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Discontinued operations: Key differences between U.S. GAAP and IFRSs


This comparison applies to periods before an entity adopts the guidance in FASB Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (issued in April 2014). The comparison has not been updated to reflect the ASU’s guidance. Public business entities as well as not-for-profit entities that have issued, or that are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or over the counter will apply ASU 2014-08 prospectively to all disposals (or classifications as held for sale) that occur in annual periods (and interim periods therein) beginning on or after December 15, 2014. For all other entities, ASU 2014-08 will be effective prospectively for annual periods beginning on or after December 15, 2014, and interim periods thereafter. Early adoption is permitted for any annual or interim period for which an entity’s financial statements have not yet been previously issued or made available for issuance.

Under U.S. GAAP, ASC 205-20 is the primary source of guidance on discontinued operations.

Under IFRSs, IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations, is the primary source of guidance on discontinued operations.

An entity can classify equity method investments as held for sale under IFRSs but is not permitted to do so under U.S. GAAP.

The table below summarizes these differences and is followed by a detailed explanation of each difference.1

SubjectU.S. GAAPIFRSs

Definition of a discontinued operation

A component of an entity should be classified as a discontinued operation if all of the following conditions are met:

  • The component has been disposed of or is classified as held for sale.
  • The operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction.
  • The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

A component of an entity should be classified as a discontinued operation if all of the following conditions are met:

  • The component has been disposed of or is classified as held for sale.
  • The component:
    • Represents a separate major line of business or geographical area of operations.
    • Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
    • Is a subsidiary acquired exclusively with a view to resale.

Definition of a Discontinued Operation

Although both U.S. GAAP and IFRSs define a component of an entity as comprising "operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity," IFRSs differ from U.S. GAAP regarding the level of reporting discontinued operations.

Under U.S. GAAP, ASC 205-20-45-1 and 45-2 indicate that the component can only be classified as a discontinued operation if it has been disposed of or is classified as held for sale and (1) "[t]he operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction" and (2) "[t]he entity will not have any significant continuing involvement in the operations of the component after the disposal transaction." A component of an entity may be a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group.

Under IFRSs, paragraph 32 of IFRS 5 indicates that the component can only be classified as a discontinued operation if it has been disposed of or classified as held for sale and it (1) "represents a separate major line of business or geographical area of operations;" (2) "is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations;" or (3) "is a subsidiary acquired exclusively with a view to resale."

Thus, an important difference between U.S. GAAP and IFRSs in the classification of discontinued operations is that U.S. GAAP preclude discontinued-operations classification when continuing involvement exists while IFRSs do not.

The components of an entity that are considered discontinued operations under IFRSs are generally similar to the operating-segment levels under U.S. GAAP in ASC 280-10-50-9. Therefore, discontinued operations may be reported more frequently under U.S. GAAP than under IFRSs.

The FASB and the IASB are working on a joint project to converge their (1) definition of a discontinued operation and (2) disclosure requirements for all components of an entity that have been (or will be) disposed of. This joint project may lead to the issuance of revised U.S. GAAP guidance that would eliminate the differences in the reporting of discontinued operations described in this comparison.

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1 Differences are based on comparison of authoritative literature under U.S. GAAP and IFRSs and do not necessarily include interpretations of such literature.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.