The International Accounting Standards Board (IASB) has issued requirements relating to asset disposals and discontinued operations. The requirements, which are set out in International Financial Reporting Standard (IFRS) 5 Non-current Assets Held for Sale and Discontinued Operations, mark another step towards the convergence of international and national standards.
Convergence of accounting standards around the world is one of the IASB’s prime objectives. To that end, the IASB and the Financial Accounting Standards Board (FASB) in the United States initiated a joint short-term project aimed at reducing the differences between IFRSs and US GAAP.
IFRS 5 is the first standard to arise from the IASB’s joint project with the FASB. The project focuses on differences that are not the subject of major current or planned projects by either board and are thought capable of quick resolution. The first phase of the project involves each board reviewing the other’s recent pronouncements, with an expectation that recent work on an accounting problem will have produced a good solution. IFRS 5 results from the IASB’s review of the FASB standard SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets, which was issued in 2001.
IFRS 5 requires assets that are expected to be sold and meet specific criteria to be measured at the lower of carrying amount and fair value less costs to sell. Such assets should not be depreciated and should be presented separately in the balance sheet. It also requires operations that form a major line of business or area of geographical operations to be classified as discontinued when the assets in the operations are classified as held for sale. These requirements relating to assets held for sale and the timing of the classification of discontinued operations are substantially the same as the equivalent requirements in US GAAP. The type of operation that can be classified as discontinued is narrower than under US GAAP but the IASB intends to continue to work with the FASB in this area to achieve convergence soon.
A further very important step towards convergence between IFRSs and US GAAP has been achieved today by the publication of IFRS 3 Business Combinations which makes the treatment of the acquisition if businesses substantially the same under IFRSs and US GAAP.