On April 10, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 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, which improves and clarifies the financial reporting of discontinued operations under U.S. Generally Accepted Accounting Principles (GAAP).
Under ASU 2014-08, changes include:
- The rules governing discontinued operations apply not only to entity components, but also to a business or nonprofit activity that, on acquisition, meets the criteria to be classified as “held for sale”.
- The most significant change is that a discontinued operation only needs to be reported when it represents a strategic shift, which is an action with a major effect on a company’s operations and financial results. Examples of such shifts include: disposal of a major geographical area, a major line of business, or a major equity method investment.
- Organizations are now required to expand disclosures to include more information about the assets, liabilities, income, and expenses of discontinued operations, as well as pre-tax income attributed to significant disposals that do not qualify as discontinued operations.
ASU 2014-08 will be effective for annual periods with fiscal years beginning on or after Dec. 15, 2014. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance.
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