Apr 23rd 2013
The Financial Accounting Standards Board (FASB) amended US GAAP to explain how businesses and other organizations should prepare financial statements when they're ceasing operations and selling assets to settle debts with creditors. The accounting board wants the financial statements to allow anyone reading them to understand what will be left after the debts have been paid.
On April 22, 2013, the FASB published Accounting Standards Update (ASU) No. 2013-07, Presentation of Financial Statements (Topic 205) – Liquidation Basis of Accounting.
The changes are effective for fiscal years that begin after December 15, the FASB said. The accounting board is permitting organizations going through liquidation to adopt the changes ahead of the effective date.
The financial statements should allow anyone reading them to "develop expectations about how much the organization will have available for distribution to investors after disposing of its assets and settling its obligations," the FASB said.
The amendments in ASU No. 2013-07 are carried out by adding Subtopic 205-30, Presentation of Financial Statements – Liquidation Basis of Accounting, to US GAAP. The update also adds three terms to the Accounting Standard Codification's master glossary: "liquidation," "statement of net assets in liquidation," and "statement of changes in net assets in liquidation."
As a result of the changes, organizations will have to use liquidation accounting when their liquidation is considered "imminent," the FASB said.
Liquidation is considered imminent when there's little chance the organization will survive the liquidation process or a forced process, such as a court-ordered bankruptcy, is in place.
The FASB issued a draft version of the changes last July in Proposed ASU No. 2012-210.
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Source: Thomson Reuters