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Sale of a business – Held for sale criteria, disc ops, and more · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC's National Office.
• 0:07
  SPEAKER_03: Hello, and welcome to PWC's Accounting Podcast.
• 0:10
  SPEAKER_03: I'm Heather Horn.
• 0:12
  SPEAKER_03: Today we're focusing on a topic that's increasingly relevant in today's economic environment: the sale of a business.
• 0:19
  SPEAKER_03: We'll discuss what it means for a business to be classified as hell for sale, what happens if a transaction falls through, and how to determine whether a sale qualifies as a discontinued operation.
• 0:29
  SPEAKER_03: We'll also touch on other key accounting implications along the way, including classification, measurement, and disclosures.
• 0:40
  SPEAKER_03: Joining me for the conversation today are Matt Sabatini and Katie Driesson, both partners in PwC's national office.
• 0:47
  SPEAKER_03: Both, welcome to the podcast, Matt.
• 0:49
  SPEAKER_03: Very nice to have you back.
• 0:50
  SPEAKER_03: And Katie, welcome back to the firm from the SEC.
• 0:53
  SPEAKER_03: Very exciting.
• 0:54
  SPEAKER_03: Thank you.
• 0:54
  SPEAKER_03: All right, so let's jump into things.
• 0:56
  SPEAKER_03: And maybe, as I said in the intro, we are going to be talking about all the accounting considerations when you are selling a business.
• 1:03
  SPEAKER_03: So, Matt, let's just start at the beginning.
• 1:05
  SPEAKER_03: So if I'm a company and I'm looking to dispose of a business, often I'm thinking about that disposal through a sale, which we're going to focus on today.
• 1:14
  SPEAKER_03: And in some cases, then the company may classify the beginning business as held for sale, but can you explain what that means and when you're required to do that?
• 1:23
  SPEAKER_01: Yeah, absolutely.
• 1:24
  SPEAKER_01: And uh it's good to be back.
• 1:26
  SPEAKER_01: So I'm glad we're starting um where we are because it's where where we're gonna start the conversation is really the events leading up to the sale.
• 1:33
  SPEAKER_01: So it's when the company's thinking about uh disposing of a business.
• 1:36
  SPEAKER_01: Um and and two important things.
• 1:38
  SPEAKER_01: I'm glad you you've you've mentioned this already.
• 1:40
  SPEAKER_01: What we're really gonna be focusing on today is disposal by sale or sale of a business.
• 1:43
  SPEAKER_01: The reason I'm I'm I'm focusing on that is because if the plan is to dispose of a business in another way, either maybe through abandonment or through a spin, um, the rules are very different, right?
• 1:53
  SPEAKER_01: You're never really gonna be able to get to held for sale presentation, which you mentioned, through those avenues.
• 1:58
  SPEAKER_01: You're only gonna be able to get there if the plan is to sell the business.
• 2:01
  SPEAKER_03: So can I ask a question before we get into these criteria?
• 2:04
  SPEAKER_03: And then I know this is not what our episode's about today, but from a practical point of view, do you often see abandonment as a way that companies are disposing of a business?
• 2:12
  SPEAKER_01: No, thankfully it's very rare.
• 2:13
  SPEAKER_01: Uh that's good.
• 2:14
  SPEAKER_01: We don't encourage uh folks to abandon their businesses.
• 2:17
  SPEAKER_01: Uh no, it doesn't come up a lot.
• 2:19
  SPEAKER_01: When it does come up, it's it's very judgmental as to when you've actually reached the abandonment stage.
• 2:23
  SPEAKER_03: So um There's a whole other episode, but not that pertinent for most of our audience.
• 2:27
  SPEAKER_01: Also, spins could be a whole other episode, which in fact it will be.
• 2:30
  SPEAKER_03: Yes, exactly.
• 2:31
  SPEAKER_03: I know we're getting to that.
• 2:32
  SPEAKER_03: All right, so let's go down.
• 2:34
  SPEAKER_03: We're selling our business, we've decided we're going to sell our business, but it's not so it's making that decision is not enough to trigger held for sale.
• 2:41
  SPEAKER_03: So how do I think about that?
• 2:42
  SPEAKER_01: No, so the guidance it's actually an ASC 360, which is a kind of an interesting place because that really deals with property plant and equipment.
• 2:49
  SPEAKER_01: But the held for sale notion is really kind of born out of the impairment guidance that exists within 360.
• 2:55
  SPEAKER_01: Um, there are six criteria you have to meet, and you have to meet them all in order to classify assets and liabilities on your balance sheet as held for sale before the actual sale date.
• 3:05
  SPEAKER_01: I'm gonna tell you what the six are, um, but we're gonna dive into most of them in a little bit more detail as we go, right?
• 3:12
  SPEAKER_01: So the first is that management with the proper authority to do so has committed to a plan to sell.
• 3:17
  SPEAKER_01: The second is that the assets being disposed or the business being disposed in this case is available for sale at the um in its present condition, right?
• 3:25
  SPEAKER_01: So the third, there's an active program to locate a buyer.
• 3:28
  SPEAKER_01: The fourth is the sale is probable and it will occur within one year, and that's a big one.
• 3:32
  SPEAKER_01: So we're gonna spend some time on that.
• 3:34
  SPEAKER_01: Um, the fifth is that the asset is actively being marketed at a reasonable price.
• 3:38
  SPEAKER_01: And lastly, it's unlikely that the plan for sale will change or not occur.
• 3:42
  SPEAKER_01: So there are nuances to each of these, right?
• 3:45
  SPEAKER_01: Um, and we're gonna get into a little bit more detail.
• 3:47
  SPEAKER_01: But I want to what I want to emphasize is that as of the balance sheet, the company needs to meet all six of the criteria in order for the assets and liabilities to be characterized as held for sale.
• 3:56
  SPEAKER_03: So, Matt, let me ask a question there though, because I it's been a while since I've been an audit partner.
• 4:01
  SPEAKER_03: But I do remember there's can often be, you know, there's the timing doesn't always work out perfectly that you get to the end of the year, you've met all six criteria, and you know, that you know that you should be classifying this business as held for sale as of year end.
• 4:17
  SPEAKER_03: So, how do we deal when there's timing issues then?
• 4:19
  SPEAKER_03: Like, so for example, maybe you didn't make it at year end, but maybe by the time you're reporting, you have met the criteria.
• 4:26
  SPEAKER_03: How does that work?
• 4:26
  SPEAKER_01: Yeah, that comes up a lot.
