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This section provides guidance on the balance sheet and income statement presentation requirements when reporting discontinued operations. The statement of stockholders’ equity is not impacted by discontinued operations reporting. For reporting on the statement of cash flows, see FSP 6.

27.4.1 Discontinued operations—balance sheet

ASC 205-20-45-10 includes guidance on the presentation of discontinued operations in the statement of financial position.

Excerpt from ASC 205-20-45-10

In the period(s) that a discontinued operation is classified as held for sale and for all prior periods presented, the assets and liabilities of the discontinued operation shall be presented separately in the asset and liability sections, respectively, of the statement of financial position.

Even if a discontinued operation is disposed of by sale before the end of a reporting period and therefore there are no assets and liabilities held for sale to be presented at the current balance sheet date, the assets and liabilities of the discontinued operation must be presented separately in the prior period balance sheet. See FSP 8.6.2 for guidance on the balance sheet classification of assets held for sale that do not qualify for discontinued operations.
Reporting entities must disclose separately, either on the balance sheet or in the footnotes, the major classes of assets and liabilities of a discontinued operation for all periods presented. While the guidance does not specify how to determine which classes of assets and liabilities held for sale should be considered major, an example included in the guidance included cash, trade receivables, inventories, property, plant and equipment, trade payables, and short-term borrowings.
ASC 205-20 does not provide specific guidance on current and noncurrent classification of assets held for sale. However, assets and liabilities are usually further disaggregated and presented with separate line items for current and noncurrent assets, and current and noncurrent liabilities. To classify all assets and liabilities as current, reporting entities should consider whether the transaction is expected to be consummated within one year of the balance sheet date and the guidance in ASC 210-10-45-4 about whether the reporting entity expects to use the proceeds from the sale to reduce long-term borrowings. If the transaction is expected to be completed within one year and the proceeds are not expected to be used to pay down long-term borrowings, current classification is acceptable. However, even when current classification is acceptable for the current period balance sheet, balance sheets for prior periods should present current and noncurrent assets and liabilities.
If the major classes of assets and liabilities of a discontinued operation classified as held for sale are disclosed in the footnotes, reporting entities must reconcile the disclosure to the total assets and total liabilities of the disposal group classified as held for sale presented on the face of the balance sheet for all periods presented. If the disposal group includes assets and liabilities that are not part of the discontinued operation, the reconciliation should show them separately from the assets and liabilities of the discontinued operation.
In a spin-off transaction that qualifies as a discontinued operation, ASC 205-20-45-10 requires retrospectively separating the assets and liabilities of the entity being spun off (similar to if the entity had been held for sale) in the prior period balance sheets. However, because the assets disposed of through a spin-off transaction are required to remain classified as held and used until the spin-off has occurred, reclassification of the prior year balance sheet would not be appropriate until the spin-off is completed.

27.4.2 Discontinued operations—income statement

A reporting entity with a component that meets the conditions for discontinued operations should report the results of operations of the component, less applicable income taxes (benefit), as a separate component of income before cumulative effect of change in accounting principles (if applicable). A reporting entity should separately present the gain or loss recognized on the disposal (and/or any loss recognized upon and during classification as held for sale) of the discontinued operation either on the face of the income statement or in the footnotes. Figure FSP 27-1 illustrates an income statement when a reporting entity reports a discontinued operation:
Figure FSP 27-1
Income statement presentation of discontinued operations
Amount
Income from continuing operations, net
$xxx,xxx
Discontinued operations:
Loss from operations of discontinued Component X
(including loss on disposal of $xxx,xxx)
(xxx,xxx)
Income tax benefit
xxx,xxx
Loss on discontinued operations
(xxx,xxx)
Net income
$xxx,xxx
Costs associated with an exit or disposal of a discontinued operation are required by ASC 420-10-45-2 to be included in the results of discontinued operations. Additionally, losses (as measured under the held for sale model) that directly involve a discontinued operation should be included in the loss on disposal of discontinued operations.
The expenses that qualify for inclusion in discontinued operations are the direct operating expenses incurred by the disposed component that may be reasonably segregated from costs of the ongoing reporting entity. Indirect expenses, such as allocated corporate overhead, should not be included in discontinued operations based on ASC 205-20-45-9. Generally, costs and expenses that are expected to continue in the ongoing reporting entity after the disposal date should not be allocated to discontinued operations and instead should be included in the results of continuing operations.
Examples of direct costs that may be reported in discontinued operations include:
  • Personnel expenses for employees employed by the disposed component
  • Intangible asset amortization associated with intangible assets disposed of in the transaction
  • Lease-related costs for facilities that were used by the disposed component
  • Interest expense associated with debt to be assumed by the buyer or repaid in conjunction with the disposal (see FSP 27.4.2.4)
  • Third-party transaction costs associated with the disposal

Although usually an allocation, income tax amounts associated with the component being disposed of should be reported in discontinued operations. See TX 12 for additional information on the intraperiod allocation of income tax amounts to discontinued operations.
If sales have been made to the discontinued operation by a consolidated affiliate and have been eliminated in consolidation, it would be appropriate to recast these sales (and the related costs) in continuing operations for periods prior to the disposal or held-for-sale date only if these sales will be made to third parties (e.g., the disposed component that is now a third party) subsequent to the disposition.
Example FSP 27-2 illustrates the income statement presentation of an intercompany transaction with a disposed component that will continue after the disposal.
EXAMPLE FSP 27-2
Presentation of intercompany transactions with a disposed component
FSP Corp enters into a sale agreement with Buyer to sell FSP Corp’s wholly-owned subsidiary (Subsidiary X). Subsidiary X historically performed certain services for FSP Corp. Subsidiary X’s fee for the services is $100 and the cost to deliver those services is $80. This intercompany transaction, determined to be at fair value, is eliminated in consolidation. Subsequent to disposal, the services are expected to continue between Subsidiary X and FSP Corp for approximately two years pursuant to a contractual agreement with Buyer. Through review of the guidance in ASC 205, FSP Corp concludes that Subsidiary X is a component and that it meets all of the criteria to be classified as held for sale and reported as a discontinued operation.
How should FSP Corp present this transaction before and after Subsidiary X is classified as held for sale?
Analysis
We believe FSP Corp may present the intercompany transaction as a gross-up in its pre-disposal income statement by reporting the $100 service fee charged by Subsidiary X as an operating expense in continuing operations and reporting the fee revenue of $100 and related costs of $80 (net $20 profit) as a component of discontinued operations of Subsidiary X. This presentation provides consistent reporting of results from continuing operations since FSP Corp will continue to pay—and record in continuing operations—the service fees to Subsidiary X after the disposition pursuant to the two-year contractual agreement with Buyer.

Situations arise where the working capital of the disposed component is retained by the reporting entity. These working capital accounts would therefore not be presented as discontinued operations on the reporting entity’s balance sheet. However, the results of operations of the disposed component, which would include the prior revenues and expenses related to the working capital accounts retained by the ongoing reporting entity, would be reported in discontinued operations on the income statement for the current and prior periods in accordance with ASC 205-20-45-3. Example FSP 27-3 illustrates a situation where the working capital of the disposed component is retained by a reporting entity.
EXAMPLE FSP 27-3
Working capital of disposed component retained
On March 1, 20X1, FSP Corp executes a definitive agreement to sell Component X. Assets to be sold include equipment, customer relationships, and other intangible assets. As part of the sale, FSP Corp retains working capital of Component X, which includes trade and non-trade accounts receivable, and certain accrued expenses arising from operations before closing. All retained working capital is short-term and expected to liquidate within a few months after the closing.
Component X meets the definition of a discontinued operation under ASC 205-20-45. While the sale of certain assets of Component X will not close until April 30, 20X1, they meet the held for sale criteria under ASC 205-20-45-1E as of the quarter ended March 31, 20X1.
What effect should the disposal of Component X have on FSP Corp’s balance sheet and income statement in its March 31, 20X1 financial statements?
Analysis
The working capital that is retained by FSP Corp should not be presented as discontinued operations on the balance sheet. While retained working capital was part of Component X, which constituted the discontinued operations, it is not a part of the disposal group. The assets and liabilities of Component X that will be sold should be presented as discontinued operations at March 31, 20X1 and any comparable periods presented. The results of operations of Component X (which include prior revenues and expenses related to the above working capital items) should be reported in discontinued operations on the income statement of FSP Corp for the current period and prior periods.

