component of an entity or a group of components that is disposed of or is classified as held for sale, or
A business or nonprofit entity that, on acquisition, is classified as held for sale.(ASC 205‐20‐15‐2)
The guidance does not apply to oil and gas properties that use the full‐cost method of accounting prescribed by the SEC. (ASC 205‐20‐15‐3)
ASC 205‐30 ASC 205‐30 does not apply to companies registered under the Investment Company Act of 1945. (ASC 205‐30‐15‐1)
ASC 205‐40 ASC 205‐40 applies to all entities. (ASC 205‐40‐15‐1)
PRACTICE ALERT
While SEC comments pertain to public entities, their comments can provide valuable practice pointers for nonpublic entity financial statement preparers. In the areas covered in this Topic, the SEC has commented in recent years that preparers should consider carefully:
Why current earnings before taxes and depreciation are not comparable to the corresponding prior period measures due to the reclassifications of devices from inventory to property, plant, and equipment and the lack of inclusion of periodic depreciation expenses related to equipment leasing revenue.
Whether the operations they have disposed of meet the criteria to be accounted for as discontinued operations.
Whether the discontinued operations meet the criteria for classification as a component or group of components of an entity, or an entity that represents a strategic shift that will have a major effect on the entity's operations and financial results and meets the other criteria in ASC 205‐20‐45‐1B.
Whether the assets classified as held for use meet the criteria in ASC 360.
Why the entity's expected sale of a component is not reflected as held for sale and discontinued operations.
Whether assets held for sale or disposal were tested for impairment in prior periods or in the current period.
The factors used to present, or not present, assets held for sale separately on the statement of financial position,.
The timeline of events leading to an asset sale.
Why gain or loss on a sale of the disposition is not disclosed.
Known trends, events, or uncertainties that are reasonably likely to impact future liquidity and/or going concern.
Preparers would be prudent to document their conclusions on any of the above items.
DISCLOSURES AND PRESENTATION REQUIREMENTS
ASC 205‐10, Overall
Comparative Statements To increase the usefulness of financial statements, many entities include financial statements for one or more prior years in their annual reports. Some also include five‐ or ten‐year summaries of condensed financial information. While not required, ASC 205‐10‐45‐1 emphasizes that the presentation of comparative financial statements in annual reports enhances the usefulness of such reports and brings out more clearly the nature and trends of current changes affecting the enterprise. Comparative presentations demonstrate the fact that the statements for a series of periods are far more significant than those for a single period and that the accounts for one period are but an installment of what is essentially a continuous history.
Full Set of Financial Statements A full set of financial statements consists of:
1 Financial position at the end of the period.
2 Earnings (net income), which may be shown in a separate statement or within one continuous statement of comprehensive income.
3 Comprehensive income for the period in one statement or two consecutive statements.
4 Cash flows during the period.
5 Investments by and distributions to the owners during the period.(ASC 205‐10‐45‐1A)
Order of Data The order of data is not prescribed. However, for tabular information, it is good practice to present information by year with the most current year appearing consistently in either the first or last column.
Changes Affecting Comparability Comparative information should be consistent. Any exceptions to comparability must be disclosed as a reclassification, and accounting change, or correction of an error, as described in ASC 250. (ASC 205‐10‐45‐3) To the extent they remain significant, notes to financial statements should be repeated in comparative statements or at least referred to. (ASC 205‐10‐45‐4 and 50‐2)
Presentation Here are the presentation items required for GAAP:
Include name of entity for which statements are being presented (if d/b/a is different name from legal name, indicate both).
Titles of statements should be appropriate (certain titles denote and should be reserved for GAAP financial statements; other titles denote other comprehensive basis of accounting [OCBOA] financial statements).
Dates and periods covered should be clearly stated.
If comparative statements are presented, repeat or at least refer to notes from prior years to the extent they continue to be significant. (FASB ASC 205‐10‐45‐4 and 50‐2)
Differences between “economic” entity and legal entity being presented should be noted (e.g., consolidated or not, subsidiaries included and excluded, combined statements, etc.). Disclose summarized financial information for previously unconsolidated subsidiaries.
Disclosure There is only one required disclosure for this subsection listed in the Codification:
For reclassifications or other reasons, if changes have occurred in the manner or basis of presenting corresponding items in two or more periods, disclose the explanation of the change. (FASB ASC 205‐10‐50‐1)
ASC 205‐20, Discontinued Operations
Determining When a Disposal Should Be Presented as a Discontinued Operation The unit of account for a discontinued operation is:
A component of an entity,
A group of components of an entity, or
A business or nonprofit entity.(ASC 205‐20‐45‐1A)
The guidance describes a discontinued operation as a disposal of a component, group of components, or an entity that:
Represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results.and
Is:disposed of by sale,meets the criteria to be classified as held for sale, ordisposed of by other than sale (for example by abandonment, exchange, or distribution to owner).(ASC 205‐20‐45‐1B)
