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 predict the future. A lender is interested in historical cash flows for purposes of predicting 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 current 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, recasting financial information to show the ongoing entity separate from the part 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 white paper, 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 white paper also includes an appendix with a tabular presentation of the related disclosure requirements.