Discontinued operations: Identification, presentation and disclosure
Financial statements present a historical view of an entity’s financial position, operations and cash flows. Many financial statement users are interested in using the statements as a basis to forecast future results. A lender is interested in historical cash flows for purposes of forecasting future cash flows and a borrower’s ability to repay a loan. A potential investor uses the historical information to evaluate a potential investee’s ability to provide a sufficient return on investment. A shareholder uses the historical information to make decisions about whether to sell or hold its investment.
When an entity disposes of part of its operations, separately presenting assets and liabilities or recasting financial information to show the ongoing entity separate from the part disposed of or to be disposed of is often more meaningful to users of the financial statements. In some situations, when an entity plans to dispose of part of its operations, a similar recasting of financial information is beneficial. The Financial Accounting Standards Board (FASB) provides guidance related to determining when the operating results of disposals or planned disposals should be separately presented and recast as discontinued operations. Our Financial Reporting Insights, Discontinued operations: Identification, presentation and disclosure, provides detailed discussion and examples related to application of the discontinued operations guidance in Subtopic 205-20, Presentation of Financial Statements – Discontinued Operations, of the FASB’s Accounting Standards Codification. The Financial Reporting Insights also includes an appendix with a tabular presentation of the related disclosure requirements.
This latest edition was updated to:
- Include a more detailed discussion on how to determine if a component’s cash flows are “clearly distinguishable”
- Add consideration of the held-for-sale criteria under ASC 205-20
- Add additional examples illustrating the application of the “strategic shift” guidance
- Add a new section addressing recognition, measurement and impairment considerations
- Add examples of the reconciliations required to be disclosed by ASC 205-20-50
- Reflect the issuance of ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements