“Discontinuing operation” doesn’t just refer to halting your business or closing shop; rather, the term refers to stopping a part of your business operations (usually to be replaced by a new set of operations), like a strategic shift, significant change in investors, or other operational changes. Previously, the process, criteria, and requirements for reporting discontinued operations was tedious, complicated, and somewhat unhelpful. New updates from the FASB (Financial Accounting Standards Board) seek to change that. Under the new criteria, fewer businesses will have to report and those who do report can do so more easily.
FASB Chairman Russell G. Golden announced, “By revising the criteria for reporting a discontinued operation, the Board anticipates that the Update will result in more decision-useful financial reporting for investors while eliminating an unnecessary source of cost and complexity for preparers.”
Accountants, businesses, and financial stakeholders were frustrated by the broad range of scenarios that had to be reported as “discontinued operations.” Routine changes or shifts in investors, for example, needed to be reported, and the process to do so was complicated and sometimes confusing.
Thankfully, new updates have clarified both the definitions of and the procedures for reporting discontinued operations. According to the new guidance from the FASB, the definition of ‘discontinued operations’ focuses more on major shifts in the business. Only disposals that will result in a strategic shift in operations with a major effect on the business and significant financial results need to be reported as “discontinued operations.” Examples might include changes/disposal of things like a major geographic area, a major line of business, or a major equity method investment.
For those who still fall under the new criteria and must report, the changes also seek to provide additional transparency as well as clarity in procedures. Users will have more information about assets, liabilities, revenues, and expenses of the discontinued operation, so they can better evaluate the modifications.
If you would like to know more, the publication in which FASB announces the updates can be found here: Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.”
