Project Update

FAS 144—Reporting Discontinued Operations—Joint Project of the IASB and FASB

Last Updated: January 7, 2010 (Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the IASB and the FASB (Boards). It was prepared by the staff and is for the information and convenience of their constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.

Project Objective
Due Process
*Decisions Reached at the Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

Project Objective

The objective of this project is to develop a converged definition of a discontinued operation with the IASB along with converged disclosure requirements for all components of an entity that have been (or will be) disposed of.

Due Process

On September 25, 2008, the FASB issued an Exposure Draft, Amending the Criteria for Reporting a Discontinued Operation, for a 120-day comment period. The comment period ended on January 23, 2009.

Exposure Draft

Comment Letters

Comment Letter Summary

As part of this joint project, the IASB also issued an Exposure Draft, Discontinued Operations, which proposes amendments to IFRS 5 to parallel those proposed in the FASB Exposure Draft. The comment period ended on January 23, 2009.

*Decisions Reached at the Last Meeting (Joint Meeting, December 17, 2009)

The Boards discussed the definition of a discontinued operation, disclosures about discontinued operations and other disposals, and the effective date and transition for the proposed guidance. The Boards made the following decisions.

Definition of a discontinued operation

The Boards decided that a discontinued operation is a component that has either been disposed, or is classified as held for sale, and

  1. Represents a separate major line of business or geographical area of operations,
  2. Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
  3. Is a business that meets the criteria to be classified as held for sale on acquisition.

Disclosures

Disposal of a component of an entity that meets the definition of a discontinued operation

An entity would provide the following disclosures about a disposal of a component of an entity that meets the definition of a discontinued operation for current and prior periods:

  1. The profit or loss, together with major income and expense items constituting that profit or loss, including impairments, interest, depreciation, and amortization
  2. The major classes of cash flows (operating, investing, and financing)
  3. A reconciliation of the major classes of assets and liabilities classified as held for sale in the notes to the financial statements to total assets and total liabilities classified as held for sale that are presented separately on the face of the statement of financial position
  4. A reconciliation of the profit or loss for disposals presented in the notes to the financial statements to the after-tax profit or loss from discontinued operations presented on the face of the statement of comprehensive income
  5. If the component includes a noncontrolling interest, the profit or loss attributable to the parent.

Disposal of a component of an entity that does not meet the definition of a discontinued operation

An entity would provide the following disclosures about a disposal of a significant component of an entity that does not meet the definition of a discontinued operation for current and prior periods:

  1. The pre-tax profit or loss
  2. A reconciliation of the major classes of assets and liabilities classified as held for sale in the notes to the financial statements to total assets and total liabilities classified as held for sale that are presented separately on the face of the statement of financial position
  3. A reconciliation of the profit or loss for disposals presented in the notes to the financial statements to the after-tax profit or loss from discontinued operations presented on the face of the statement of comprehensive income
  4. If the component includes a noncontrolling interest, the pre-tax profit or loss attributable to the parent.

Disposals of long-lived assets that are not components of an entity

If major classes of assets and liabilities included as part of the disposal group are not separately presented on the face of the statement of financial position, the entity would disclose those classes of assets and liabilities in the notes to the financial statements. In addition, the entity would reconcile the amounts provided in the notes to the financial statements to total assets and total liabilities classified as held for sale that are presented separately on the face of the statement of financial position, respectively.

Continuing involvement and continuing cash flows

If an entity retains continuing involvement with the discontinued operation and/or continuing cash flows between the discontinued operation and the remaining entity after the disposal date, the entity would provide the following disclosures:

  1. The nature of the activities that give rise to continuing involvement and/or cash flows
  2. The period of time for which the continuing involvement and/or cash flows is expected to continue
  3. The amount of the continuing cash flows, if applicable
  4. The amounts presented in continuing operations after the disposal transaction that prior to the disposal transaction were eliminated in consolidated financial statements as intra-entity transactions.

Effective date and transition

The Boards decided to aim to issue the new guidance so that it would be effective for U.S. GAAP preparers for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years, and for IFRS preparers, for fiscal years beginning on or after January 1, 2011, and for interim periods within those fiscal years,. Early application of the new guidance would be permitted. Entities would apply the new guidance prospectively.

Re-exposure and comment period

The Boards decided that the proposed guidance would be re-exposed. The Boards directed the staff to proceed to a draft of an Exposure Draft for vote by written ballot. The length of the comment period for the Exposure Draft would be discussed at a future meeting.

*Summary of Decisions Reached to Date (As of December 17, 2009)

The Boards made the following decisions during redeliberations of the Exposure Drafts:
Presentation
The Boards decided that discontinued operations should continue to be presented in a separate section on the face of an entity's financial statements.
Definition of a discontinued operation

The Boards decided that a discontinued operation is a component that has either been disposed, or is classified as held for sale, and

  1. Represents a separate major line of business or geographical area of operations,
  2. Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
  3. Is a business that meets the criteria to be classified as held for sale on acquisition.

