4. Equity accounting application when investee is held-for-sale (or distribution under IFRS 5)
Under IFRS Accounting Standards, when an interest in an investee under significant influence meets the criteria to be classified as held-for-sale, it is measured under IFRS 5 and presented as held-for-sale (distribution). Equity accounting pursuant to IAS 285 cannot be applied.
Unlike IFRS 5, under US GAAP equity accounting continues to apply as long as the investor holds significant influence. Further, unlike IFRS 5, the interest is not presented as held-for-sale unless it also qualifies as a discontinued operation (i.e. represents a strategic shift).
5. Subsequent measurement until disposal
Under both IFRS 5 and US GAAP an asset group classified as held-for-sale (or distribution under IFRS 5) is remeasured at the lower of carrying amount and fair value less costs to sell until its disposal. An increase in fair value less costs to sell may therefore result in a gain. The gain is limited to the cumulative amount of impairment losses previously recognized.
To determine the cumulative amount of impairment losses previously recognized, IFRS 5 considers impairment losses recognized in accordance with both the held-for-sale (distribution) guidance and the impairment standard (IAS 36) before the asset group was classified as held-for-sale (distribution). Impairment losses allocated to goodwill are included in determining the maximum gain that can be recognized.
Unlike IFRS 5, US GAAP only considers impairment losses recognized under the held-for-sale guidance. It is not possible to reverse impairment losses recognized before the asset group was classified as held-for-sale. This means that a higher amount of gain may be recorded before disposal under IFRS 5 because reversals of historical impairments, per IAS 36, are allowed.
6. Reclassification as held-for-use6
Under both IFRS 5 and US GAAP when an asset group is no longer held for sale (or distribution under IFRS 5), it is reclassified as held-for-use and remeasured. Under IFRS 5 it is remeasured at the lower of its recoverable amount and the carrying amount it would have absent the held-for-sale (distribution) classification. This is the carrying amount before the asset group was classified as held-for-sale (distribution) adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset remained classified as held-for-use.
Under US GAAP a long-lived asset that is reclassified is measured separately at the lower of its fair value at the date of the decision not to sell (unlike IFRS 5) and the carrying amount it would have absent the held-for-sale classification (like IFRS 5).
The recoverable amount under IFRS 5 is the higher of the asset group’s fair value less costs of disposal and the value in use. The recoverable amount may therefore differ from fair value under US GAAP, which may affect the amount of remeasurement gain or loss recorded on reclassification as held-for-use.
7. Presentation of assets held-for-sale (or distribution under IFRS 5) in comparative financial statements
Under IFRS 5 the comparative balance sheet is not adjusted to reflect the presentation of assets held-for-sale (distribution) in the current period.
Under US GAAP, unlike IFRS 5, in the period that a discontinued operation is disposed of or classified as held-for-sale, the comparative balance sheet is adjusted to reflect that classification for all periods presented. Unlike IFRS 5, there is no specific guidance for held-for-sale assets groups that are not discontinued operations, and practice varies.
8. Disclosure of cash flow information for discontinued operations
Like IFRS 5, under US GAAP cash flow information for discontinued operations is required to be disclosed. Unlike IFRS, under US GAAP the requirements to provide information by categories of cash flows (operating, investing and financing) for discontinued operations vary between private and public companies.
9. Certain disclosure exemptions on newly acquired subsidiaries
Under IFRS 5 certain disclosure (e.g. analysis of result and cash flow information) can be omitted when a newly acquired subsidiary is classified as held-for-sale (distribution) on acquisition.
Unlike IFRS 5, US GAAP provides no disclosure exemptions for a disposal group that is a newly acquired subsidiary classified as held-for-sale on acquisition.
10. Additional US GAAP only disclosures
Unlike IFRS 5, US GAAP requires specific disclosures about entities’ continuing involvement with discontinued operations and disposals of individually significant components that do not qualify as discontinued operations.