By: Kris Guimond
On April 10, 2014, FASB issued ASU 2014-08 to improve guidance from US Generally Accepted Accounting Principles (GAAP) with the goal of providing a more faithful representation of when a company or other organization discontinues its operations. This update alters the criteria in regards to reporting discontinued operations in subtopic 205-20, Presentation of Financial Statements—Discontinued Operations, in addition to providing enhancements to the required disclosures on this subject. Sources of confusion and inconsistent application in reporting discontinued operations have been dealt with.
Under the new provisions, the disposal of an entity’s component or group of components is required to be reported under discontinued operations, if that disposal represents a strategic shift that will have (if it hasn’t already) a major effect on the operations and financial results of the entity, when any of the following occur:
A: The component or group of components disposed of meet the criteria in paragraph 205-20-45-1E, to be classified as held for sale.
B: The entity’s component or group of components is disposed of through a sale.
C: The component or group of components is disposed of by the entity, by means other than that of a sale, such as a spinoff distributed to shareholders.
In addition to these provisions, ASU 2014-08 requires that discontinued operations have, including:
A: Major classes of line items, such as profit/loss of discontinued operation(s) for periods during which results from discontinued operation(s), are presented in the net income of the statement.
B: Either the discontinued operation’s total operating and investing cash flows for the periods affected are presented in the net income statement, or the its depreciation, amortization, capital expenditures, and significant investing and operating noncash items are presented in the net income statement.
C: If the discontinued operation has a non-controlling interest, parent entity’s pretax profit/loss for the presentation period of the discontinued operation results, in the net income statement, (for the periods during which the operation results of the discontinued operation are presented) in the statement in which net income is reported.
D: A discontinued operation that is classified as being held for sale, requires disclosure of major class assets and liabilities.
E. A discontinued operation’s pretax profit and loss must be reconciled and included in the financial statements.
Who is Affected?
Organizations that are affected by the components included in the financial statements of an entity that is either:
A: Disposed of or meets the criteria of paragraph 205-20-45-1E, to be classified as being held for sale.
B: A nonprofit or business activity that, upon its acquisition, meets the criteria of paragraph 205-20-45-1E, to be classified as being held for sale.
When is ASU 2014-08 Effective?
Beginning in the first quarter of 2015, ASU 2014-08 goes into effect for public organizations following the calendar year. For nonpublic organizations, it is effective for financial statements with fiscal years beginning on or after December 15, 2014.