Report an essential element of corporate restructuring or turnaround plans
Organizations regularly face major or minor challenges. The ability of organizations to address these challenges with urgency and diligence makes the difference and determines which survive and which do not.
In the dynamic and rapidly changing environment in which businesses operate, there is a constant need to analyze the environment and make changes in an organization to reposition it either in anticipation of the changes or in response to the changes that occur.
Choosing the right tool for a turnaround or restructuring plan can be very daunting as these cover issues ranging from financial, tax, operational and bankruptcy filings, to name a few. However, the organization should understand that regardless of the tool chosen, corporate reporting before, during and after restructuring is an essential part of stakeholder engagement.
Corporate restructuring typically involves divestitures, debt modifications, covenant reviews, working capital optimization, due diligence, tax optimization, distressed M&A financing, filing balance sheet, business valuation, process improvement and system improvements.
Although many of these activities take place internally, these are the reporting aspects that stakeholders can engage and interact with in these plans. Therefore, an organization must ensure that its recovery plans and restructurings take into account the reporting aspect at the beginning of the process.
An essential element is to provide complete and accurate information on the complex accounting considerations related to these activities. The restructuring options available to organizations could have different accounting consequences and affect the disclosure and presentation of balance sheet and income statement and balance sheet amounts during and after restructuring.
Organizations should ensure that pro forma financial statements are available when deciding on these options.
It is essential to provide them because they serve as a means of communicating value to stakeholders and mobilizing the change needed for the organization.
For example, organizations have embarked on group reorganizations and have had to choose between using market values, past book values, or an internally derived value for these transactions when preparing their financial statements.
The value chosen could have an impact on the capital ratios of the entities concerned, in particular for regulated entities with prescribed capital ratios.
Therefore, organizations should aim to place reporting at the center of their turnaround or restructuring plans rather than being left at the end of the process to avoid surprises and inefficiencies, ensure effective communication and build trust.