This article looks at quasi reorganizations by summarizing current generally accepted accounting principles, evaluating the theoretical underpinnings and reporting on a survey of quasi reorganizations in practice.
Because of the limited incidence of quasi reorganizations in practice and the fact the underlying concepts are far from pervasive, relatively little literature on the subject has appeared since a comprehensive study by James S.
The renewed interest in quasi reorganizations that followed a 1988 American Institute of CPAs issues paper, Quasi-Reorganizations, is both reinforced and challenged in the FASB DM.
Although quasi reorganizations are included in GAAP, their theoretical justification as accounting events is tenuous.
Quasi reorganizations, as currently allowed, satisfy pragmatic considerations: Dividend distributions are facilitated when negative retained earnings vanish, new stock or debt is easier to issue and subsidiaries with clean balance sheets are more readily sold.
We searched the national automated accounting research system (NAARS) database, which covers fiscal years ending July 1, 1964, to June 20, 1992, and found reports of 164 quasi reorganizations with enough information to be analyzed; 142 occurred before the August 25, 1988, issuance of SAB no.
Exhibit 3, below, tabulates the accounting adjustments made in the identified quasi reorganizations and the number associated with Chapter 11 bankruptcy reorganizations, both before and after August 25, 1988.
Quasi reorganizations and Chapter 11 reorganizations.
Quasi reorganizations have been an infrequently used but a frequently abused accounting procedure.
Even though quasi reorganizations are intuitively appealing and SAB no.
If quasi reorganizations are retained and included as a scenario in a new basis accounting standard, conditions must be strengthened.