The Financial Accounting Standards Board (FASB) has issued an amended standard to clarify the financial reporting of companies engaged in liquidation activities.

FASB chairman Leslie Seidman said the standard addresses the concerns of a number of stakeholders who requested guidance on "when and how" companies should prepare statements using the liquidation basis of accounting.

The US GAAP standard aims to reduce "the diversity in practice" observed when a company needs to converts its assets to cash or other assets and settles its obligations with creditors.

The FASB said it will require companies to prepare financial statements using the liquidation basis of accounting when liquidation is "imminent".

The standard setter also said liquidation is considered imminent when "the likelihood is remote that the organisation will return from liquidation and there is an approved plan for liquidation put in place".

The standard is effective from 15 December but early adoption is permitted.

Related links

Financial Accounting Standards Board

FASB: Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting