Rules Discontinued Operations Reporting

Thursday, April 17, 2014 Print Email

The Financial Accounting Standards Board (FASB) recently changed its criteria for a discontinued operation on financial statements. According to the standard 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”. FASB mentioned that the discontinued operation plays a vital role in the organization’s operation and has a major impact on finance as well. Examples include disposal of big geographic area, major equity investment or a big line of business.

Additionally, the changed guidelines require detailed disclosures to be given in the financial statements about assets, liabilities, income and expenditure of discontinued operations so as to provide more detailed information to the user of financial statements. According to the FASB, the disclosure must contain the pre-tax income because pre-tax income is attributable to a disposal and plays a vital role in an organization and discontinued operation reporting. Along with the pre-tax income, FASB also mentioned that the financial statements must contain information about the ongoing trends of continuing operations.

According to the FASB officials, the recent changes and amendments of the new rule can perform substantial changes in US GAAP (Generally Accepted Accounting Principles) for discontinued operations. Additionally, the amendments include reportable segment, operating segment, reporting unit and many others.

According to the FASB chairman Russell Golden, many stakeholders have concers about the recurring disposal of the assets and the current guidelines of US GAAP. Most importantly, disposal of a small group of assets that usually recurring in nature and the required measures about the discontinued operation presentation.

FASB official refers that the new rule goes into effect in the first quarter of 2015 for public organizations to calendar year end, whereas for nonpublic organizations the new guidelines are applicable from December 15, 2014.

The FASB official also confirms that the US GAAP guidelines have a tie-up with international Financial Reporting Standards (IFRS). The new guideline of discontinued operation is based on the definition of the discontinued operations in IFRS 5, “Non-Current Assets Held for Sale and Discontinued and Discontinued Operations”.

Source: ReadyRatios

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