This proposed FASB Staff Position would amend the definition of a discontinued operation. It would thus establish when the income effects of a component of an entity would be reported in the discontinued operations section of the income statement under FASB. Accounting for the Impairment or Disposal of Long-Lived Assets is accounted for the system. This proposed FSP also would amend the disclosure requirements of Statement for all components of an entity that either have been disposed of or are classified as held for sale regardless of whether a component of an entity is reported in the income statement as a discontinued operation or within continuing operations.
The Board invites individuals and organizations to send written comments on all matters in this proposed FSP. Respondents need not comment on all of the issues presented and are encouraged to comment on additional issues as well. Comments are requested from those who agree with the provisions of this proposed FSP as well as from those who do not. Comments are most helpful if they identify the issues to which they relate and clearly explain the reasons for the positions taken. Those who disagree with provisions of this proposed FSP are asked to describe their suggested alternatives, supported by specific reasoning.
Operating Segment Criterion: The Boards decided for the following reasons to use an operating segment as a component of an entity that has been disposed of or is classified as held for sale would be reported in the discontinued operation section of the income statement.
a. Certain preparers of financial statements have argued that the definition of a discontinued operation resulting in too many activities being classified as discontinued operations in the income statement. Some users of financial statements have indicated that a disposal activity should be presented as a discontinued operation only when an entity has made a strategic shift in its operations. Because the determination of operating segments is based on how the chief operating decision maker makes decisions about allocating resources and assessing performance, disposal of an operating segment would most likely indicate a strategic shift in an entity’s operations.
Moreover, using an operating segment criterion would simplify the determination of what should be reported as a discontinued operation in the income statement, thereby reducing the administrative burden and overall complexity associated with reporting a discontinued operation.
The FASB removed the continuing involvement criterion to reduce complexity and to converge the guidance which does not include the continuing involvement criterion for determining when a component of an entity shall be reported as a discontinued operation in the income statement. The FASB has observed that this criterion is difficult to apply and does not result in consistent application. The FASB Emerging Issues Task Force (EITF) had to issue guidance, applying the conditions of FASB in determining whether to report discontinued operations, to address this difficulty. While that guidance is helpful, the FASB believes some preparers continue to have difficulty in applying guidelines to individual fact patterns.
The Boards believe that the operating segment criterion is the general level of aggregation that meets the objective of reporting discontinued operations. However, for the following reasons, the Boards decided that the definition of a discontinued operation also should include an enterprise .