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Journal entry — Discontinued operations — FASB makes tentative decisions related to effective date and cash flow disclosures

Published on: Jan 17, 2014

At its meeting this week, the FASB reaffirmed and made new decisions related to its discontinued operations project.

Effective Date

The FASB reaffirmed its decision that the final standard would be effective prospectively for public entities for annual periods (and interim periods therein) beginning on or after December 15, 2014. For nonpublic entities, the final standard would be effective prospectively for annual periods beginning on or after December 15, 2014, and interim periods thereafter. In addition, as with the Board’s previous decision, early adoption would be permitted for any annual or interim period for which an entity’s financial statements have not yet been made available for issuance.

Editor’s Note: A component of an entity that is classified as a discontinued operation under ASC 205-201 may not meet the definition of a discontinued operation under the proposed ASU.2 Because nonpublic entities will be required to apply the guidance in annual periods beginning on or after December 15, 2014, and interim periods thereafter, some nonpublic entities may encounter a situation in which a component of an entity that is classified as a discontinued operation under ASC 205-20 may not meet the definition of a discontinued operation under the new guidance. As a result, the Board considered whether the effective date for nonpublic entities should be revised given the potential for discontinued operations to be reported in interim periods before the effective date (i.e., interim periods in calendar year 2014) under current guidance and then restated in the annual financial statements under the proposed guidance. The Board decided to retain the effective date that was previously proposed for nonpublic entities, noting that an entity could avoid this situation by electing to early adopt the proposed guidance as of the beginning of its fiscal year and report both the interim and annual periods under the proposed guidance.

The Board also considered whether conduit bond obligors that meet the definition of a public entity in ASU 2013-123 (since the challenges faced by conduit obligors in implementing the final standard are similar to those for nonpublic entities) should have an additional year to comply with the final standard. The Board decided against deferring the effective date for only a subset of public entities.

Disclosures About the Cash Flows of a Discontinued Operation

At a prior meeting, the Board tentatively decided that entities would be required to disclose the operating cash flows and investing cash flows of discontinued operations. 

On the basis of its outreach, the FASB staff noted that this disclosure requirement could present a significant challenge for entities that have a centralized cash management process (since these entities do not typically segregate their invoices or purchase orders at the business unit or operating unit level).

At the meeting, the FASB decided to give entities the option to disclose either of the following:

  • Operating and investing cash flows of a discontinued operation.
  • Depreciation and amortization, capital expenditures, and significant noncash items.

Editor’s Note: The Board indicated that its Basis for Conclusions will note that of these two options, disclosures about operating and investing cash flows associated with a discontinued operation are more meaningful. However, the Board recognizes that, in certain instances, an entity may have to expend undue effort to provide these disclosures in a timely manner as a result of the timing and availability of information. Therefore, entities have the option of only disclosing depreciation and amortization, capital expenditures, and significant noncash items.

Next Steps

The Board directed the staff to draft and present for written ballot an ASU that includes rewrites to simplify the wording in the FASB Accounting Standards Codification. As a result, the standard is not expected to be finalized before the end of the first quarter of 2014.

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1 FASB Accounting Standards Codification Subtopic 205-20, Presentation of Financial Statements: Discontinued Operations.

2 FASB Proposed Accounting Standards Update, Reporting Discontinued Operations.

3 FASB Accounting Standards Update No. 2013-12, Definition of a Public Business Entity — an Addition to the Master Glossary.

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