27.4.2.1 Gain or loss on disposal

The gain or loss on a disposed component is calculated as the consideration received from the disposal of the component less its carrying value, costs incurred to sell the component, and any loss recognized upon and during its classification as held for sale. See PPE 6.4.1 for discussion of the types of costs that may be included in costs to sell a disposal group.
When a portion of a reporting unit that constitutes a business (as defined in ASC 805-10-20) is to be disposed of, goodwill associated with that business should be included in the carrying amount of the business in determining the gain or loss on disposal in accordance with ASC 350-20-40-2. In situations where a portion of a reporting unit’s goodwill is allocated in determining the gain or loss, we believe it may also be appropriate to allocate, in the same proportion, any prior year goodwill impairment charge related to the reporting unit to discontinued operations. Impairment charges related to property, plant, equipment, and intangible assets of the disposal group should also be included in discontinued operations in the current and prior periods.
Under ASC 205-20-45-11, any loss recognized for the discontinued operations should not be allocated among the major classes of assets and liabilities within the discontinued operations. We believe this guidance was intended to simplify the allocation of the loss because the unit of account has been determined to be the discontinued operations, not the underlying assets or liabilities within that discontinued operations.

ASC 205-20-45-11

For any discontinued operation initially classified as held for sale in the current period, an entity shall either present on the face of the statement of financial position or disclose in the notes to financial statements (see paragraph 205-20-50-5B(e)) the major classes of assets and liabilities of the discontinued operation classified as held for sale for all periods presented in the statement of financial position. Any loss recognized on a discontinued operation classified as held for sale in accordance with paragraphs 205-20-45-3B through 45-3C shall not be allocated to the major classes of assets and liabilities of the discontinued operation.

27.4.2.2 Earnings per share

See FSP 7 for guidance on the calculation and presentation of earnings per share when a reporting entity presents a discontinued operation.

27.4.2.3 Transition service agreements

Income and expenses associated with transition services provided by a reporting entity to a disposed component should be reflected in continuing operations of the ongoing reporting entity. Reporting entities must use judgment to determine the classification of income and expense (i.e., which income statement line items to include them in) within continuing operations. Income recognized from transition services should be recorded in other income (which might be included in operating income) unless the services meet the definition of revenue (see RR 1.2). Any related expenses should be recorded in their natural expense classification. Disclosure of the amount, nature, and classification of the cash flows should also be considered. See FSP 27.5 for further details.

27.4.2.4 Debt and debt-related items

Debt is not included in the disposal group unless the debt will be assumed by the buyer in the transaction. For example, if the debt obligation is required to be repaid by the seller as a result of the sale transaction, the debt is not classified as part of the disposal group.
However, if debt of a discontinued operation is to be assumed by the buyer or is required to be repaid as a result of the disposal transaction, interest related to such debt should be allocated to the discontinued operation. The allocation to discontinued operations of other consolidated interest that is not directly attributable to or related to other operations of the reporting entity is permitted but not required. Other consolidated interest that cannot be directly attributed to other operations of the reporting entity is allocated based on the following ratio:
Net assets of discontinued operation
Divided by
Less: Debt required to be paid off as part of disposal transaction
Net assets of consolidated reporting entity
Plus: Consolidated debt
Less: Debt of the discontinued operation that will be assumed by buyer
Less: Debt required to be paid off as part of the disposal transaction
Less: Debt that is directly attributed to other operations

Excerpt from ASC 205-20-45-8

This allocation assumes a uniform ratio of consolidated debt to equity for all operations (unless the assets to be sold are atypical — for example, a finance company — in which case a normal debt to equity ratio for that type of business may be used). If allocation based on net assets would not provide meaningful results, then the reporting entity should allocate interest to the discontinued operations based on debt that can be identified as specifically attributed to those operations.