Disclosure

The Boards decided on modifying the disclosure requirements for discontinued operations as follows:

Disposal of a component of an entity that meets the definition of a discontinued operation

An entity would provide the following disclosures about a disposal of a component of an entity that meets the definition of a discontinued operation for current and prior periods:

  1. The profit or loss, together with major income and expense items constituting that profit or loss, including impairments, interest, depreciation, and amortization
  2. The major classes of cash flows (operating, investing, and financing)
  3. A reconciliation of the major classes of assets and liabilities classified as held for sale in the notes to the financial statements to total assets and total liabilities classified as held for sale that are presented separately on the face of the statement of financial position income
  4. A reconciliation of the profit or loss for disposals presented in the notes to the financial statements to the after-tax profit or loss from discontinued operations presented in the statement of comprehensive income
  5. If the component includes a non-controlling interest, the profit or loss attributable to the parent.

Disposal of a component of an entity that does not meet the definition of a discontinued operation

An entity would provide the following disclosures about a disposal of a significant component of an entity that does not meet the definition of a discontinued operation for current and prior periods:

  1. The pre-tax profit or loss
  2. A reconciliation of the major classes of assets and liabilities classified as held for sale in the notes to the financial statements to total assets, and total liabilities classified as held for sale that are presented separately in the statement of financial position income
  3. A reconciliation of the profit or loss for disposals presented in the notes to the financial statements to the after-tax profit or loss from discontinued operations presented in the statement of comprehensive income
  4. If the component includes a non-controlling interest, the pre-tax profit or loss attributable to the parent.

Disposals of long-lived assets that are not components of an entity

If major classes of assets and liabilities included as part of the disposal group are not presented separately in the statement of financial position, the entity would disclose those classes of assets and liabilities in the notes to the financial statements. Additionally the entity would reconcile the amounts provided in the notes to the financial statements to total assets and total liabilities classified as held for sale that are presented separately in the statement of financial position, respectively.

Continuing involvement and continuing cash flows

If an entity retains continuing involvement with the discontinued operation and/or continuing cash flows between the discontinued operation and the remaining entity after the disposal date, the entity would provide the following disclosures:

  1. The nature of the activities that give rise to continuing involvement and/or cash flows
  2. The period of time for which the continuing involvement and/or cash flows is expected to continue
  3. The amount of the continuing cash flows, if applicable;
  4. The amounts presented in continuing operations after the disposal transaction that prior to the disposal transaction were eliminated in consolidated financial statements as intra-entity transactions.
Effective date and transition

The Boards decided that the proposed guidance would be re-exposed.The Boards decided to aim to issue the new guidance so that it would be effective for U.S. GAAP preparers for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years, and for IFRS preparers, for fiscal years beginning on or after January 1, 2011, and for interim periods within those fiscal years,. Early application of the new guidance would be permitted. Entities would apply the new guidance prospectively.
 

 

*Next Steps

The Boards decided that the proposed guidance would be re-exposed. The Boards directed the staff to proceed to the draft of the Exposure Draft for vote by written ballot. The length of the comment period for the Exposure Draft would be discussed at a future meeting. The FASB Board Members will meet in January to discuss current scope exceptions in the Exposure Draft for certain industries and equity method investments.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*December 17, 2009 Joint FASB and IASB Board Meeting—Definition and Disclosures of a Discontinued Operation
October 26, 2009 Joint FASB and IASB Board Meeting—Alternatives for a definition of a discontinued operation
August 26, 2009 FASB Board Meeting—Discussion of the user feedback received
July 21, 2009 IASB Board Meeting—The way forward with the project
July 23, 2008 Board Meeting—Board directed the staff to proceed to a draft of a proposed FSP
May 14, 2008 Board Meeting—Decisions related to the definition of Discontinued Operations, required disclosures for all components of an entity that have been (or will be) disposed of, effective date and transition, and proposed FSP comment period
April 18, 2007 Board Meeting—Agenda Decision
January 24, 2007 Board Meeting—Financial Statement Presentation: Discontinued Operations

Background Information

At its January 24, 2007 meeting on the financial statement presentation project, the Board agreed to revise the definition of a discontinued operation in FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. It also decided to require an entity to provide additional disclosures when reporting the disposal (or future disposal) of a component of the entity. At the January 25, 2007 IASB Board meeting, the IASB agreed to converge with the FASB’s revised definition of a discontinued operation.

During the deliberations leading to the revised definition, the Board asked the staff to research the amount of the staff’s and the Board’s time necessary to create a separate project for this issue, effectively removing it from the scope of the financial statement presentation project. In February 2007, the staff received six letters from constituents, including NAREIT, in support of the revised definition and asked the IASB and the FASB to issue the revised guidance on an accelerated basis. In April 2007, the FASB and IASB Boards agreed to address the guidance for reporting discontinued operations and any related disclosure issues separately from the financial statement presentation project.

Contact Information

Phil Hood
Project Manager
prhood@fasb.org

Additional Details