Discontinued Operations (Amendments to IFRS 5)

Date recorded:

Definition of discontinued operations

The Board discussed the definition of discontinued operations and the need for the presentation of discontinued operations on the face of the statement of comprehensive income following comments received on the exposure draft published in 2008.

Some Board members did not feel that discontinued operations shall be presented on the face of the statement of comprehensive income; they would have preferred alternative disclosure in the notes. One Board member suggested that the most suitable place for such disclosures and accompanying reasons for classification is the management commentary. Nonetheless, most of the Board members defended the current requirements as they did not feel that notes are the right place for such important information (as net income from continuing operations represents input to basic performance metrics). Moreover, some members of the Board were concerned that requiring only disclosure in the notes could open further structuring opportunities. After a prolonged discussion the Board approved (by 10 votes to 5) retaining the requirement for presentation of discontinuing operations on the face of the statement of comprehensive income.

Most of the following discussion focused on the appropriate definition of a discontinued operation. The staff presented three alternatives of a definition (component representing strategic shift in operations, operating segment representing strategic shift in operations and significant operating segment). The Board discussed this issue in great detail, with many Board members uneasy about a definition based on operating segment as that definition would on one hand increase the structuring opportunities and on the other hand excessively increase the number of reported discontinued operations. Many Board members were also uneasy about including 'significant' operating segment in the definition, as significant is not defined. After a significant discussion the Board agreed that a definition shall be based on the reportable segments (segment already reported) in order not to have a large number of different operating segments to be reported as discontinuing operation. By aligning the definition in IFRS 5 and IFRS 8 the Board tried to improve consistency between those standards.

On disclosures, the Board discussed the proposed enhancement of required disclosures. Many members of the Board felt that the proposal brought by the staff requiring additional separate disclosures on components and rules on their aggregation would place excessive requirements on the preparers without enhancing the quality of the financial statements. Many Board members also raised the issue that these requirements seem to be more prescriptive and detailed that those currently in US GAAP due to difference in requirements for operating segments (difference in definition, required disclosures). As a consequence, the staff was directed to re-visit the US requirements and propose disclosure that would fully converge with US GAAP.

 

OCI items within discontinued operations

The staff presented the Board with a potential annual improvement item regarding presentation of OCI items related to discontinued operations in the statement of comprehensive income. In discussion some of the Board members proposed combining presentation of discontinued operations into one line of statement of comprehensive income (income statement and OCI items together), some proposed similar changes for the statement of financial position within equity. Several Board members felt that the disclosure in the statement of financial position would be more informative. Other members believed that the need for separate presentation would create more work for the preparers without any additional benefit to the users. Finally, the Board decided to limit the amendment for statement of comprehensive income and include it in annual improvement process.

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