Resources

Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Requirements for Reporting Discontinued Operations Are Clarified

April 11, 2014

The FASB amended U.S. GAAP to clarify the accounting for disposals of groups of assets and business units and resolve some complaints from investors and companies. The amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity’s operations and finances.

The FASB amended U.S. GAAP on April 10, 2014, to clarify the accounting for disposals of groups of assets and business units.

The changes were adopted with the issuance of Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

The FASB said public companies and not-for-profit organizations that have issued bonds should apply the changes for all assets that are disposed of or classified as being held for sale in fiscal years that start on December 15, 2014, or later. The changes should be applied to interim periods within those fiscal years. Other organizations will have an extra year before applying the changes to interim periods.

The FASB said the changes can be applied ahead of the effective date for asset disposals that haven’t been reported in a set of financial statements.

The amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity’s operations and finances. The FASB said a disposal of a major geographic area, a large line of business, or a significant investment in another business might qualify.

The amendments also call for more extensive disclosures about a discontinued operation’s assets, liabilities, income, and expenses. The FASB is also requiring disclosures about the pre-tax income coming from asset disposals that don’t meet the reporting criteria for a discontinued operation. The board said the disclosure will provide information about trends in a business’s continuing operations.

Prior to ASU No. 2014-08, a discontinued operation could be a segment or operating unit of a business, a subsidiary, or a group of assets. The FASB said it was common for small asset sales to be reported as discontinued operations, and investors were often frustrated by the misleading nature of the information, while companies criticized the expenses they incurred because of the reporting requirements.

The amendments in ASU No. 2014-08 align the definition for a discontinued operation in U.S. GAAP with the definition in IFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, the FASB said. Unlike IFRS 5, the FASB’s amendments include several examples for interpreting the definition of a discontinued operation. The amended disclosure requirements in U.S. GAAP are also more extensive than the IFRS requirements.

Tagged with →