Most businesses are created and managed with the goal of operating as a going concern. However, a business can get to a point where the best option for its stakeholders is for the entity to cease operations, liquidate its assets, and settle its obligations. With the spread of the coronavirus pandemic (COVID-19), many entities will need to assess the financial and business repercussions of the pandemic on their operations.
In part I of this series, we cover the basics of liquidation basis accounting including:
What is liquidation as defined in the FASB glossary?
The difference between bankruptcy and liquidation,
When to apply the liquidation basis of accounting,
How to apply the liquidation basis of accounting, and
Impacts on financial statements presentation and disclosure.
In part II of this series, we cover liquidation accounting as it relates to a specific industry- Employee Benefit Plans (EBPs). As a result of the COVID pandemic there has been an increase in entities who have been forced to terminate their employee benefit plans. The timing of when termination accounting must be applied, and the specific requirements can be challenging for even experienced professionals to get right. We cover the timing of when liquidation basis must be applied, required disclosures, the differences between voluntary and involuntary termination, as well as our practice notes and observations.