• 4:27
  SPEAKER_01: So that's a great example of something we see, which is as of the balance sheet date, maybe five of the six criteria, four of the six criteria have been met, and and management's waiting for one or two to come in.
• 4:37
  SPEAKER_01: And they do anticipate or it does occur before the financial statements are issued.
• 4:41
  SPEAKER_01: It's the rules are that all six have to be met as of the balance sheet date.
• 4:44
  SPEAKER_01: So we would view that as like a type two or non-recognized subsequent event.
• 4:48
  SPEAKER_01: Um, but I mean, you have to be careful, right?
• 4:50
  SPEAKER_01: I know you haven't been an audit partner in a while, but as you know, as an auditor, I think you're gonna want to make sure, and this is for companies too, right?
• 4:56
  SPEAKER_01: Make sure you have the right documentation in place.
• 4:58
  SPEAKER_01: So make sure you are keeping track of the meeting minutes that you that you have those dates and those approvals documented well, because there the the closer it is to the balance sheet date that you actually get the approval or whatever it is you're waiting for, the more judgment that's gonna be involved.
• 5:12
  SPEAKER_01: And and the other thing is when this happens so close in proximity to the balance sheet date is you got to think about the impairment considerations.
• 5:19
  SPEAKER_01: Because it's if you think that it's more likely than not that you're going to have a sale, you know, that oftentimes the price that you're anticipating receiving is gonna be lower than what you're carrying the assets at or the reporting unit at.
• 5:30
  SPEAKER_01: So that might be a trigger uh for impairment.
• 5:32
  SPEAKER_01: And even if it's not a trigger, you might have had kind of a year-end or quarter-end annual uh impairment test to do.
• 5:39
  SPEAKER_01: And this would definitely weigh into your cash flow analysis as a possible scenario.
• 5:43
  SPEAKER_03: All right, definitely important to think about.
• 5:45
  SPEAKER_03: Katie, anything from your perspective?
• 5:47
  SPEAKER_02: Yeah, definitely.
• 5:48
  SPEAKER_02: I just there's one scenario I think we wanted to touch on, and Matt highlighted there's a lot of nuances involved with the help for sale criteria in assessing those.
• 5:54
  SPEAKER_02: Um, but one that's a little bit unique is if you have something that's been recently acquired in a business combination and you've determined you're going to dispose of a portion of that.
• 6:03
  SPEAKER_02: Um, if you believe that it'll be sold shortly thereafter the close of that business combination, you can get to a help for sale classification with a little bit of a different approach.
• 6:11
  SPEAKER_02: Um, so at the acquisition date, if you have determined that the sale of that group would be within completed within one year, and any of the other criteria for the help for sale are probable of being met within a short period of time.
• 6:23
  SPEAKER_02: We usually use a three-month benchmark.
• 6:26
  SPEAKER_02: Um, then you would be able to classify that as held for sale at the acquisition date.
• 6:29
  SPEAKER_02: So a little bit different here.
• 6:30
  SPEAKER_03: So can I ask a question?
• 6:32
  SPEAKER_03: Because you said you would be able to classify it as um as held for sale as the balance sheet date.
• 6:38
  SPEAKER_03: And, you know, often and and Matt's been on the podcast before, I'm always interested in this question.
• 6:43
  SPEAKER_03: Is this something, you know, when something is required, but is it, you know, is this something that companies it's like a good thing to classify as held for sale?
• 6:52
  SPEAKER_03: They want that accounting, or are there cases where people would rather not meet those criteria?
• 6:57
  SPEAKER_03: Obviously, it depends.
• 6:58
  SPEAKER_03: But Matt, any perspective, because if you meet these criteria, you're required to classify it as held for sale, correct?
• 7:03
  SPEAKER_01: Yeah, that's right.
• 7:04
  SPEAKER_01: Yeah.
• 7:04
  SPEAKER_01: And maybe we use that terminology, are able to, because I think it's very polite as well.
• 7:08
  SPEAKER_03: Well, it's polite, maybe, sure.
• 7:09
  SPEAKER_01: But I think more more folks probably would rather um meet the hell for sale criteria as soon as possible because it does allow for the de like a segregation of those assets.
• 7:18
  SPEAKER_01: Yes.
• 7:18
  SPEAKER_01: And liabilities, and it shows a clearer picture of what the business is going to look like on a go-forward basis.
• 7:23
  SPEAKER_01: And we're gonna get to is if you want to present discontinued operations prior to the sale of a business, you have to meet help for sale first.
• 7:31
  SPEAKER_01: So yeah.
• 7:32
  SPEAKER_03: That was my sense, and that but that's why I asked that question.
• 7:35
  SPEAKER_01: Although you'd you'd be surprised that you know, depending on who you talk to, some people want to avoid it at all costs because of the work involved.
• 7:40
  SPEAKER_03: Yeah.
• 7:41
  SPEAKER_03: Although, again, uh we can't underline this enough.
• 7:44
  SPEAKER_03: If you meet the six criteria, you're required to.
• 7:46
  SPEAKER_03: And maybe I know I have a few follow-up questions, but in particular, some of these actually require judgment.
• 7:53
  SPEAKER_03: You mentioned the one year, and I think that can get complicated to say, well, do you think it's probable and expected to occur within one year?
• 8:02
  SPEAKER_03: So as you're working with companies that are evaluating if they even met the six criteria and in some of these areas of judgment, what are some of you know what you would be thinking about?
• 8:13
  SPEAKER_02: Maybe I can take that and Matt, feel free to chime in.
• 8:16
  SPEAKER_02: Um, I would say one that we get a number of questions on is specifically the first criterion, which speaks to management having the appropriate authority committing to a plan to sell.
• 8:24
  SPEAKER_02: Sometimes transactions may require board of director approval, it may require shareholder approval.
• 8:29
  SPEAKER_02: And so management may have committed to a plan, but they don't have the authority necessarily to pursue that sale.
• 8:35
  SPEAKER_02: Other situations which we see pretty commonly deal with outside authorities that are required to approve those transactions could be regulators, other government agencies, sometimes lenders if there's an existing debt arrangement outstanding and covenant approval.
• 8:48
  SPEAKER_02: And so you really have to think through all of the factors in play to assess if management really does have the appropriate authority to commit to a plan to sell.
• 8:56
  SPEAKER_01: Yeah, the the one thing I would highlight around the requirement for the sale to be probable and to expect it to be completed within one year is that the guidance does allow for certain scenarios with very specific criteria to be met where maybe you can assert that it's probable that the cell is going to be complete within a year.
