Financial Reporting 101: Updates for Discontinued Operations

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April 14, 2014 – Back to BlogShare

The Financial Accounting Standards Board (FASB) recently issued new financial reporting guidance for companies and organizations that have discontinued operations.

Accounting Standards Update 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, changes the criteria for reporting discontinued operations while enhancing disclosures. It also addresses sources of confusion and inconsistencies related to financial reporting of discontinued operations guidance in U.S. GAAP.

Under the new guidance:

  • Only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results. Examples include a disposal of a major geographic area, a major line of business or a major equity method investment.
  • Expanded disclosures about discontinued operations will be required. It will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations.
  • Pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting will require disclosure. This will provide users with information about the ongoing trends in a reporting organization's results from continuing operations.

The amendments in this update enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS).

The new standard will be in effect the first quarter of 2015 for public organizations with calendar year-ends. For most private organizations, it will be in effect for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted for discontinued operations not previously reported.

The new Accounting Standards Update No. 2014-08 and a supplementary overview document, FASB in Focus, are both available at www.fasb.org.

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