In April 2013, the Financial Accounting Standards Board (FASB) issued a proposed accounting standards update (ASU), Presentation of Financial Statements (Topic 205): Reporting Discontinued Operations, for public comment. The amendments in the proposed update will address a common complaint that too many disposals of assets currently require discontinued operations presentation in the financial statements. Current discontinued operations reporting guidelines can result in financial statements that are not useful to users of the financial statements and can be more difficult to prepare.
Currently, a component of an entity should be classified as a discontinued operation if: 1) it has been disposed of or is held for sale, 2) the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity because of the disposal, and 3) the entity will not have significant continuing involvement in the operations of the component after the disposal.
Under the proposed amendments, a component of an entity would only be treated as a discontinued operation if: 1) it has been disposed of or is held for sale, and 2) it is part of a single coordinated plan to dispose of a separate major line of business or separate major geographical area of operations.
Disposals of equity method investments that meet the above definition of a discontinued operation would be eligible for discontinued operations presentation. Also, the requirement that the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity because of the disposal, and the entity will not have significant continuing involvement in the operations of the component after the disposal, would be eliminated by the amendments.
The proposed amendments would require additional disclosures about discontinued operations including the major income and expense items, major classes of cash flows, a reconciliation of the major classes of assets and liabilities held for sale that are disclosed in the financial statements to what is presented on the balance sheet, and a reconciliation of the major income and expense items that are disclosed in the notes to the financial statements to the after-tax profit or loss from the discontinued operation on the income statement. The proposed amendments will also require disclosures related to the disposal of an individually material component of an entity that does not qualify for discontinued operations presentation. Also proposed are expanded disclosures about an entity’s continuing involvement with a discontinued operation including the amount of cash inflows and outflows from and to the discontinued operation and disclosures about a discontinued operation in which an entity retains an equity method investment after the disposal.
The effective date of the proposed amendments will be determined after the FASB considers the feedback received. The proposed amendments will be applied prospectively and earlier adoption will be permitted. Comments on this proposed ASU are due by Aug. 30, 2013.
The FASB has announced that it will release for public comment in May 2013 a re-exposure on the proposed ASU on the financial reporting for leases. The lease proposal will be converged with the International Accounting Standards Board exposure draft that is expected to be released in June 2013.
The lease proposal will require that all leases be recorded on the balance sheet of lessees. On the income statement, expenses would be recognized depending on whether significant consumption of the asset occurs during the lease. Leases where the asset depreciates significantly during the lease term (equipment and vehicles, for example) would be accounted for differently than assets that do not depreciate or increase in value (land and buildings, for example). Leases for assets with significant consumption of the asset would be expensed through amortization of the asset and interest expense on the lease liability. The expense would generally decrease over the term of the lease resulting in front-loaded expenses. For leases of assets without significant consumption of the asset, the lease payments would be expensed on a straight-line basis over the lease term.
The re-exposure of the proposed ASU on leases is expected to be out for comment for a 120-day period. For a full status update on the proposal, refer to the FASB website.