FASB Proposes Improvements to Reporting Discontinued Operations

The Financial Accounting Standards Board (FASB) has issued for public comment its proposal to improve financial reporting about discontinued operations of major business lines or major geographic areas of operations for public and private companies, and not-for-profit organisations.

Proposed Accounting Standards update,
‘Presentation of Financial Statements (Topic 205) – Reporting Discontinued Operations’
, re-defines ‘discontinued operation’ and would require organisations to provide additional disclosures about discontinued operations such as operating, investing and financing cash flows. Stakeholders are asked to review and provide comments on the proposal no later than 30 August

“Investors have raised concerns that for certain industries too many disposals of assets qualify for discontinued operations presentation under current standards, resulting in financial statements that are less relevant and more costly to prepare,” said FASB chairman Leslie Seidman. “The board is seeking stakeholder input on changes intended to capture only those disposals that represent major strategic shifts as discontinued operations and to provide enhanced disclosures about the financial effects of discontinued operations and other disposals of significant components of an organisation.”

In addition to amending the definition of discontinued operations, the amendments in the proposed update would require additional disclosures about discontinued operations and other disposals of individually material components of an organisation that do not qualify for discontinued operations presentation in the financial statements.

The proposed amendments also would expand the disclosures about an organisation’s continuing involvement with a discontinued operation. Those continuing involvement disclosures would be required until the results of operations of the discontinued operation are no longer separately presented in the statement where net income is reported (either in a single continuous statement of comprehensive income or into separate but consecutive statements).

Finally, the proposed guidance would achieve greater convergence with the requirements for reporting discontinued operations with International Financial Reporting Standards (IFRS) 5,
Non-current Assets Held for Sale and Discontinued Operations.

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