According to the FASB, there have been a number of disposals of small groups of assets which qualify for discontinued operations presentation under existing U.S. GAAP. This usually results in financial statements that are less useful for intended readers of the financial statements. Additionally, some interested parties state that applying  the existing standard for a presentation of discontinued operations result in higher costs for preparers because it can be complex and difficult to apply.

The amendment helps address the issues noted above by changing the criteria for reporting discontinued operations.

The amendment improves the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Under current U.S. GAAP, many disposals, some of which may be routine in nature and not a change in an entity’s strategy, are reported in discontinued operations.

The following conditions in the current definition of discontinued operation have been removed:

1. 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.
2. The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

The changes in the above definition are expected to reduce complexity in determining discontinued operations by the elimination of the current requirements to assess whether a component’s operations and cash flows have been eliminated from the ongoing entity and the significance of continuing involvement with a disposed component.

Additional items of note from the amendment:

A business or nonprofit activity that, on acquisition, meets the criteria to be classified as held for sale is reported in discontinued operations. Currently, U.S. GAAP does not include a business or nonprofit activity in the definition of a discontinued operation.

A disposal of an equity method investment that meets the definition of discontinued operation is reported in discontinued operations. Currently, disposals of equity method investments are not within the scope.

This amendment would also require an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. This additional disclosure should provide users with information about the financial effects of significant disposals that do not qualify for discontinued operations reporting.

The effective dates for entities that are not public business entities and a not-for profit entity that has not issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the counter market are as follows:

1. All disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015
2. All businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015.

An entity should not apply the amendments to a component of an entity, or a business or nonprofit activity that is classified as held for sale before the effective date even if the component of an entity, or business or nonprofit activity, is disposed of after the effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance.  If your company is a public company please refer to ASU 2014-8 for the effective date for your company.