Discontinued Operations (Amendments to IFRS 5)
What Constitutes a Discontinued Operation
The FASB and IASB resumed their discussions around what constitutes a discontinued operation. The staff presented a paper discussing a proposed definition for a discontinued operation, considering:
- what the appropriate starting point would be for a definition,
- whether it should include a significance criterion, and
- whether a definition should include a continuing involvement criterion.
Several members of both Boards questioned whether discontinued operations should continue to be presented on the face of the financial statements or whether footnote disclosures alone were more appropriate. FASB staff said that users overwhelmingly support showing discontinued operations on the face of the financial statements. Ultimately, both Boards voted to continue to require the presentation of discontinued operations on the face of the financial statements.
A few Board members questioned whether the proposed definition of discontinued operations was too arbitrary and would allow different users to reach different conclusions on what meets the definition. This could present opportunities for earnings management.
Some members of the IASB questioned whether the current definition under IFRS 5 was more appropriate and suggested amendments were not needed to IFRS 5. The FASB staff noted the proposed definition was similar to IFRS 5 except the staff tried to add some principles where it made sense from an analysis point of view. The IASB indicated that they would like to retain the current definition under IFRS 5.
Next Steps in the Project
The FASB staff outlined the next steps for this project. The FASB staff will consider differences between their proposed definition and the IFRS 5 definition and determine whether they believe that changing the current definition to the IFRS 5 definition will be an improvement to financial reporting. Further, the FASB staff will perform an analysis of the disclosure requirements under IFRS 5 and determine whether they believe those disclosures are adequate or if additional disclosures may be needed. The FASB indicated that they would like to discuss the staff's findings and considerations during November.