In April 2014, the FASB issued a new standard changing the threshold for reporting discontinued operations and adding new disclosures for disposals.
The new guidance defines a discontinued operation as a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.”
A strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the FASB provides examples of when a disposal qualifies as a discontinued operation.
Having significant continuing involvement with a component after a disposal or failing to eliminate the operations or cash flows of a disposed component from an entity’s ongoing operations will no longer preclude presentation as a discontinued operation.
New disclosure and presentation requirements apply to discontinued operations and to disposals of individually significant components that do not qualify as discontinued operations.
The guidance applies prospectively to new disposals of components and new classifications as held for sale beginning in 2015 for most entities, with early adoption allowed.
PwC’s Dataline summarizes the main provisions, provides insights into key aspects of the standard, and highlights areas to consider when applying the new guidance.
* The PwC observation related to paragraph .37 has been updated as of June 3, 2014 to reflect clarification of the revised standard’s early adoption provisions.
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