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Planned Standard for Discontinued Operations Runs into a Delay

January 10, 2014

The FASB wanted to publish an accounting standard for discontinued operations this month, but the board needs to take another look at its proposed changes before releasing them publicly. Some companies object to the disclosure requirements about the cash flows of a discontinued operation. The board also needs to decide when private companies should apply the forthcoming standard.

The FASB in November made what were supposed to be the last decisions on its proposal to change the definition of a discontinued operation, but the board isn’t ready to finalize the amendment.

The accounting board plans to meet on January 15, 2014, to discuss concerns raised during an external review of the planned standard, which was supposed to be published this month as a final update to U.S. GAAP.

The FASB needs to revisit two narrow issues—a proposed footnote disclosure requiring companies to provide information about the cash flows of their discontinued operations, and the date by which private companies would have to follow the new standard. The reopening of the project is expected to push publication of the standard to later in the first quarter, a FASB spokesman said.

The FASB in April released Proposed Accounting Standards Update (ASU) No. 2013-230, Reporting Discontinued Operations, in response to more than a decade of complaints that FASB ASC 205-20, Presentation of Financial Statements—Discontinued Operations, formerly SFAS No. 144, forces businesses to account for routine sales of assets as discontinued operations.

Under Proposed ASU No. 2013-230, only disposals of assets that result in the closing of a major business line or an exit from an important geographical market would be classified as a discontinued operation. The FASB characterizes these sales as “significant strategic shifts.”

The board in November wrapped up decisions on the planned standard and directed its research staff to start drafting a final update for a January publication date, despite the concerns businesses had about the footnote disclosures.

Most of the businesses, auditors, and professional groups that submitted comments on the proposal said they supported the overall changes, but some expressed concerns about the amount of new information the FASB asked them to provide in their financial statement footnotes. The proposal called for disclosures about operating, investing, and financing cash flows, and information about an organization’s continued involvement with a discontinued operation.

The FASB scaled back some of the disclosure requirements but kept one condition that raised strong objections from businesses—disclosure of the operating, investing, and financing cash flows of a discontinued operation. The cash flow disclosures are supported by investors and analysts.

The FASB on January 15 is expected to decide whether to keep the cash flow disclosure requirements intact or scrap them.

The FASB also plans to revisit the date by which private companies must comply with the forthcoming accounting standard. The accounting board wants the standard to be effective for annual and interim periods that start after December 15, 2014, which means public companies that are on calendar years will apply the new guidance in financial statements prepared for the first quarter of 2015. The board gave private companies an extra year, meaning that they don’t have to apply the amended guidance until the first quarter of 2016.

Following the regular meeting, the FASB plans to hold an education session on two research projects: pension accounting and whether U.S. GAAP needs explicit guidance for government assistance. The board doesn’t make decisions at education sessions.