The method used to allocate interest is considered an accounting policy election which should be applied consistently to all discontinued operations.
The SEC staff expects registrants to disclose their accounting policy for allocating interest to a discontinued operation, which should include the method of allocation. The amount of interest allocated to discontinued operations should also be disclosed for all periods presented.
Example FSP 27-4 illustrates how to allocate interest to discontinued operations that is not directly attributable to or related to other operations of a reporting entity.
EXAMPLE FSP 27-4

Allocation of interest to discontinued operations
FSP Corp sells Component Y on June 30, 20X1 and determines that it should report Component Y’s operations as discontinued operations in its consolidated financial statements for the year ended December 31, 20X1. FSP Corp’s borrowing arrangement requires that a portion of the proceeds of the sale of Component Y be used to repay FSP Corp’s consolidated debt, and FSP Corp allocates interest expense for the repaid debt to discontinued operations in accordance with ASC 205-20-45-6. FSP Corp also makes an accounting policy decision to allocate interest on other consolidated debt not directly attributable to its other operations to discontinued operations as permitted by ASC 205-20-45-7.
For purposes of determining the amount of interest to allocate, assume a uniform ratio of consolidated debt to equity for all operations and:
For FSP Corp:
  • Net assets: $50,000
  • Consolidated debt: $15,000—comprised of $1,000 at 8% interest (required to be repaid from proceeds of sale of Component Y) and $14,000 at 6% interest
  • Portion of consolidated debt directly attributable to other operations of FSP Corp: $8,000 at 6% interest

For Component Y:
  • Gross assets: $13,000 (after considering any impairment)
  • Debt to be assumed by the buyer: $2,000 at 6% interest
  • Net assets to be sold: $11,000 (gross assets less debt to be assumed by the buyer)
  • Debt required to be repaid from sale proceeds: $1,000 at 8% interest

How should FSP Corp allocate interest expense to discontinued operations?
Analysis
FSP Corp should allocate interest expense of $122 to discontinued operations.
This is calculated as follows:
Part I: Calculate interest on debt to be assumed and debt required to be repaid:
Interest on debt to be assumed by the buyer:
$2,000 x 6% x 6 / 12 months

$60
Interest on debt required to be repaid:
$1,000 x 8% x 6 / 12 months

40
$100 (A)
View table

Part II: Calculate interest on other consolidated debt that is not directly attributable to other operations of FSP Corp.
Step 1: Calculate the percentage of interest on other consolidated debt that is not directly attributable to other operations of FSP Corp to be allocated to Component Y.
Net assets sold (after recognizing any impairment) less debt required to be repaid from sale proceeds: $11,000 — $1,000 = $10,000 (B)
—to—
Net assets of FSP Corp:
$50,000
Plus:
Consolidated debt
15,000
Less:
Debt to be assumed by the buyer
(2,000)
Debt required to be repaid from sale proceeds
(1,000)
Debt that is directly attributed to other operations of FSP Corp
(8,000)
$54,000 (C)
View table
(B) ÷ (C) = $10,000 ÷ $54,000 = 18.5% (D)
Step 2: Calculate interest on other consolidated debt that is not directly attributable to other operations of FSP Corp.
Consolidated debt
$15,000
Debt to be assumed by the buyer
(2,000)
Debt required to be repaid from sale proceeds
(1,000)
Debt that is directly attributed to other operations of FSP Corp
(8,000)
Debt not directly attributable to other operations of FSP Corp
$4,000 (E)
View table