• 9:11
  SPEAKER_01: And an example of that would be where there's outside regulatory approval that has to be met.
• 9:16
  SPEAKER_01: Or um, but if you read the guidance, it actually takes you through kind of a very, a very convoluted, almost like flowchart in words of what you have to meet to get there.
• 9:24
  SPEAKER_01: And there's two different scenarios.
• 9:25
  SPEAKER_01: And we don't want to get into all that detail now, but needless to say, it's rare.
• 9:29
  SPEAKER_01: Um and it's and it includes a lot of judgment.
• 9:32
  SPEAKER_03: So then, Matt, you actually anticipated my question because as regular listeners know, I come from power and utilities industry, and I think we're one of your quote unquote rare cases uh because you know you would often need to get approval of your local regulatory commission.
• 9:47
  SPEAKER_03: So you're saying it's it's really industry dependent.
• 9:50
  SPEAKER_03: Is that fair whether this would be a I'll use the word commons?
• 9:53
  SPEAKER_01: Yeah, I'd say the avenue exists within the guidance to be able to evaluate the criteria and sure.
• 9:57
  SPEAKER_01: Yeah, I can I can envision that it would be more prevalent in certain industries than others, yeah.
• 10:01
  SPEAKER_03: Yeah, but so for your your regular company, this is likely not a a huge consideration.
• 10:07
  SPEAKER_03: That's fair.
• 10:08
  SPEAKER_03: Okay.
• 10:08
  SPEAKER_03: All right, so then, Katie, that's helpful, and thank you again for addressing my question.
• 10:12
  SPEAKER_03: Um, so Katie, going back to you though, any other areas where you'd say there's like more judgment in making these evaluations?
• 10:20
  SPEAKER_03: Yes, definitely.
• 10:21
  SPEAKER_02: Um, one that I wanted to highlight is speaking to whether or not the the disposal group is ready for immediate sale in its present condition.
• 10:28
  SPEAKER_02: Um, you'll often see standard and customary terms and conditions that are really routine and you would see them in a number of sales of businesses.
• 10:36
  SPEAKER_02: That would not necessarily preclude you from meeting this condition.
• 10:39
  SPEAKER_02: Um, but let's say you're looking at a particular facility that the business owns and there's a backlog of orders or something, um, that may indicate that it's not actually ready for immediate sale.
• 10:49
  SPEAKER_02: Um, another thing that we look out for on this particular criteria is if there's significant capital improvements that may have to be made prior to sale, that's usually outlined in the sale agreement.
• 10:58
  SPEAKER_02: That could be another indicator that the business is not quite ready for sale in its present condition.
• 11:03
  SPEAKER_02: Uh Matt touched on this before, but just to bring it up again, the the concept of significant changes in to the plan being unlikely.
• 11:10
  SPEAKER_02: And again, a lot of area of judgment.
• 11:12
  SPEAKER_02: How do you assess if something is unlikely to be happening?
• 11:15
  SPEAKER_02: Um, we will sometimes think of this as if there's multiple approaches being contemplated.
• 11:20
  SPEAKER_02: You may say, I'm pursuing a sale or a spin and we're dual tracking the planning process for that.
• 11:25
  SPEAKER_02: I think that's a common thing people say 100%.
• 11:28
  SPEAKER_02: And until there's made a definitive decision has been made, you would not be able to achieve this particular criteria.
• 11:33
  SPEAKER_02: And we also, you know, speak to companies a lot that are pursuing a strategic initiative where they say, I'm going to dispose of this business, I'm going to sell it, but I don't know who the buyer is going to be.
• 11:42
  SPEAKER_02: I don't know if it's one buyer or multiple or how I'm going to market it.
• 11:45
  SPEAKER_02: And in that situation, we would say that you don't have a plan where significant changes are unlikely to occur.
• 11:50
  SPEAKER_02: Matt, anything else?
• 11:52
  SPEAKER_03: Well, maybe, Matt, let me ask a follow-up question to what you added before.
• 11:56
  SPEAKER_03: So you mentioned the sale within one year.
• 11:58
  SPEAKER_03: And I do think this is just an interesting one because then it's requiring prediction of the future.
• 12:04
  SPEAKER_03: And so, from a practical perspective, and I know uh Katie, you would have dealt with this as well.
• 12:10
  SPEAKER_03: How do companies demonstrate that they think it's probable it can be sold?
• 12:15
  SPEAKER_03: Just some of the things that they would need to be thinking about.
• 12:19
  SPEAKER_01: Yeah, I think it's fair.
• 12:19
  SPEAKER_01: I think a lot of the other criteria help you.
• 12:21
  SPEAKER_01: So if you think about the other five, those are all things like it's available for selling its present condition, you've committed to a plan, it's got the approval, um, you're marketing it at a reasonable price.
• 12:31
  SPEAKER_01: It's all helpful, right?
• 12:32
  SPEAKER_01: Like to say that it's probable that I'm gonna be able to get this done within a year.
• 12:35
  SPEAKER_01: So they all have a little bit of overlap.
• 12:38
  SPEAKER_01: What I'd say is that there is judgment, and and you know, you have to reassess kind of your held for sale presentation every quarter to see if it's still appropriate.
• 12:46
  SPEAKER_01: This is the big one, right?
• 12:47
  SPEAKER_01: Because if you had said it was ready to be sold, it's probably still but you still have to assess that it's gonna be probable.
• 12:52
  SPEAKER_01: The trick here though is when you reassess at the end of the next quarter, it you're still assessing over the next 12 months.
• 12:58
  SPEAKER_01: That's not published in the guidance, it's not it's not really.
• 13:02
  SPEAKER_03: Oh, so you're not using that original now, you've used up three months of your 12 months.
• 13:06
  SPEAKER_03: You're saying now you're starting sort of a new clock.
• 13:09
  SPEAKER_01: Exactly.
• 13:10
  SPEAKER_01: Um, eventually, right, your clock is gonna get uh start to cause uh skepticism with uh you know regulators and auditors and and everyone, right?
• 13:17
  SPEAKER_01: Because if you keep going and nine months later you're saying, yes, it's still probable, but it's now it's probable that's gonna happen.
• 13:23
  SPEAKER_01: It causes a little bit of doubt into what your original judgment was.
• 13:26
  SPEAKER_03: Yeah.
• 13:26
  SPEAKER_03: And I guess, Matt, that goes back to you made a point about documentation earlier.
• 13:30
  SPEAKER_03: So really making it clear how you meet all these criteria and then you know why you think it's probable, right?
