7.7 Other Required Disclosures
The disclosures in ASC 205-20-50-3 through 50-4B concern changes to a plan of
sale, adjustments to amounts previously reported, and continuing involvement. These
disclosures must be provided for all discontinued operations to which these events
or circumstances apply.
7.7.1 Changes to a Plan of Sale
ASC 205-20
50-3 An entity may change its plan of sale as addressed in paragraph 360-10-35-44 or paragraph 360-10-35-45. In the period in which the decision is made to change the plan for selling the discontinued operation, an
entity shall disclose in the notes to financial statements a description of the facts and circumstances leading
to the decision to change that plan and the change’s effect on the results of operations for the period and any
prior periods presented.
As described in ASC 205-20-45-1F, an entity may change its plan and decide not
to sell a component that was classified as held for sale and presented in
discontinued operations. In the period in which the discontinued operation no
longer meets the held-for-sale criteria, both the balance sheet and income
statement should be reclassified for all periods presented (i.e., the assets and
liabilities of the discontinued operation should be reclassified as held and
used and the operations should be reclassified to continuing operations). An
entity must also provide the above disclosures in accordance with ASC
205-20-50-3. In addition, if the entity disclosed the carrying amounts of assets
and liabilities of a disposal group, such disclosure should be removed. See
Section 3.9 for
a discussion of the accounting for changes to a plan to sell.
7.7.2 Adjustments to Amounts Previously Reported
ASC 205-20
50-3A The nature and amount of adjustments to amounts previously reported in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be disclosed (see paragraph 205-20-45-5 for examples of circumstances in which those types of adjustments may arise).
ASC 205-20-45-4 states that “[a]djustments to amounts previously reported in discontinued operations in a prior period shall be presented separately in the current period in the discontinued operations section of the statement where net income is reported.”
ASC 205-20-50-3A requires disclosure of the nature and amount of such
adjustments. See Section
7.4.2 for presentation requirements and examples of adjustments to
amounts previously reported.
7.7.3 Disclosures About Continuing Involvement, Including Retained Equity Method Investments
ASC 205-20
50-4A An entity shall disclose information about its significant continuing involvement with a discontinued operation after the disposal date. Examples of continuing involvement with a discontinued operation after the disposal date include a supply and distribution agreement, a financial guarantee, an option to repurchase a discontinued operation, and an equity method investment in the discontinued operation. The disclosures are required until the results of operations of the discontinued operation in which an entity retains significant continuing involvement are no longer presented separately as discontinued operations in the statement where net income is reported (or statement of activities for a not-for-profit entity).
50-4B An entity shall disclose the following in the notes to financial statements for each discontinued operation in which the entity retains significant continuing involvement after the disposal date:
- A description of the nature of the activities that give rise to the continuing involvement.
- The period of time during which the involvement is expected to continue.
- For all periods presented, both of the following:
- The amount of any cash inflows or outflows from or to the discontinued operation after the disposal transaction
- Revenues or expenses presented, if any, in continuing operations after the disposal transaction that before the disposal transaction were eliminated in consolidated financial statements as intra-entity transactions.
- For a discontinued operation in which an entity retains an equity method investment after the disposal (the investee), information that enables users of financial statements to compare the financial performance of the entity from period to period assuming that the entity held the same equity method investment in all periods presented in the statement where net income is reported (or statement of activities for a not-for-profit entity). The disclosure shall include all of the following until the discontinued operation is no longer reported separately in discontinued operations:
- For each period presented in the statement where net income is reported (or statement of activities for a not-for-profit entity) after the period in which the discontinued operation was disposed of, the pretax income of the investee in which the entity retains an equity method investment
- The entity’s ownership interest in the discontinued operation before the disposal transaction
- The entity’s ownership interest in the investee after the disposal transaction
- The entity’s share of the income or loss of the investee in the period(s) after the disposal transaction and the line item in the statement where net income is reported (or statement of activities for a not-for-profit entity) that includes the income or loss.
As described in ASC 205-20-50-4A above, an entity must disclose “information
about its significant continuing involvement with a discontinued operation after
the disposal date.” See Section
5.5 for examples of significant continuing involvement. Because ASC
205-20 does not provide guidance on what level of continuing involvement would
be considered “significant” with respect to these disclosure requirements, an
entity will need to use judgment.
7.7.4 Entities in Bankruptcy
Entities that are in bankruptcy should consider the presentation
requirements in ASC 852-10-45-9, which states:
The statement of operations shall portray the results of
operations of the reporting entity while it is in Chapter 11. Revenues,
expenses (including professional fees), realized gains and losses, and
provisions for losses resulting from the reorganization and
restructuring of the business shall be reported separately as
reorganization items, except for those required to be reported as
discontinued operations in conformity with Subtopic 205-20.