Reporting of discontinued operations
INTRODUCTION
The Financial Accounting Standards Board (FASB) has issued guidelines for reporting on discontinued operations April 10,2014. The rule reduce the number of disposal companies must present as discontinued operations in their financial operations in their financial statements. But they also expand the disclosures requirements when discontinued operations are reported. (LLP, 2014)
Discontinued operations are company assets or components that have either been disposed of or are being held for sale
The standard that has been revised is intended to address the concerns of financial statements users by changing the reporting criteria for discontinued operations. The FASB believes that the new standard meets the requirement as it reduces the number of disposals that would be included in discontinued operations and also because of more disclosures requirement, will provide information that will be useful to financial statements (Financial Accounting Standards Board, April 2014)
'To be a discontinued operation, a component or group of components must represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Companies should be prepared to exercise judgment to determine which disposals meet the new definition.
Failure to eliminate significant continuing cash flows of or involvement with disposed component from an entity’s ongoing operations after a disposal no longer precludes presentation as discontinued operation '. (PWC, 2014)
Under the revised standard, “a disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if t...
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... standard and help to reduce the preparer cost. And it has also enhanced the financial statements decision usefulness and make the organization prepare for expanded disclosure requirements.
References
References
Bit, T. (2016). PWC. Retrieved from https://www.pwc.com/us/en/energy-mining/publications/assets/pwc-bit-discontinued-operations-accounting-standards.pdf
Comprehensive guide, F. R. (2014, November). Retrieved from file:///C:/Users/Robosap/Downloads/financialreportingdevelopments_bb1886_discontinuedoperations_12november2014.pdf
FASB IN FOCUS. (2014).
Financial Accounting Standards Board. (April 2014). Accounting Standards Update. Financial Accounting Series.
LLP, M. (2014). FASB revises reporting requirement.
PWC. (2014, June 3). Dataline. Retrieved from 'https://www.pwc.com/us/en/cfodirect/assets/pdf/dataline/dataline-2014-08-discontinued-operations.pdf
ARB43, Ch.4, Par.9 ?Where evidence indicates that cost will be recovered with an approximately normal profit upon sale in the ordinary course of business, no loss should be recognized...?
Cost cutting, discontinuation of product or services ,technological changes, and consolidation due to mergers and acquisitions are commonly legal ac...
“any and all Losses, debts or rights, whether fixed or contingent, known or unknown, matured or unmatured, arising out of, relating to, or in any manner connected with any facts, events or circumstances, or any actions taken, at or prior to the consummation of the transactions contemplated by the Merger Agreement that any Releasor ever had or now has against the Releasees, including any right, title and interest in and to the Shares.”
ASC 606 will provide better insight and comparisons across financial statements. It creates standards that can be applied across multiple jurisdictions and industries. Therefore, it will streamline the process and better represent changes in revenues and liabilities that companies are expecting or are aware of. It also attempts to bring policies from the FASB and IASB closer as they both passed similar policy
Financial Accounting Standards Board (FASB). Accounting Standards Codification TM. Financial Accounting Standards Board (FASB), 2010. Web. 16 May 2014.
The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.
To help accounting professionals easily navigate through 50-plus years of unorganized US generally accepted accounting principles (GAAP) and standards the Trustees of the Financial Accounting Foundation approved the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification.) By codifying authoritative US GAAP, FASB will provide users with real-time and accurate information in one location. Concurrently, FASB developed the FASB Codification Research System; a web-based system allowing registered users to electronically research accounting issues. Since 2009, the codification became the single source of nongovernmental authoritative GAAP.
Formal corporate bankruptcy proceedings generally take on two distinct forms: Chapter 7 (liquidation) and Chapter 11 (reorganization). Under Chapter 7 liquidation, the firm is shut down by a court-appointed trustee, and the firm’s assets are liquidated and the proceeds distributed in accordance with the absolute priority rule. Chapter 7 is also referred to as a “cash auction” procedure. In Chapter 11, an organization remains in control of its business operations (known as a ‘going-concern’), but is subject to the oversight of the bankruptcy courts.
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
Generally accepted accounting principles (GAAP) were first established in the 1930s in response to the historical stock market crash in 1929. Nowadays GAAP is influenced by several organizations including the Financial Accounting Standards Advisory Council (FASAC), Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA) and the Internal Revenue Service (IRS). Publicly trade companies are required to follow GAAP in the United States. Many other countries have their own set of accounting principles. In today’s global business climate, many businesses need to grow in order to survive. A small business may choose to merge with a bigger another company, and a large company may want to acquire a small company in order to expand in certain condition. More and more international mergers and acquisitions are happening nowadays. But how would they adapt to the ever-changing accounting standards in different countries? There are complications of consolidation of the financial statements when companies make merger/acquisition deal. To be able to adapt to the new business environment, GAAP is also making changes. International Financial Reporting Standards (IFRS) were first developed by the International Accounting Standard Board in 1973. IFRS gained its popularity quickly. Nowadays, over 100 countries recognize IFRS. As the biggest economy in the world, United States (United Nations 2012); however, did not plan to implement IFRSs until 2011. In this paper, we will discuss the possibilities of future of convergence between U.S GAAP and IFRS.
Lange, Fornaro, and Buttermilch (2015) focused their research on the FASB Accounting Standards Update (ASU) 2011-08, in regards to Intangibles – Goodwill and Other: Testing Goodwill for Impairment. The authors elaborated on how reporting has been done in the past and how the changes made for private companies has helped ease the financial reporting of goodwill. In addition, the authors discussed the definition of a public business entity. This helps to allow private companies to determine the proper way to report their financial
A consolidated financial statement can be defined as the financial statements of a parent and its subsidiaries combined to form a single economic entity (AASB 10, 2011). The entity, which acquires the other entity, is known as the parent and the entity, which has been acquired, is known as the subsidiary. Consolidation financial reports arise when one entity purchases another entity, to then form a group.
A finding of insolvency is imperative, as specific rights are empowered for the creditor to exercise against the insolvent individual or organization. For example, exceptional debts may be paid off by dissolving assets of the insolvent party. Prior to proceedings, it is common for the insolvent entity to meet with the creditor in order to attempt to arrange a substitutable payment method.
This new standard represents a signification milestone in the convergence process and how revenue is not recognized. Instead of trying to match costs and revenues or determine when revenue is “earned” the new standards focus on performance and control. (use PwC info)
...pt. That is however, not to say that it is without its problems, as previously discussed, it can possibly lead to a two tier system of reporting, despite reducing complexity its flexibility can limit comparability and place a heavy onus in terms of judgement of the preparer. Finally its simplifications may perhaps infringe upon the ease of which a private entity wishes to become public listed company. However, the disadvantages of adopting the standard are fat outweighed by the potential benefits it offers. As more time goes on, we will no doubt see more countries and companies adopting the standard. If capital providers (primarily banks) clearly understand and have confidence in the financial statements prepared under the guidance of the standard; then an SMEs ability to obtain the capital it need improves. Ultimately the economy in which it operates improves.