Reporting Requirements for Discontinued Operations

The Financial Accounting Standards Board (“FASB”) has completed its redeliberations and voted to issue a final standard on Reporting Discontinued Operations (the Final Standard) in January 2014. The proposed standard will be effective for both private and public entities for annual periods beginning on or after December 15, 2014, and interim periods within those annual periods.  FASB may permit early adoption of these standards, which was a specific request from NAREIT. 

Under current U.S. GAAP, most companies that sell even a single investment property (unless immaterial) are generally required to report the sale as discontinued operations, which require the companies to reclassify the earnings from continuing operations for all periods presented.  The Final Standard will more faithfully represent the economic performance and will eliminate a significant number of discontinued operations reported under the current standard and the need for analysts to unwind the related reporting treatment.  The Final Standard will have the following definition of discontinued operations:

  • The component or group of components has been disposed of or is classified as held for sale
  • The disposal of the component or group of components represents a major strategic shift in entities operations.  A major strategic shift consists of:
    1. Separate major line of business
    2. Separate major geographical area of operations
    3. Combination of (i) or (ii) that together account for a major part of an entity’s operations
  • A business that, on acquisition, is classified as held for sale

Certain disclosures are still required under the Final Standard with respect to discontinued operations (operating and investing cash flows). Disclosure of pre-tax profit or loss will be required for disposals that do not rise to the level of discontinued operations. Additionally, disposal of an equity method investment may also qualify as discontinued operations under the Final Standard. 

Christopher Stoop is a Senior Audit Manager who serves both public and private companies and his client base focuses on the real estate, construction, manufacturing, distribution, retail and life sciences industries.

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