Fresh Start Accounting – FASB ASC 852

Companies implement fresh start accounting when they emerge from bankruptcy. Through this fresh start process issues may arise with valuations, accounting, tax and other areas. You need a team that will impact this transition the right way. This includes a reorganization value, updated cash flow projections, and a reorganization plan. The outcome, if implemented correctly, is a refreshed organization with a new structure and a restated balance sheet.

The CFO Suite can help you get through this time when you might need that additional capability or capacity for your team. 

Here’s how we can help:   

  • Develop a plan, conduct a readiness assessment, and establish the implementation timeline and approach
  • Evaluate the operating structure and system capabilities
  • Upon emergence from Chapter 11, adopt fresh start accounting and restate the balance sheet
  • Working with your team to revalue the balance sheet by determining the fair value of specific assets and liabilities, determine the tax impacts, and make accounting adjustments
  • Identify system requirements, design and test updates, record accounting impacts
  • Prepare financial statements and disclosures

Criteria for FASB ASC 852

Whether public or private, there are two accounting events necessary for the fresh start accounting process. First, the company must be balance sheet insolvent; in other words, the value of the assets must be less than the liabilities. Second, the holders of the voting shares will have fewer than 50% of the voting shares of the emerging entity.

The Way Forward

The newly organized company is treated very much like a new acquisition: the reorganized value of the entity is allocated to the entity’s assets and any portion of the reorganization value not identified as tangible or intangible assets are considered goodwill (ASC 805).

Retained earnings must not reflect a deficit when the organization emerges as a new entity. Valuations are reset and disclosures are reported relating to the balance sheet, the total debt forgiveness, and any other significant issues related to assumptions and the reorganization value.

The FASB ASC 852 impacts every aspect of an organization’s financial statement. Organizations are required to explain the effects of the plan, how liabilities pre-petition were settled, how valuations were determined, and report a four-column balance sheet explaining balance sheet adjustments.

Reporting Changes

For organizations adopting fresh start accounting, future financial reporting will be impacted as well as performance metrics, inventory set up, deferred revenue, amortization, operating leases, and depreciation. With this shift it can become difficult for leaders to compare current financials to prior periods. To mitigate this, isolating and quantifying the details behind the conversions needs to be documented and reported in a financial system so those differences can be managed.


The reorganization process can be an enormous burden on operations, accounting, finance, and IT systems. Our CFO Suite consultants understand the technical accounting required to quickly, accurately, and efficiently manage fresh start accounting and help organizations manage the related process changes.