Board Meeting Handout DISCONTINUED OPERATIONS. August 26, 2009

Size: px

Start display at page:

Download "Board Meeting Handout DISCONTINUED OPERATIONS. August 26, 2009"

Geraldine Barrett
5 years ago
Views:

1 Board Meeting Handout DISCONTINUED OPERATIONS August 26, 2009 Purpose of the Meeting 1. The purpose of the meeting is to discuss the feedback received from users and staff recommendations on the presentation and disclosure of discontinued operations. Presentation of Discontinued Operations on the Face of the Statement of Comprehensive Income 2. The staff spoke with users about an alternative developed at the April 15, 2009, education session that would eliminate the requirement to present discontinued operations (except for businesses that meet the criteria to be classified as held for sale on acquisition) on the face of the income statement. All users of U.S. generally accepted accounting principles (GAAP) stated that discontinued operations should continue to be presented separately on the face of the income statement. 3. In the staff s view, there is not enough user support to eliminate the presentation of discontinued operations from the face of the statement of comprehensive income. Question for the Board 1. Does the Board think that discontinued operations should continue to be presented on the face of the statement of comprehensive income? Definition of Discontinued Operations 4. The staff spoke with users about how to define a discontinued operation assuming that discontinued operations would continue to be reported on the face of the income statement. Users did not have one predominant view on this issue, and were split between The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after extensive due process and deliberations.

2 alternatives that would allow more management judgment (for example, a strategic shift notion) and those that are based on concepts that already exist in accounting literature (for example, component of an entity or reporting unit). The staff considered the following Alternatives for a definition: a. Alternative A: A discontinued operation is a component of an entity whose disposal of or classification to held for sale represents a strategic shift in the entity s operations. b. Alternative B: A discontinued operation is an operating segment whose disposal of or classification to held for sale represents a strategic shift in the entity s operations. c. Alternative C: A discontinued operation is a significant operating segment disposed of or classified as held for sale. d. Alternative D: A discontinued operation is a reportable segment (as defined in IFRS 8, Operating Segments, and the FASB Accounting Standards Codification TM Topic 280 [originally issued as FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information]) that is disposed of or classified as held for sale. 5. The staff recommends Alternative C. Because users did not have one consistent view on what should be included in the definition of discontinued operations (some users were satisfied with the existing definition, while others preferred reporting unit, or a definition based on a strategic shift), the staff thinks that using significant operating segment would establish a proper compromise. 6. If the Board selects Alternative B, C, or D, the staff thinks that the following clarifications to the operating segment/reporting segment definition need to be made based on feedback received from users and in comment letters: a. When an entity is structured as a matrix form of organization, the disposal of an operating segment that is not considered a reporting segment for the disclosures in Topic 280 should still be considered a disposal of an operating segment and eligible for presentation as a discontinued operation. b. An operating segment is considered to be disposed of or classified as held for sale if substantially all of the assets and liabilities within that segment are disposed of or classified as held for sale. c. The disposal of assets and liabilities related to the disposal of an operating segment (but those assets and liabilities are not part of that segment) should be included in a discontinued operation if such disposal is part of a single coordinated plan. 2

3 Questions for the Board 2. Does the Board prefer Alternative A, B, C, or D for a definition of discontinued operation? 3. If the Board selects Alternative B, C, or D, does the Board agree that the following clarifications should be made for the purposes of presenting discontinued operations if the operating segment concept is to be used? (a) When an entity is structured as a matrix form of organization, the disposal of an operating segment that is not considered a reporting segment for the disclosures in Topic 280 should still be considered a disposal of an operating segment and eligible for presentation as a discontinued operation. (b) An operating segment is considered to be disposed of or classified as held for sale if substantially all of the assets and liabilities within that segment are disposed of or classified as held for sale. (c) The disposal of assets and liabilities related to the disposal of an operating segment (but in which those assets and liabilities are not part of that segment) should be included in a discontinued operation if that disposal is part of a single coordinated plan. Conditions for Classification as a Discontinued Operation 7. Several respondents to proposed FSP FAS 144-d, Amending the Criteria for Reporting a Discontinued Operation, recommended retaining the guidance in paragraphs through 45-2 of Subtopic (originally issued as FASB Statement No. 144, Accounting for the Impairment or Disposal or Long-Lived Assets) that requires a component of an entity that has been classified as a discontinued operation to meet the following conditions: a. 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. b. The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. 8. Those respondents noted that those criteria should be retained to (a) consistently apply the definition and (b) because the objective of reporting a disposed component as discontinued would not be met if the entity has significant continuing cash flows or 3

4 continuing involvement with the disposed component. Additionally, those respondents noted that, at a minimum, there should be some form of disclosures about continuing involvement. 9. The staff recommends retaining the guidance in paragraphs through 45-2 because of the reasons noted in paragraph 8. Questions for the Board 4. Does the Board think that the continuing involvement criteria should be retained as a condition for classification of discontinued operations? 5. If the answer to question 4 is no, does the Board think that the staff should explore alternatives for disclosures about continuing involvement? Disclosures 10. Users were supportive of the expanded disclosures in the Exposure Draft while preparers and auditors concluded that the disclosures are to onerous. Preparers and auditors were particularly concerned about restating disclosures for prior periods for disposed components that do not meet the definition of a discontinued operation. The staff considered the following alternatives: a. Alternative A: Disclosures for prior periods would be required to be re-presented for all disposals of components of an entity. b. Alternative B: Disclosures for prior periods would be required to be re-presented only for those disposals of components of an entity that meet the definition of a discontinued operation. 11. Respondents also asked for clarification of the guidance on the aggregation of disclosures for discontinued operations. The staff considered including guidance similar to that in IFRS 3, Business Combinations (revised 2008) and Topic 805 (originally issued as FASB Statement No. 141 (revised 2007), Business Combinations): a. Information should be provided individually for each material component of an entity that has been disposed of or classified as held for sale. b. Information should be provided in aggregate for immaterial components of an entity that have been disposed of or classified as held for sale that are material collectively. 12. The staff recommends Alternative B. The staff thinks that disclosures should be represented for prior periods when a disposal is significant enough to be classified as a 4

5 discontinued operation on the income statement. However, if a disposal is not significant enough, the staff thinks the costs outweigh the benefits of requiring re-presentation of the disclosures for a disposal. 13. The staff also recommends adding the clarifying guidance noted in paragraph 11. Questions for the Board 6. Does the Board think that disclosures of items proposed in the Exposure Draft should be required for all disposed components of an entity? 7. Does the Board think that the disclosures for prior periods should be required to be re-presented for all discontinued operations (rather than for all components of an entity)? 8. Does the Board think that disclosures should be provided individually for material items but in the aggregate for immaterial items that are collectively material? 5

Board Meeting Handout Accounting for Financial Instruments: Hedge Accounting March 10, 2010

Board Meeting Handout Accounting for Financial Instruments: Hedge Accounting March 10, 2010 PURPOSE OF THE MEETING 1. The purpose of this meeting is to discuss the hedge accounting model to be included