• 13:36
  SPEAKER_03: So if you do get six months later and you're still saying it's probable within a year, but you need the full, you know, the full rest of the year, well, what's maybe changed that now it's taking those extra six months?
• 13:46
  SPEAKER_01: That's right.
• 13:46
  SPEAKER_01: And there are things that can change that may push it out beyond the original one-year assessment, and and that can be okay.
• 13:51
  SPEAKER_03: Yeah.
• 13:52
  SPEAKER_01: Um we'd like it better when the cell happens within a year.
• 13:55
  SPEAKER_03: Yes, obviously.
• 13:56
  SPEAKER_03: Okay, let's keep going because I probably could spend the whole episode talking about these criteria.
• 14:01
  SPEAKER_03: But let's assume for this purpose then that you've met all the criteria and you have classified the business as held for sale.
• 14:08
  SPEAKER_03: What does that actually mean then from an accounting slash presentation perspective?
• 14:12
  SPEAKER_03: You've referenced this before, Matt, but let's get into the detail.
• 14:15
  SPEAKER_01: Right.
• 14:15
  SPEAKER_01: So the held for sale guidance is really about balance sheet classification.
• 14:18
  SPEAKER_01: So now you take the assets and liabilities that are part of your disposal group and they get classified on your balance sheet as assets held for sale and liabilities held for sale.
• 14:27
  SPEAKER_01: The reason why I said it was weird that this guidance exists within AAC360, which is really about long-lived assets, um, is that your disposal group can actually include the entire business that you're selling.
• 14:38
  SPEAKER_01: And I know the topic today is about a business.
• 14:40
  SPEAKER_01: So what you would really do is you take all your long-lived assets, which are in the scope of 360, plus all the AR, inventory, liabilities, everything that's kind of associated with that business, and reclassify on the balance sheet, but in accordance with this guidance.
• 14:53
  SPEAKER_01: Um I know I said liabilities.
• 14:56
  SPEAKER_01: Debt comes up a lot, like so.
• 14:57
  SPEAKER_01: Should I reclassify long-term debt into my um held for sale assets and liabilities?
• 15:01
  SPEAKER_01: And that the specific guidance there is only if the debt is expected to be assumed by the buyer in their transaction would that be reclassified as held for sale.
• 15:09
  SPEAKER_01: So in contrast to that, a lot of times we see debt is required to be repaid with proceeds from the sale of the business, and that would not be part of the disposal group.
• 15:17
  SPEAKER_01: That would stay in regular long-term debt classification.
• 15:21
  SPEAKER_01: So when we do this reclassification into the held held for sale assets and liabilities, um, we're gonna first test all of your kind of non-ASC 360 assets for impairment.
• 15:32
  SPEAKER_01: That means AR inventory in accordance with other gap.
• 15:34
  SPEAKER_01: Then we're gonna measure the disposal group.
• 15:36
  SPEAKER_01: So the again, everything we're reclassifying and put it in the line items is held for sale based on the lower of their carrying value or their fair value less the cost to sell.
• 15:46
  SPEAKER_01: So the lower of those two things.
• 15:48
  SPEAKER_01: And that's everybody kind of says it's one line on your balance sheet this point.
• 15:51
  SPEAKER_01: It's really two because you're breaking, it could be four if you're breaking between current and not current.
• 15:54
  SPEAKER_01: But you know, when you put those all together, the what the amount is going to be the lower of the carrying value or fair value less cost to sell.
• 16:01
  SPEAKER_01: Yeah, the last thing about that I'll say is cost to sell typically would include direct and incremental costs, so like legal fees, closing costs, brokerage costs.
• 16:10
  SPEAKER_01: They do not include ongoing costs related to the disposal group.
• 16:14
  SPEAKER_01: So you wouldn't put things like rent or insurance, or most importantly, anticipate future losses and try and get that into your accrual.
• 16:22
  SPEAKER_01: None of that goes in.
• 16:24
  SPEAKER_02: And just to add on to that, a couple of items on the income statement to consider when you're reaching held for sale.
• 16:29
  SPEAKER_02: Um, you are effectively recharacterizing the unit of account for everything that's within that business into a single disposal group.
• 16:35
  SPEAKER_02: So those individual assets would no longer be depreciated or amortized.
• 16:39
  SPEAKER_02: Um, and you do have to monitor the carrying amount each period.
• 16:42
  SPEAKER_02: You may not complete that sale within the next reporting period.
• 16:45
  SPEAKER_02: So just monitoring for any changes in fair value, you'd continue to recognize a loss if there were additional write downs to the fair value less cost to sell.
• 16:52
  SPEAKER_02: And you could recognize a gain if the fair value less cost to sell increased, but it's capped and should not um exceed the cumulative loss that you had recognized prior.
• 17:00
  SPEAKER_03: Yeah, I think this um point about no longer depreciating or amortizing for people who don't deal with this often is often confusing because it's like, well, no, but the plant is losing value.
• 17:11
  SPEAKER_03: But what you're really saying is, well, you're no longer looking at that individual asset, you're saying as a group, how much you're going to be able to sell for.
• 17:18
  SPEAKER_03: Uh so I think that's an important point.
• 17:21
  SPEAKER_03: Uh okay.
• 17:22
  SPEAKER_03: And so then with all of that said, then, just to recap, once I've concluded that I need to classify my business as held for sale, I'll make sure that any assets that aren't in 360 will are written down before I measure my disposal group.
• 17:36
  SPEAKER_03: And then once I've done that, I'm going to measure the disposal group with a lower of carrying value and essentially net realizable value.
• 17:43
  SPEAKER_03: Uh so Katie, uh, what about goodwill?
• 17:46
  SPEAKER_03: How do we factor all of that in?
• 17:48
  SPEAKER_03: Because it's often a question.
• 17:50
  SPEAKER_03: Everyone's favorite topic, yeah.
• 17:52
  SPEAKER_02: Um can be really straightforward.
• 17:53
  SPEAKER_02: If you are disposing of an entire reporting unit, all the goodwill associated with that reporting unit would be included within a disposal group itself.
• 18:00
  SPEAKER_02: It's almost never usually that simple.
• 18:03
  SPEAKER_02: No.
• 18:03
  SPEAKER_02: And so if it's only a portion of a reporting unit or it's a combination of portions of reporting units, you need to understand if what you're selling actually constitutes a business.
• 18:12
  SPEAKER_02: You can't allocate goodwill unless the sale actually does constitute a business.
