2, Conflicts of Interest in Litigation Services Engagements, ¶ 2 /105 .21 44.4 PROFESSIONAL STANDARDS RELEVANT TO LITIGATION CONSULTING 44 9 • be impaired by current, prior, or possible future relationships... no bearing on the expert’s opinion 44 .10 SOURCES AND SUGGESTED REFERENCES American Institute of Certified Public Accountants, Code of Professional Conduct AICPA, New York, 1988 , Statement on Standards for Consulting Services (SSCS) No 1, “Consulting Services: Definitions and Standards.” AICPA, New York, 1986 , Auditing Standards Board, Statement on Standards for Accountants’ Services on Prospective Financial... Kabe, Elo R., and Blonder, Brian L., “Discounting Concepts and Damages,” In Litigation Services Handbook: The Role of the Accountant as Expert, 1996 Supplement ed Roman L Weil, Michael J Wagner, and Peter B Frank, John Wiley & Sons, New York, 1996 Kinrich, Jeffrey H., “Cost Estimation,” Litigation Services Handbook: The Role of the Accountant as Expert ed Roman L Weil, Michael J Wagner, and Peter B Frank,... STATEMENT ON STANDARDS FOR CONSULTING SERVICES Litigation consulting services are consulting services as defined in SSCS No 1 SSCS No 1 sets standards that must be followed for all consulting engagements 44 10 • FORENSIC ACCOUNTING AND LITIGATION CONSULTING SERVICES (i) General Standards The general standards defined in Rule 201 of the AICPA Code of Professional Conduct are applicable to litigation consulting... PHARMACEUTICALS In Daubert v Merrell Dow Pharmaceuticals, 113 S Ct 2796 (1993), the Supreme Court addressed the rules pertaining to the admission of expert testimony Since 1923, based on Frye v United States, 293 F .101 3 (D.C Cir 1923), the federal courts applied a test (the general acceptance test) by which scientific expert opinions should be admitted into evidence Under this standard, an opinion was admitted only... in forming the opinions Any exhibits to be used as a summary of or as support for the opinions Qualifications of the witness, including a list of publications the witness authored within the preceding 10 years The compensation to be paid to the witness for the study and testimony A list of all other cases in which the witness has testified as an expert at trial or in deposition within the preceding four . RELEVENT TO LITIGATION CONSULTING 7 (a) AICPA Code of Professional Conduct 8 (i) Rule 101 : Independence 8 (ii) Rule 102 : Integrity and Objectivity 8 (iii) Conflicts of Interest 8 (iv) Rule 201: General. Client Information 9 (b) Statement on Standards for Consulting Services 9 (i) General Standards 10 (ii) Consulting Standards 10 (c) AICPA Consulting Services Practice Aids 11 44.5 FEDERAL RULES OF EVIDENCE. impartial. (ii) Rule 102 : Integrity and Objectivity. Although independence is not required in a litigation consulting engagement, the accountant is required to comply with Rule 102 of the AICPA Code

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