(D) x (E) x interest rate x months / 12 = 18.5% x $4,000 x 6% x 6 / 12 = $22 (F)
Step 3: Calculate total interest expense to be allocated to discontinued operations = (A) + (F) = $100 + $22 = $122

Gains or losses from the extinguishment of corporate-level debt obligations (i.e., those that are not specific to the disposed component) in connection with the sale transaction should not be included in discontinued operations. Even when the debt is required to be extinguished in connection with a sale, gains or losses from the extinguishment of corporate-level debt is not considered to be directly associated with the disposed component. In addition, such debt would not be classified within the held-for-sale category of the balance sheet as it is not part of the disposal group. However, amortization of discounts, premiums, or debt issuance costs, and prepayment penalties incurred on debt that is directly related to the disposed component should be reported in discontinued operations.

27.4.2.5 Pension settlements and curtailments

The impact of a settlement or curtailment that is directly related to the disposal transaction should be recognized in discontinued operations. The settlement of a pension benefit obligation is considered directly related to the disposal transaction if there is a demonstrated cause-and-effect relationship between the two events and if the settlement occurs no later than one year following the disposal transaction.
If a settlement has occurred as a result of the disposal transaction (e.g., there is a transfer of a pension benefit obligation to the buyer), the reporting entity should recognize in discontinued operations the net gain or loss included in accumulated other comprehensive income associated with the plan, plus any transition asset remaining in accumulated other comprehensive income from the initial application of ASC 715-30. If only part of the projected benefit obligation is settled, the reporting entity should recognize a pro rata portion of the settlement equal to the percentage reduction in the projected benefit obligation.
A reporting entity will recognize in discontinued operations the prior service cost included in accumulated other comprehensive income associated with the years of service no longer expected to be rendered as a result of a curtailment, and any decrease (gain) or increase (loss) in the projected benefit obligation associated with the plan. Additionally, if an employer disposes of a component that results in a termination of some employees’ services earlier than expected, but does not significantly reduce the expected years of future service of present employees covered by the pension plan, measuring the effects of the reduction in the workforce in the same manner as a curtailment is appropriate for purposes of determining the gain or loss on the disposal.

27.4.2.6 Income tax allocation and adjustments

Discontinued operations have certain income tax accounting implications that must be considered. Such implications must be considered both in the year of the discontinued operation, and potentially in periods afterward. See TX 12 (intraperiod tax allocation) and TX 16.6.2 for further discussion of tax considerations for discontinued operations.

27.4.2.7 Derivatives

The following sections provide guidance on the classification between continuing operations and discontinued operations of gains and/or losses related to cash flow hedges and foreign currency forward contracts.
Cash flow hedges
If a reporting entity had cash flow hedges related to the operations of a component that is being disposed of, management should consider the hedge documentation in determining whether the effects of the derivative instruments should be reclassified into discontinued operations. If the hedged cash flows specifically relate to the group of assets and liabilities being disposed, gains and/or losses resulting from the cash flow hedges in prior periods should be classified as part of discontinued operations. This assessment should be performed even if the derivative instruments are not included in the disposal group to be sold by the reporting entity.
Foreign currency forward contracts
A reporting entity may enter into a foreign currency forward contract to mitigate exchange rate risks from the sale of a component transacted in a currency other than the reporting entity’s functional currency. Any gains or losses on these forward contracts should be reported in continuing operations as these amounts do not qualify as direct operating expenses incurred by the disposed component under the guidance in ASC 205-20.

27.4.2.8 Noncontrolling interest

As discussed in ASC 205-20-50-5B(d), when a reporting entity disposes of a majority-owned consolidated subsidiary that is classified as discontinued operations, it needs to consider the impact when presenting the controlling and noncontrolling interests’ operating results. See FSP 18 for additional details on presentation matters related to noncontrolling interest.