• 18:15
  SPEAKER_02: And we do see that sometimes where you're selling off assets and then there's stranded goodwill because it was it came over as part of a prior acquisition.
• 18:22
  SPEAKER_02: So just something to keep in mind.
• 18:23
  SPEAKER_02: Um and once you have determined that it is a business, then you would do an attribution of goodwill on a relative fair value basis to understand how much should be ascribed to the disposal group that's being sold.
• 18:34
  SPEAKER_03: So, Katie, thank you for that on Goodwill.
• 18:37
  SPEAKER_03: And of course, that reminds me of another question I have because you talked about how you think about goodwill.
• 18:44
  SPEAKER_03: Matt has talked about more broadly impairment.
• 18:47
  SPEAKER_03: And so how do we think about then the ordering of how I do all of these different steps?
• 18:53
  SPEAKER_01: Yeah, it's a it's a good question.
• 18:54
  SPEAKER_01: And it's important because the ordering for impairment when you're in held for sale is different than when you're in a normal held and use model.
• 19:01
  SPEAKER_01: So for a held for sale group, remember, I mentioned all of the non-360 assets get tested first, and that's AR and inventory.
• 19:08
  SPEAKER_01: But also kind of as your next step, you test the 350 assets.
• 19:11
  SPEAKER_01: And by 350, I mean goodwill and indefinite lived intangibles.
• 19:15
  SPEAKER_01: So you do 350 next, and then you then you do the measurement of the disposal group in its entirety.
• 19:20
  SPEAKER_01: And remember, the measurement of the disposal group is going to be the lower of the carrying value or the fair value less cost to sell.
• 19:26
  SPEAKER_03: All right.
• 19:26
  SPEAKER_03: So let's assume then that I've done all this accounting.
• 19:30
  SPEAKER_03: Now we fast forward a few months, and I actually sell the business within the year.
• 19:36
  SPEAKER_03: What's the accounting at that point?
• 19:38
  SPEAKER_03: And then how do you determine the gain or loss, which I'm sure is more complicated than just doing math?
• 19:44
  SPEAKER_01: It's mostly math.
• 19:45
  SPEAKER_03: But it involves math, but it's not just two numbers, probably.
• 19:49
  SPEAKER_01: Right.
• 19:49
  SPEAKER_01: Before we get to the calculation, this is this is the part of the podcast where I weave in ASC 810, which I do in every podcast because it deals with consolidation.
• 19:57
  SPEAKER_03: That's your favorite topic.
• 19:58
  SPEAKER_01: It is, of course.
• 19:59
  SPEAKER_01: Um because you did ask what the accounting is when we sell a business, and it really depends on losing control.
• 20:04
  SPEAKER_01: Um, so 810 does come in.
• 20:06
  SPEAKER_01: And actually, the gain or loss calculation that we're gonna talk about in a second also is included in the guidance in ASC 810.
• 20:12
  SPEAKER_01: Um, so it's all it all comes back to consolidation.
• 20:15
  SPEAKER_01: Um, Katie mentioned it's important for goodwill purposes to make sure that you're disposing of a business.
• 20:19
  SPEAKER_01: It's also important for figuring out whether you've lost control, whether or not you're dealing with a business.
• 20:23
  SPEAKER_01: And again, I know that's the topic of the podcast.
• 20:25
  SPEAKER_01: And if it is a business, we're we're really dealing with a loss of control under 810, meaning you've you've lost control as a controlling financial interest.
• 20:33
  SPEAKER_01: Um, if it's not a business, if it's say uh a group of non-financial assets, you'd fall under the guidance in 61020, which is a slightly different definition of control and a different gain or loss calculation for financial assets, 860, right?
• 20:47
  SPEAKER_01: Sell a financial asset.
• 20:48
  SPEAKER_01: So it is, again, very important that you get that scoping right.
• 20:51
  SPEAKER_01: We are dealing with a business.
• 20:52
  SPEAKER_01: But once you've done that and you said we've got a business and we've lost control, the the way you calculate the gain is really looking at the fair value of the consideration you've received, the fair value of any retained interest that you keep in the in the entity, and the carrying amount of NCI at the date you lost control.
• 21:07
  SPEAKER_01: You compare all of that to the carrying amount of the assets and liabilities that you're deconsolidating, and that's your gain or loss.
• 21:13
  SPEAKER_01: So it's it's really comparing all the things that you're you have to debit to all the things that you get to credit, and the difference is your gain or loss.
• 21:20
  SPEAKER_03: Yeah, and it's interesting, Matt, because I think you said sale of a business about 10 times in that summary just gave.
• 21:28
  SPEAKER_03: But you did make the point that you also could be selling assets or you know, uh non-financial assets or securitized assets or or the like.
• 21:37
  SPEAKER_03: Um, so if we rewind, because that's really the first time that's come up in this conversation, the held for sale criteria equally applies or does not apply if you're dealing with assets or if you're not dealing with a business.
• 21:50
  SPEAKER_01: It can, right?
• 21:51
  SPEAKER_01: So as long as the group of assets that you're selling meets the definition of a disposal group, then yes, all of the things we were talking about for held for sale can apply.
• 21:59
  SPEAKER_03: Okay, that's good.
• 22:00
  SPEAKER_03: And that's we don't need to go, that's a another topic, probably another podcast that we could have.
• 22:04
  SPEAKER_03: But it is interesting because I think this is something we often think about from the perspective of the buyer.
• 22:10
  SPEAKER_03: They have to figure are they acquiring a business or they're acquiring a group of assets, but you're highlighting the fact you actually have to think about it from both sides.
• 22:17
  SPEAKER_03: Yes.
• 22:18
  SPEAKER_01: And not just for the gain, for what Katie mentioned about goodwill allocation on the sale side as well.
• 22:21
  SPEAKER_01: Yeah.
• 22:22
  SPEAKER_03: Exactly.
• 22:22
  SPEAKER_03: All right.
• 22:22
  SPEAKER_03: So definitely a very helpful reminder there.
• 22:25
  SPEAKER_03: And then we talked earlier, probably more detail than you're anticipating, about the fact that plans can change and that you may not, you know, sell within the year that you've planned.
• 22:36
  SPEAKER_03: And so let's assume that you're going down this path and saying, okay, I'm going to dispose of this business and I'm following held for sale accounting.
• 22:46
  SPEAKER_03: But now six months in, you realize there's been a big change in the economy or some other thing has changed.
• 22:52
  SPEAKER_03: And you said I'm no longer going to do that.
