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.
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:
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.
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:
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:
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.
The proposed guidance will apply to all companies reporting under US GAAP with components that are disposed of or classified as held for sale.
The FASB has not yet deliberated an effective date.
The board plans to issue a revised exposure draft in January 2013 with a 150-day comment period.
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
Lawrence N. Dodyk
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