An Analysis of the Implications of Discontinued Operations for Continuing Income

25 Pages Posted: 20 Sep 2008 Last revised: 18 Apr 2014

See all articles by Asher Curtis

Asher Curtis

University of Washington

Sarah E. McVay

University of Washington

Mindy Wolfe

University of Waterloo

Date Written: December 17, 2014

Abstract

We examine the extent to which changes in the accounting for discontinued operations affects the usefulness of disaggregated income components in predicting an entity’s future continuing income. Our study is motivated by the joint FASB/IASB convergence project which seeks to define the scope of transactions reported in discontinued operations. To examine our question, we compare the properties of continuing income and discontinued operations reported under SFAS 144 and APB 30, where APB 30 closely parallels IFRS 5. We find that the broader scope of the rule under SFAS 144 results in more persistent continuing income among firms reporting discontinued operations, and that this is concentrated among single-segment firms, which previously were less likely to fall within the scope of APB 30. Because we find no evidence of increased opportunism, we conclude that the broader scope of the rule results in a finer partitioning of recurring and nonrecurring income. Overall, our results support the broader scope of discontinued operations.

Keywords: Discontinued operations, financial reporting, convergence, IASB, FASB

JEL Classification: M41, M43, M44

Suggested Citation

Curtis, Asher and McVay, Sarah E. and Wolfe, Mindy, An Analysis of the Implications of Discontinued Operations for Continuing Income (December 17, 2014). Journal of Accounting and Public Policy, Vol. 33, 2014. Available at SSRN: https://ssrn.com/abstract=1270861 or http://dx.doi.org/10.2139/ssrn.1270861

Asher Curtis (Contact Author)

University of Washington ( email )

Seattle, WA 98195
United States

Sarah E. McVay

University of Washington ( email )

Box 353200
Seattle, WA 98195-3200
United States

Mindy Wolfe

University of Waterloo ( email )

200 University Avenue West
Waterloo, Ontario
Canada
519-888-4567 ext 38899 (Phone)

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