• 22:53
  SPEAKER_03: What happens then?
• 22:55
  SPEAKER_02: It's a good question.
• 22:56
  SPEAKER_02: Uh deals can die all the time.
• 22:57
  SPEAKER_02: We see it happen quite frequently.
• 22:59
  SPEAKER_02: Um if you don't meet the held for sale criteria anymore, then you would need to reclassify that disposal group back to held and used.
• 23:06
  SPEAKER_02: Get to resume depreciation and amortization.
• 23:08
  SPEAKER_02: You have to resume any depreciation or amortization.
• 23:11
  SPEAKER_02: Wait, wait, before you go on, so do you catch up or you don't catch up, you just restart?
• 23:16
  SPEAKER_02: So you would also resume depreciation or amortization that you had stopped once you had met the held for sale classification.
• 23:21
  SPEAKER_02: And then when you're thinking about the carrying amount, you lower either to the fair value when it was reclassified or the amount it would have always been had it been held and used.
• 23:30
  SPEAKER_02: And changes are recorded into continuing operations in that period when the decision is made not to sell, when things have changed.
• 23:37
  SPEAKER_03: So, Katie, this might be stating the obvious, but I just want to make sure.
• 23:40
  SPEAKER_03: So now when I'm reclassifying everything back, I'm doing my depreciation, et cetera, I should not need to do impairment testing because I have already written everything down.
• 23:52
  SPEAKER_03: Is that I'm asking that as a question?
• 23:54
  SPEAKER_02: Yes.
• 23:54
  SPEAKER_02: Yeah.
• 23:55
  SPEAKER_02: You've basically taken those impairments and you're assessing the fair value compared to what it would have been under a held and use model.
• 24:01
  SPEAKER_02: I don't know if I've actually seen a scenario where under held and use it would be lower than the fair value mark, but it is oh, guess what?
• 24:08
  SPEAKER_03: Fair enough.
• 24:09
  SPEAKER_03: So one less thing to do at that point.
• 24:12
  SPEAKER_03: So that's in the case where you thought you were going to sell and now you've concluded it's no longer probable.
• 24:18
  SPEAKER_03: And so you are moving back to held for use.
• 24:21
  SPEAKER_03: What about the case then I'm still held for sale, but I get to the end of the reporting period?
• 24:26
  SPEAKER_03: Is there any specific considerations I should be thinking about?
• 24:29
  SPEAKER_02: Sure.
• 24:30
  SPEAKER_02: Matt touched on this a little bit in terms of a balance sheet exercise with the held for sale classification.
• 24:35
  SPEAKER_02: Assuming you're not also in discontinued operations, which we will touch on later in this, you would separately present your assets and liabilities held for sale, broken out between current and non-current.
• 24:45
  SPEAKER_02: But there are situations where you may be able to classify all your assets and liabilities in the disposal group as current.
• 24:51
  SPEAKER_02: We would see that in a situation where the sale is not only expected to be completed within one year and the cash proceeds are not expected to be used to pay down long-term borrowings.
• 25:01
  SPEAKER_02: In that case, we would say that current classification is acceptable.
• 25:04
  SPEAKER_02: But it is still, you know, that separate held for sale classification on the balance sheet.
• 25:08
  SPEAKER_02: So breaking them out into their own lines within the balance sheet.
• 25:11
  SPEAKER_02: You're only required to do this in the period that the held for sale classification is met.
• 25:15
  SPEAKER_02: You do see some preparers from a comparability standpoint recast all periods presented.
• 25:20
  SPEAKER_02: We'll talk about that a little bit more from a disc ops standpoint where it is required to do this full recast.
• 25:25
  SPEAKER_03: But in this case, if you're not doing disc ops, is it permitted but not required, or it's not permitted?
• 25:30
  SPEAKER_03: It's permitted.
• 25:31
  SPEAKER_03: Okay.
• 25:31
  SPEAKER_02: And then in thinking through the income statement, um you have to separately disclose the gain or loss that's recognized on sale.
• 25:37
  SPEAKER_02: That may not happen right away.
• 25:38
  SPEAKER_02: You would um obviously be waiting for that sale to be executed.
• 25:42
  SPEAKER_02: And then if a sale does not qualify for discontinued operations, that gain or loss would flow through continuing operations.
• 25:47
  SPEAKER_02: And so you'd see it reflected there with the related tax impact.
• 25:50
  SPEAKER_03: All right.
• 25:50
  SPEAKER_03: Well, now we've mentioned discontinued operations several times, and we did say we're going to get to it.
• 25:55
  SPEAKER_03: So let's get to discontinued operations.
• 25:57
  SPEAKER_03: Uh so maybe just starting things out, Katie, I'll go to you.
• 26:01
  SPEAKER_03: Uh, what are the criteria that you need to meet in order for something that to be considered discontinued operations?
• 26:09
  SPEAKER_02: Sure.
• 26:09
  SPEAKER_02: Um, so the discontinued operations guidance sits within ASC 205-20, and your disposal must be comprised of a component of an entity, which we'll touch on a little bit, that has either been disposed of if by a spin or abandonment, because you can't meet held for sale unless you're talking about this, um, or me see these held for sale criteria in 205, which it's largely aligned with what we just went over, um, but it is in a separate section of the guidance.
• 26:34
  SPEAKER_02: So just something to keep in mind.
• 26:35
  SPEAKER_03: Well, also I think it's important, and you said this before, but unless it's that spin or abandonment, you have to meet these help for sale criteria to even go down this discontinued operations plan.
• 26:45
  SPEAKER_03: Okay.
• 26:46
  SPEAKER_02: So keep going.
• 26:46
  SPEAKER_02: Thank you.
• 26:47
  SPEAKER_02: Sure.
• 26:47
  SPEAKER_02: Uh to reach discontinued operations, the disposal must represent a strategic shift that has or will have a major effect on the operations and financial results of the company.
• 26:56
  SPEAKER_02: And we'll get into that in a little bit more detail.
• 26:58
  SPEAKER_02: A lot of examples to walk through because this can also be a complex area of judgment.
• 27:02
  SPEAKER_02: Yes, I already have questions.
• 27:03
  SPEAKER_02: Okay, great.
• 27:04
  SPEAKER_02: Um, when you're thinking about what a component is, you want to understand if there's clearly distinguished operations and cash flows, both operationally and from a financial reporting perspective, that you can use to distinguish it from the rest of the company.
• 27:16
  SPEAKER_02: Um, could be a segment, could be a reporting unit.
