Fresh Start Accounting

As a company emerges from Chapter 11 bankruptcy, it is required to establish the fair value of the going concern's asset base for financial reporting purposes. Usually, this involves meeting stringent deadlines determined during the reorganization process. AccuVal understands key valuation issues specific to fresh start accounting services. We can make the transition from Chapter 11 as easy as possible by efficiently appraising all assets on the balance sheet and working with you, your advisors and external auditors throughout the process to meet all deadlines.

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What is fresh start accounting?
The Financial Accounting Standards Board (FASB) requires that companies emerging from Chapter 11 bankruptcy reorganization protection establish a new basis for financial reporting, called fresh start accounting. In fresh start accounting, a company restates the value of all assets, including intangibles, and liabilities at fair value as of the date the company emerges from bankruptcy to establish a "reorganization value" for the business. The new balance sheet must reflect any changes to the debt and equity structure as a result of the reorganization along with required disclosures, like adjustments to the historical carrying values and amount of debt forgiveness. It is important because it gives companies a "fresh start" in reporting their financial position that is in tune with the current market. It also ensures that the values of companies emerging from bankruptcy protection are consistently determined.

How is fair value determined in a fresh start accounting valuation?
Specific guidance has been provided by the FASB on acceptable methods and disclosures related to determining fair value. Fair value is defined as:

"The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."

It is an exit price or, in other words, the price that would be received to sell an asset or paid to transfer a liability by knowledgeable and independent market participants, including any discounts for risk. It assumes an orderly (not forced) transaction in an active market and assumes the highest and best use of the asset.

To determine fair value when conducting a fresh start accounting appraisal, AccuVal considers various market inputs as outlined by the FASB, including:

Quoted prices of identical assets or liabilities,
Market observables such as quoted prices for similar assets, interest rates and yield curves,
Non-observable assumptions that rely on internal information not readily available in the market.

Accepted valuation techniques are then used to adjust the inputs to determine a fair value for the assets and liabilities. AccuVal's fresh start accounting appraisals are independent and documented in compliance with the FASB's valuation framework.

Benefits
Fresh start accounting offers companies an opportunity to reset their balance sheets in accordance with market conditions at the time of emergence. It is important for companies to partner with a firm who understands fresh start accounting services' complex requirements and can deliver within tight timeframes valuation conclusions that are accepted by auditors and the court. We focus on meeting fresh start accounting valuation requirements, so that you can focus on emerging ready to do business.

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You are considering, have already filed or have recently emerged from Chapter 11 bankruptcy

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Make decisions based on accurate information by completing fixed asset inventories and reconciling it to the fixed asset depreciation schedule

View AccuVal’s Appraisal Expertise by Asset Class:

Business Enterprise

Equity & Stock

Bonds

Intangibles & Intellectual Property

Machinery & Equipment

Inventory

Real Estate

Accounts Receivable

The following is needed to determine how AccuVal can help:

Detailed pre-emergence financial statements and “emergence value” for the business enterprise as approved by the bankruptcy court
Summary of the property, plant and equipment (e.g. a schedule of locations, electronic fixed asset files, summary of owned vs. leased real estate, etc.) to be appraised
Preliminary list of identified intangible assets

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