In brief: FASB agrees on changes to reporting of discontinued operations (No. 2012-57)

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What's new?

On December 12, 2012, the FASB (the “board”) met to resume redeliberations on its discontinued operations project. The project had been inactive since early 2010 while the board focused on its higher priority projects. At this meeting, the board reaffirmed its previous decision about the definition of a discontinued operation, modified certain disclosure requirements, and directed its staff to issue a revised exposure draft as soon as possible.

What were the key decisions?

Definition of a discontinued operation

The proposal is expected to raise the threshold for a disposition to qualify as a discontinued operation. The revised definition of a discontinued operation is a component that has either been disposed of, or is classified as held for sale, and:

• represents a separate major line of business or major geographical area of operations,
• is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
• is a business that meets the criteria for classification as held for sale upon acquisition.

Under current guidance, the threshold is a component of an entity that comprises operations and cash flows that can be clearly distinguished. A component could range from an asset group to a reportable segment.

The proposal will no longer preclude presentation as a discontinued operation if (a) there are operations and cash flows that have not been eliminated from ongoing operations or (b) there is significant continuing involvement with the component after the disposal transaction.

Disclosures

Because the proposal raises the reporting threshold, the board decided to require additional disclosures about disposals of individually material components that are not classified as discontinued operations, as follows: 

• Pre-tax profit or loss attributable to the disposed component for the current and prior periods. Nonpublic entities are exempt from the prior period requirement.
• If there is a noncontrolling interest, the profit or loss attributable to the parent
• In the footnotes, a reconciliation of the component’s major classes of assets and liabilities classified as held for sale to the amounts presented on the face of the statement of financial position for the current period. Nonpublic entities are exempt from this requirement.

For discontinued operations, an entity will be required to disclose in the footnotes a reconciliation of the component’s major income and expense items to the after-tax income or loss from discontinued operations on the face of the income statement, as well as a reconciliation of the major classes of assets and liabilities to the amounts that are presented on the face of the statement of financial position. Disclosure of cash flows by category will also be required.

The proposal will also require new disclosures to inform users when an entity continues to have an ownership interest in a discontinued operation after a disposal, as follows:

• The entity’s ownership interest before and after the disposal transaction
• The income or loss from the entity’s ongoing noncontrolling interest and the line item in which it is presented

Is convergence achieved?

This proposal will align the threshold for determining whether a component should be presented as a discontinued operation with the guidance in IFRS 5, Non-current assets held for sale and discontinued operations. However, some of the FASB’s proposed disclosures are incremental to those required under IFRS.

Who's affected?

The proposed guidance will apply to all companies reporting under US GAAP with components that are disposed of or classified as held for sale.

What's the proposed effective date? 

The FASB has not yet deliberated an effective date. 

What's next?

The board plans to issue a revised exposure draft in January 2013 with a 150-day comment period.

Questions?

PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Business Combinations team in the National Professional Services Gro

Authored by:

Lawrence N. Dodyk
Partner
Phone: 1-973-236-7213
Email: lawrence.dodyk@us.pwc.com

Kevin Catalano
Partner
Phone: 1-973-236-5057
Email: kevin.catalano@us.pwc.com

Matthew Brenner
Senior Manager
Phone: 1-973-236-7043
Email: matthew.l.brenner@us.pwc.com

In Brief is designed to provide a timely, high-level overview of significant financial reporting developments. It is issued by the National Professional Services Group of PwC. This publication is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. To access additional content on financial reporting issues, register for CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.