• 27:19
  SPEAKER_02: You'll you know think through those concepts when you're thinking about um reportable segments.
• 27:23
  SPEAKER_02: Um this should be a familiar concept in terms of identifying these identifiable cash flows.
• 27:28
  SPEAKER_02: Um, the lowest level that we have or that we do see is an asset group.
• 27:32
  SPEAKER_02: That's the lowest level of independent cash flows that you can identify as you're reviewing this.
• 27:37
  SPEAKER_02: That is relatively straightforward, but I would say we do get a number of questions around the criteria for discontinued operations, specifically on strategic shift and major effect.
• 27:46
  SPEAKER_02: There are no bright lines.
• 27:48
  SPEAKER_02: I wish we could give you a rule of thumb that could apply in every situation, but not the case, especially here.
• 27:53
  SPEAKER_02: Um, and we'll depend on the facts and circumstances that are related to the sale and the overall business itself that is disposing of this particular business.
• 28:02
  SPEAKER_02: Sometimes it can be easy to assess.
• 28:04
  SPEAKER_02: If you're disposing of an entire segment, that's usually a pretty good indicator that the sale is both strategic and significant.
• 28:10
  SPEAKER_02: It's sometimes not clear.
• 28:12
  SPEAKER_02: And so we would look to other information that's publicly available.
• 28:14
  SPEAKER_02: It may be earnings releases, it could be further discussion elsewhere in the financial statements.
• 28:19
  SPEAKER_02: Um, if there's been public communications, that can give a good indicator if there is a strategic shift involved with the sale of that particular business.
• 28:26
  SPEAKER_03: And I guess it's important to note here it has to be both significant and strategic, because often I assuming you can have one, but not the other.
• 28:33
  SPEAKER_02: That's right.
• 28:34
  SPEAKER_02: And you may see, or we have seen, companies argue that a strategic shift is in play.
• 28:38
  SPEAKER_02: They're saying I've exited a geographical area or I'm completely disposing of a product line.
• 28:43
  SPEAKER_02: Um, but unless you're able to assess that with this the significant impact piece, then um you wouldn't necessarily qualify or you would not qualify.
• 28:51
  SPEAKER_01: Right.
• 28:51
  SPEAKER_01: This is another one of those areas where we use terminology like maybe companies want to or don't want to.
• 28:56
  SPEAKER_03: Yeah, so I was curious about that.
• 28:57
  SPEAKER_01: Yeah, also not optional, right?
• 28:58
  SPEAKER_01: So it's you've either met the criteria for disk ops or you haven't.
• 29:02
  SPEAKER_01: Um so that's where there's a lot of judgment involved in terms of you know whether or not you think you have had a strategic shift or whether or not that shift has had a major impact.
• 29:11
  SPEAKER_01: But it's not, you know, we um we don't want to present disk ops, so uh we won't.
• 29:16
  SPEAKER_01: It's yes you can meet the criteria you have to, and if you don't, you can't.
• 29:19
  SPEAKER_03: Yeah.
• 29:20
  SPEAKER_03: So then Matt, maybe following up on the term significant, uh, you know, anytime those types of words are used in the literature, I think that raises questions from companies.
• 29:30
  SPEAKER_03: So if I'm thinking about that term or, you know, this other, the, the major um term, or sorry, the strategic shift, what are some of the rules of thumb or other guidance that we have to think about what either of those terms mean?
• 29:44
  SPEAKER_01: Yeah, it's a good question.
• 29:45
  SPEAKER_01: So we do we do rely a little bit on on some of the examples that's included in the in the guidance.
• 29:50
  SPEAKER_01: Um like so when you start thinking about what a strategic shift is, the guidance will bring into account things like disposing of a major product line or exiting a significant geographic area.
• 30:00
  SPEAKER_01: So Katie brought up those examples, right?
• 30:02
  SPEAKER_03: Although then you have to also meet the next criteria is the key point Katie made.
• 30:06
  SPEAKER_01: Absolutely.
• 30:06
  SPEAKER_01: Yes.
• 30:07
  SPEAKER_01: Um so and and I think the the other good point that Katie made, right, was you you might you might be able to assess a strategic shift based on past communications by the company, right?
• 30:16
  SPEAKER_01: You can look at MDNA, you can look at uh analyst reports, earnings reports, investor presentations, and you can see what management and the board are focused on for their strategy, what's important to them, uh, what are they communicating to the street and to the investors?
• 30:28
  SPEAKER_01: And if something like that that got a lot of attention is now being disposed of, maybe that's better evidence that you've had a strategic shift.
• 30:35
  SPEAKER_01: Um but what do we mean by major impact?
• 30:38
  SPEAKER_01: Again, it's a little bit judgmental.
• 30:40
  SPEAKER_01: The guidance includes some examples, right?
• 30:42
  SPEAKER_01: So they have an example where a company sells a product line and that product line represents 15% of total revenues.
• 30:49
  SPEAKER_01: There's an example where the sell of a geographic area represents 20% of total assets.
• 30:54
  SPEAKER_01: And then there's a third example where they basically sell sale of a company's like um store format that provided 30 to 40% of the net income and 15% of current period net re uh revenue.
• 31:05
  SPEAKER_01: And those are the examples that are in the guidance.
• 31:08
  SPEAKER_01: I think you know, a lot of times companies and management teams and auditors, frankly, want to just look at those numbers as bright lines and compare their fact pattern in those line items on the PL to the ones in the example and say we either do or don't have a uh major impact.
• 31:22
  SPEAKER_01: And I think it's probably a little bit harder than that, right?
• 31:24
  SPEAKER_01: I think it's a little bit more judgmental.
• 31:26
  SPEAKER_01: And you have to understand A, you know, are these the right metrics that that um are in the example for for my capital or what I dispose of, right?
• 31:34
  SPEAKER_01: So there might be other key indicators or key metrics for KPIs like non-get measures that might also be relevant.
• 31:40
  SPEAKER_01: I wouldn't say to ignore revenue, I wouldn't ignore net income, and I wouldn't ignore total assets because those are in the guidance.
• 31:45
  SPEAKER_01: Yes.
• 31:46
  SPEAKER_01: Um but just because you're at like 14% of total revenues, it doesn't mean you don't have major, right?
• 31:51
  SPEAKER_01: Um and I don't think you always look just at the current period, right?
• 31:55
  SPEAKER_01: I think you can look at trends.
• 31:56
  SPEAKER_01: Um, maybe the current period is most reflective of where you're at and how important it is, but the last couple of years, and then you can look at projections um a little bit too to try to assess major.
