Accounting Standards Update 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) was issued by the Financial Accounting Standards Board (FASB) last week. Among other things, this standard creates a higher threshold for meeting the criteria for discontinued operations which is expected to result in fewer disposals, or classifications as held for sale, meeting the criteria of a discontinued operation.

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Accounting Standards Update 2014-08 Reporting
Discontinued Operations and Disclosures of Disposals
of Components of an Entity (ASU 2014-08) was
issued by the Financial Accounting Standards Board
(FASB) last week. Among other things, this standard
creates a higher threshold for meeting the criteria for
discontinued operations which is expected to result
in fewer disposals, or classifications as held for sale,
meeting the criteria of a discontinued operation.
The Issue
In 2001, the FASB had broadened the definition of
discontinued operations resulting in the inclusion of
many small groups of assets that were recurring in
nature.Theinclusionofthesedisposalsindiscontinued
operations resulted in excessive cost to preparers in
preparing financial statements.
The project to modify the reporting of discontinued
operations began in 2008, and as discussed in MHM
Messenger 2013-16, the FASB had proposed a new
standard in 2013. Most of the 2013 proposal remains
intact with the issuance of this standard.
The changes in ASU 2014-08 are expected to reduce
the number of disposals that qualify as discontinued
operations. As a result, this will reduce the cost and
complexity of preparing financial statements and
April 2014
FASB Raises the Threshold for Discontinued Operations
make the financial statements more useful for decision
making. In addition, the changes are expected to aid
in the convergence of the treatment of discontinued
operations for U.S. GAAP and International Financial
Reporting Standards.
The Changes
Definition – The higher threshold to meet the criteria
of a discontinued operation is included in the definition
through the requirement that a discontinued operation
represent a “strategic shift that has (or will have) a
major effect on an entity’s operations and financial
results.” If a component of an entity meets the strategic
shift criteria and 1) meets the criteria to be held for
sale, 2) is disposed of by sale, or 3) disposed of by
other than sale (i.e. spun-off or abandoned) then it is
required to be presented as a discontinued operation.
A component of an entity includes operations and cash
flows that can be clearly distinguished from the rest of
the entity for operations and financial reporting. This
may be a reportable segment, operating segment,
reporting unit, subsidiary or asset group.
Scope Exceptions – All previous scope exceptions,
except for oil and gas properties accounted for using
the full cost method, have been removed. As a result
of this change, a company may retain continuing
involvement or cash flows from a disposal qualifying as
discontinued operation. In addition, an equity method
investment is eligible for treatment as a discontinued
operation if it meets the criteria of the definition.

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MHMMessenger
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
Disclosures – This standard expands the required
disclosures for discontinued operations in many
areas, including the inclusion of a reconciliation of
major classes of assets or liabilities that are classified
as held for sale, a reconciliation of major line items
that are a part of pretax profit or loss (or net assets for
a not-for-profit entity), as well as cash flow information
about the discontinued operations.
The increase in disclosure includes information about
the disposal of individually significant components
of an entity that do not qualify for presentation as
discontinued operations. Information about these
disposals is required to be disclosed for prior periods
presented for public business entities or not-for-profits
that have conduit bond obligations that are traded,
listed or quoted. Providing some disclosure relief for
private companies, for all other entities the FASB
required this disclosure only in the year of disposal,
or in which the component was classified as held for
sale.
Implementation Challenges
The new standard will pose some challenges for
companies evaluating discontinued operations. The
determination of when to apply this guidance will
require a significant use of judgment.
In particular, the FASB did not provide specific
guidance on how to determine if a “strategic shift” has
occurred, and therefore, there may be differences in
interpretation of which disposals, or classifications as
held for sale, represent strategic shifts. The examples
provided in the standard include the disposal of a
major line of business, a major geographical area, a
major equity method investment or other major parts
of an entity.
In addition, the definition includes the term “major
effect” on the entity and the FASB did not clarify
what constitutes a major effect on the operations or
financial reporting of a company. Therefore, part of
the consideration of whether a discontinued operation
should be reported will be considering what is or is
not “major” to the entity.
Adoption
This standard is applied prospectively and may be
early adopted for disposals (or classifications as held
for sale) of a component that have not been reported
in previous financial statements that have been made
available for issuance. Otherwise, for public business
entities and not-for-profit entities with conduit debt
obligations that are listed, traded or quoted, the
standard is effective for annual periods beginning after
December 15, 2014 and interim periods within those
years. For all other entities, the standard is effective
for annual periods beginning after December 15, 2014
and interim periods beginning on or after December
15, 2015.
For More Information
If you have any specific questions, comments or
concerns, please share them with Ernie Baugh or
James Comito of MHM’s Professional Standards
Group or your MHM service professional. You can
reach Ernie at ebaugh@mhm-pc.com or 423.870.0511
and James at jcomito@cbiz.com or 858.795.2029.