FASB Update

ASU 2014-08Discontinued Operations

• Big change is what constitutes a discontinued operation, either of following• A component of an entity that

• Has been disposed of, meets the criteria to be classified as held-for-sale, or has been abandoned/spun-off; and

• Represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, or

• Is a business or nonprofit activity that, on acquisition, meets the criteria to be classified as held-for-sale

• Continuing involvement with discontinued operation no longer relevant

Strategic Shift?

• Examples are disposals of a major geographic area, major line of business, or major equity method investment

• Illustrations provided in ASU but no definitive bright-line tests, judgment required

• Allowing equity method investments is new• Oil & gas properties accounted for under full-

cost method still precluded

Impact?

• Substantial reduction in number of discontinued operations reported in financials

• New definition very similar to APB 30 definition

Reporting Requirements

• Income statement remains the same• Balance sheet requires separate reporting of

discontinued operations’ assets and liabilities for current year and any prior years shown for comparative purposes

• Expanded disclosures about discontinued operations’ major assets and liabilities, major line items for its results of operations, & its cash flows

Effective Date

• Public business entities & not-for-profit entities – prospectively for disposals (or classifications as held-for-sale) that occur within annual periods beginning on or after December 15, 2014 and interim periods within those annual periods

• Other entities – same for annual periods but interim reporting not required until interim periods within annual periods beginning on or after December 15, 2015

• Early application permitted unless discontinued operation has been reported separately in previously issued financials or financials available for issuance

ASU 2014-15Going Concern

• Going concern is presumed as basis of financial reporting unless liquidation becomes imminent

• If liquidation is not imminent, there may be conditions/events that raise substantial doubt about entity’s ability to continue as going concern

• Prior to ASU 2014-15 there was no guidance related to management’s responsibility to assess and respond to these conditions/events

Main Provisions

• Management, at each financial statement date, should assess whether there are conditions/events that raise substantial doubt about entity’s ability to continue as going concern

• Timeframe for continuing is one year from date financial statements are issued

• Substantial doubt exists if it is probable entity will not be able to meet its obligations within this timeframe

• If substantial doubt exists management must determine whether its plans to mitigate conditions/events will alleviate substantial doubt

• This determination focuses both on probability of plans being implemented and probability of success if implemented