FASB changes discontinued operations reporting guidance

New guidance issued Thursday by FASB will reduce the number of disposals of assets that should be presented as discontinued operations in organizations’ financial reporting.

Only disposals representing a strategic shift in operations that have a major effect on the organization’s operations and financial results will be required to be presented as discontinued operations.

Examples cited by FASB include disposals of the following: a major geographic area; a major line of business; and a major equity method investment.

Expanded disclosures are required in the new guidance to provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.

Disclosure of the pretax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting also is required by the new guidance. Financial statement users will be able to review this disclosure to get information about the ongoing trends in an organization’s results from continuing operations.

The changes address concerns that too many disposals of assets—including small groups of assets that are recurring in nature—qualify for discontinued operations presentation, FASB Chairman Russell Golden said in a statement.

“By revising the criteria for reporting a discontinued operation, the board anticipates that the update will result in more decision-useful financial reporting for investors while eliminating an unnecessary source of cost and complexity for preparers,” Golden said.

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, takes effect in the first quarter of 2015 for public organizations with calendar year ends. It will take effect for most nonpublic organizations for annual financial statements with fiscal years beginning on or after Dec. 15, 2014.

The changes bring U.S. GAAP closer to IFRS because part of the new definition of discontinued operations is based on elements of the definition in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.