27.4.2.9 Cumulative effect of changes in accounting principles

Generally, the cumulative effect of changes in accounting principles is not allocated between continuing and discontinued operations and should be presented as a single line item, net of the related income tax effects. No portion of this item is required to be reclassified into discontinued operations. This treatment is based on the view that an accounting change is not part of a reporting entity’s normal operations. Therefore, its effect need not be allocated between those operations that are continuing and those that have been discontinued.

27.4.2.10 Predecessor financial statements

When a reporting entity is a successor to a predecessor entity, questions arise as to whether a discontinued operation of the successor should be presented as a discontinued operation in the predecessor’s income statement. An example of an event that gives rise to a predecessor/successor reporting scenario is the push-down of the parent’s basis as a result of the acquisition of the successor company, or the application of fresh-start reporting by a reporting entity upon emergence from bankruptcy. Since the successor entity is considered a new reporting entity for accounting purposes, one might conclude that the predecessor financial statements should not be retrospectively adjusted to reflect the successor’s discontinued operations.
As discussed in SEC FRM 13210.2, predecessor financial statements are required to be retrospectively adjusted to reflect the impact of a successor’s discontinued operations. ASC 205 does not provide any exceptions to retrospectively adjusting all periods presented to reflect the impact of a discontinued operation. This view achieves comparability for the discontinued operation for all fiscal periods presented, which the SEC staff believes is an important and useful factor for readers to assess trend information in financial statements. However, the SEC staff noted that SEC registrants should contact the SEC staff if unusual facts and circumstances may inhibit a reporting entity from reclassifying a discontinued operation in predecessor fiscal periods. This guidance is specific to SEC registrants. However, based on limited authoritative guidance, we believe private companies should consider applying the underlying concept of comparability between periods as well.
Notwithstanding the SEC staff’s views expressed above, we generally do not believe that other successor changes in accounting policies (e.g., a change from the LIFO method of inventory costing to FIFO) should be reflected in predecessor financial statements.

27.4.3 Other presentation matters

The following subsections cover the presentation of spin-off transactions and considerations for presenting discontinued operations when a reporting entity reissues financial statements.
See FSP 27.5.1.6 for disclosure requirements of individually significant disposals that do not qualify for discontinued operations reporting.

27.4.3.1 Presentation of spin-off transactions—updated November 2021

When a reporting entity completes a spin-off transaction, a question arises whether it is appropriate for the parent company to view the spin-off of the subsidiary as a change in the reporting entity, or present the spun-off entity in discontinued operations if it meets the discontinued operations criteria. If presented as a change in reporting entity, the parent’s historical financial statements would be retrospectively adjusted as if the reporting entity never had an investment in the subsidiary. See FSP 30.6 for further discussion of presenting a change in reporting entity.
The SEC generally will not allow a parent reporting entity to retrospectively adjust its financial statements to reflect a spin-off as a change in the reporting entity (i.e., sometimes referred to as a “de-pooling”). If the parent reporting entity was required to file periodic reports under the 1933 Exchange Act within one year prior to the spin-off, the SEC staff believes the reporting entity should reflect the disposition as held for sale in conformity with ASC 360 as this presentation most fairly and completely depicts for investors the effects of the previous and current organization of the reporting entity. However, in limited circumstances involving the initial registration of a reporting entity under the Exchange Act or Securities Act, the SEC staff has not objected to financial statements that retrospectively reflect the reorganization of the business as a change in the reporting entity if the spin-off transaction occurs prior to effectiveness of the registration statement. The criteria the SEC staff considers when determining whether a “de-pooling” is acceptable in an initial registration as found in SAB Topic 5.Z, Accounting and Disclosure Regarding Discontinued Operations, are that the reporting entity and subsidiary:
  • Are in dissimilar businesses
  • Have been managed and financed historically as if they were autonomous
  • Have no more than incidental common facilities and costs
  • Will be operated and financed autonomously after the spin-off
  • Will not have material financial commitments, guarantees, or contingent liabilities to each other after the spin-off

