KPMG explains when and how to apply the discontinued operations guidance in ASC 205-20 and held-for-sale guidance in ASC 360-10.
This November 2022 edition is updated to address considerations such as transfers between entities under common control, classification of loans and debt securities included within a disposal group; and clarifies acceptable approaches when writedown losses exceed the carrying amount of long-lived assets in a disposal group.
A significant shift in operations
The reporting of discontinued operations signals that, through a disposal transaction, an entity is undertaking a strategic shift of significance to its operations and financial results. It shows the financial effect of such a shift to the users of the entity’s financial statements – allowing them to better understand continuing operations.
The underlying principles in ASC 205-20 evolved with the issuance of ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
The FASB narrowed the types of disposals that are reported in discontinued operations to exclude from the presentation requirement routine transactions that do not change the entity’s strategy. The current definition of discontinued operations reduces the burden on preparers, but disclosures remain extensive – in particular for significant disposals that do not qualify as discontinued operations.
This Handbook provides an in-depth look at the classification of operations that have been or will be disposed of. We have organized our discussion so that each step in the classification process is analyzed to make it easier to identify how a disposal should ultimately be presented and disclosed; for areas where the guidance is unclear, we have provided our position. We hope that this publication will be useful in properly reporting discontinued operations.