The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU modifies reporting criteria for, and requires additional disclosures over, discontinued operations.
Under the ASU, only disposals signifying a strategic shift in operations will be presented as discontinued operations in the financial statements. A strategic shift is considered to have a major effect on the entity’s operations and financial results. Examples of such a shift include disposals of a geographic area, a major line of business, or a major equity-method investment.
Expanded disclosures concerning discontinued operations provide users with additional information regarding their assets, liabilities, income, and expenses. Additional disclosures required by the ASU with regard to the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the financial statements include the following:
1. The major revenue and expense line items comprising the pretax profit or loss (or change in net assets for not-for-profit entities).
2. Either of the following:
a. The total operating and investing cash flows.
b. The depreciation, amortization, capital expenditures, and significant operating and investing noncash items.
3. If the discontinued operation includes a noncontrolling interest, the pretax profit or loss attributable to the parent.
4. A reconciliation of the major classes of assets and liabilities of the discontinued operation to the total assets and total liabilities of the disposal group classified as held for sale in the statement of financial position.
5. A reconciliation of the major revenue and expense line items comprising the pretax profit or loss (or change in net assets for not-for-profit entities) of the discontinued operation to the after-tax profit or loss of the discontinued operation that is presented on the face of the statement where net income (or change in net assets for not-for-profit entities) is reported.
The amendments in this ASU increase convergence between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on features of the definition in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.
The amendments in the ASU are effective in the first quarter of 2015 for public organizations using calendar year end and for non-profit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter market. For other entities, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted.
If you have questions about the amendments in this ASU or would like additional information about our audit services, contact the expert listed below at PYA, (800) 270-9629.
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