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Above or below the line?–Current issues in accounting for discontinued operations
Author(s) -
Rader M. Elizabeth,
O'Donnell P. Timothy
Publication year - 1993
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.3970050209
Subject(s) - hindsight bias , variety (cybernetics) , accounting , documentation , business , statement (logic) , actuarial science , management accounting , operations management , economics , computer science , operations research , psychology , political science , engineering , law , artificial intelligence , cognitive psychology , programming language
Once the decision has been made to sell or close down an operation, management typically desires to segregate, for financial reporting purposes, the operations to be sold from continuing operations. Accounting Principles Board Opinion 30 (APB 30) provides guidance for such situations and allows companies to show the results of discontinued operations and any related gain or loss on disposal separately, below income from continuing operations. However, APB 30 contains several stringent eligibility requirements and requires a variety of judgments and estimates. As with any area of accounting that requires significant judgment, the decisions made may be subject to challenge and reevaluation, often with the benefit of hindsight. To minimize the likelihood of future challenge, there should be complete and contemporaneous written documentation of the decisions made and the supporting facts, particularly as to the eligibility to use discontinued operations accounting and the ability to measure the future gain or loss. Among other factors, the decision should explicitly consider positions taken by the SEC staff. If unusual questions exist, preclearance with the SEC staff should be considered, since it can avoid the possibility of a lengthy delay in the staffs review of a future registration statement or, worse, a future restatement.