All of the criteria listed above should be met to “de-pool” a transferred business retroactively from its historical financial reporting periods. This guidance is specific to SEC registrants involved in a spin-off transaction. Based on limited authoritative guidance, we believe private companies should consider applying these underlying concepts as well.
See PPE 6.4.2 for further details on the disposal of long-lived assets by spinoff.
Example FSP 27-5 illustrates the presentation in the income statement of a spin-off transaction.
EXAMPLE FSP 27-5

Spin-off presentation
FSP Corp is comprised of two-wholly owned operating subsidiaries, Subsidiary X and Subsidiary Y. In July 20X1, Subsidiary Y spins off one of its legal entities, Entity Z, to parent FSP Corp by distributing the stock of Entity Z to its sole shareholder, FSP Corp. Entity Z is a component under ASC 205-20-20, as its operations and cash flows can be clearly distinguished from Subsidiary Y, both operationally and for financial reporting purposes. Both Subsidiary Y and Entity Z have similar businesses. Entity Z meets the criteria for discontinued operations presentation. The following is a diagram of the organizational structure of FSP Corp before and after the spin-off.
How should Subsidiary Y present the spin-off of Entity Z in its standalone financial statements?
Analysis
Subsidiary Y should account for the spin-off by presenting the operations of Entity Z as discontinued operations upon successful completion of the spin-off. Retrospectively adjusting Subsidiary Y’s financial statements to reflect the spin-off of Entity Z as a change in reporting entity (i.e., de-pooling) would not be appropriate since they operate in similar businesses.

Spin-off costs
Generally, costs that are incurred to accomplish a spin-off should be classified as part of discontinued operations once the spin-off is completed. Such costs are similar to transaction costs incurred in connection with a sale, which are classified as discontinued operations. However, bonuses paid by the reporting entity to the reporting entity’s employees (not employees of the spun-off entity) for the successful completion of the spin-off transaction should be reflected in continuing operations. Such payments are not considered “costs to sell” under ASC 360-10-35-38 and, therefore, would not be reported in discontinued operations.

27.4.3.2 Reissuance of financial statements

For SEC registrants, financial statements are “issued” when complete financial statements are first issued to the public for general use and reliance in a format that conforms with US GAAP (with an audit report in the case of annual financial statements). Issuance can occur when the financial statements appear in a shareholder’s report, a proxy statement, or a filing with the SEC. The issuance of an earnings release does not constitute financial statement issuance. Refer to ASC 855-10-S99-2 for a complete discussion of the “issuance date” of financial statements.
When previously released financial statements are reissued (e.g., in connection with a new or amended registration statement or proxy/information statement), the SEC staff’s view is that the reclassification to reflect a discontinued operation should not be made in the historical financial statements until the financial statements are issued for the period in which the event triggering discontinued operations occurred. However, pro forma financial information might be required at an earlier point in time in accordance with S-X Article 11.
Example FSP 27-6 highlights the requirements for presenting discontinued operations when financial statements are reissued.
EXAMPLE FSP 27-6
Discontinued operations presentation in reissued financial statements
FSP Corp is a calendar year-end SEC registrant that on September 29, 20X1 decided to sell a component of its business. FSP Corp is going to reissue its financial statements in connection with a registration of securities on October 10, 20X1, but will not have released its financial statements for the period ended September 30, 20X1. The component will qualify as a discontinued operation as of September 30, 20X1.
Should FSP Corp reflect the discontinued operations in its reissued financial statements for periods prior to September 30, 20X1?
Analysis
No. Although the event which will trigger discontinued operations treatment will have occurred at the time the registration statement is filed, the financial statements have not been filed for the period in which the trigger to present the component as a discontinued operation occurred (i.e., the Form 10-Q for the period ended September 30, 20X1 has not been filed). As such, the annual financial statements and any prior interim periods included in the October 10, 20X1 registration statement should not include discontinued operations presentation for the component. Any financial statements issued or reissued after the financial statements for the period ended September 30, 20X1 have been issued should give retrospective effect to the discontinued operations.
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