• 32:06
  SPEAKER_01: So it's a lot of triangulation around whether or not there's been a major impact.
• 32:10
  SPEAKER_01: But yeah, like I said, all qualitative and quantitative data weighs in.
• 32:14
  SPEAKER_01: So the only exception here is if you've recently acquired a business or you're you know you're acquiring a business and the intent is to immediately sell that business, um, as long as you meet the um help for sale criteria at the date of the acquisition or or will soon thereafter, and again, soon is debatable, but usually you know within a very short period of time, then you're always going to present that business as a discontinued operation.
• 32:37
  SPEAKER_01: Um, as long as, again, as long as it meets the definition of a business, you don't have to have the strategic shift to major impact.
• 32:42
  SPEAKER_01: So it just it gets presented as a disc op.
• 32:45
  SPEAKER_03: So that's very helpful.
• 32:47
  SPEAKER_03: So obviously think about both quantitative and qualitative information.
• 32:51
  SPEAKER_03: And if you meet the criteria, it's required.
• 32:53
  SPEAKER_03: So there's another, I think, important point there.
• 32:56
  SPEAKER_03: Katie, can you run through for us then, if you meet these criteria, then what does that mean?
• 33:02
  SPEAKER_02: Sure.
• 33:02
  SPEAKER_02: And just to highlight again the purpose of discontinued operations, you are trying to reflect to the investors and other stakeholders who are reading your financial statements.
• 33:11
  SPEAKER_02: This is not going to be part of your ongoing business.
• 33:13
  SPEAKER_02: Um, so it's really about this separate presentation that's going to occur.
• 33:16
  SPEAKER_02: On your balance sheet, you would have the assets and liabilities presented separately for all periods presented.
• 33:22
  SPEAKER_02: This is a required recast of your historical information.
• 33:25
  SPEAKER_02: And again, we'll give a better picture about what the ongoing business will be from both the balance sheet and income statement perspective.
• 33:31
  SPEAKER_02: You are also required, um, either in the face of the financial statements or within the footnotes, to describe the major classes of the assets and liabilities that are included within the discontinued operations for all the periods presented.
• 33:43
  SPEAKER_02: When we're thinking about the income statement, um talking about the PL associated with that particular business, including the impact of taxes, you would have to show that separately on the income statement.
• 33:53
  SPEAKER_02: And it's in its own section beneath uh, you know, income from continuing operations for every period that's shown.
• 33:59
  SPEAKER_02: Um, your gain or loss from selling that business is usually shown separately directly on the income statement, but it can also be disclosed within the footnotes.
• 34:07
  SPEAKER_02: And one common question that we get, which touches on Matt's point about debt related to the business itself.
• 34:14
  SPEAKER_02: Um, if there was debt included as part of the discontinued operations or there was debt that had to be paid off as a requirement of the sale, interest associated with that debt would go into discontinued operations.
• 34:25
  SPEAKER_02: There are considerations related to interest expense associated with debt as it relates to discontinued operations as well.
• 34:30
  SPEAKER_02: So something else to keep in mind.
• 34:32
  SPEAKER_03: Okay, so definitely a lot to keep in mind.
• 34:34
  SPEAKER_03: Katie, just for the listener that's trying to follow along, we talked earlier about classification related to help for sale.
• 34:42
  SPEAKER_03: Now we're talking about classification of uh disk ops.
• 34:45
  SPEAKER_03: Are there any key differences you would highlight again for someone who's just trying to understand in their head what these differences are?
• 34:52
  SPEAKER_02: The recast in the historical periods is required for discontinued operations.
• 34:56
  SPEAKER_02: So you must push that back into the prior periods that are presented in your financial statements.
• 35:00
  SPEAKER_03: Okay.
• 35:00
  SPEAKER_03: So that's and Matt's nodding.
• 35:02
  SPEAKER_03: So I guess that's the the major difference between them.
• 35:04
  SPEAKER_03: Okay, that's helpful.
• 35:05
  SPEAKER_03: Now, one thing Katie didn't mention was cash flows.
• 35:07
  SPEAKER_03: So, Matt.
• 35:08
  SPEAKER_01: Yeah, good question.
• 35:09
  SPEAKER_01: Um, a lot of people skip over the statement of cash flows as like the uh stepchild of the of the financial statement.
• 35:15
  SPEAKER_01: So the, you know, let me start with what you can't do with the statement of cash flows, right?
• 35:18
  SPEAKER_01: You can't like magically relabel operating, investing, and financing cash flows.
• 35:22
  SPEAKER_01: Um, the other thing you can't do is you can't have one line item on your cash flow statement that says cash flows related to disk ops and then just remove them from everywhere else.
• 35:30
  SPEAKER_01: So there are two choices of what you can do, right?
• 35:32
  SPEAKER_01: One is leave your cash flow statement the same and provide um information around cash flows related to the discontinued operations in a footnote.
• 35:40
  SPEAKER_01: And there are some required disclosures if you go down that red about what has to be in there.
• 35:43
  SPEAKER_01: The other choice is you can um uh present your statement of cash flows where within each caption operating, financing, and investing, you're gonna have a cat operating cash flow from DiscOps, investing cash flow from Discops.
• 35:55
  SPEAKER_01: So you could do it that way.
• 35:55
  SPEAKER_01: So those are your basically two options for how to treat it.
• 35:59
  SPEAKER_03: Is there uh a trend that you would say that more people follow, or it just depends?
• 36:04
  SPEAKER_01: You know, I uh to me, I I think our you know, most companies probably think it's a bit easier to do it in a footnote disclosure.
• 36:10
  SPEAKER_01: Um, but I've seen both.
• 36:11
  SPEAKER_03: Yeah, I mean it's a lot of information on the face of the cash flow statements.
• 36:14
  SPEAKER_03: So definitely a lot to think about.
• 36:16
  SPEAKER_03: All right, so both a lot of information.
• 36:19
  SPEAKER_03: I think we've done some summaries and tried to bring things together, but it might be helpful if you could start.
• 36:26
  SPEAKER_03: Let's do some key takeaways and then I'm gonna ask you for resources.
• 36:29
  SPEAKER_03: But why don't we do key takeaways first?
• 36:31
  SPEAKER_03: So, Matt.
• 36:32
  SPEAKER_01: Yeah, sure.
• 36:32
  SPEAKER_01: I mean, I think it's important, and we say this a lot, but start conversations early with your, obviously with your business development folks to keep abreast as to like what the future strategic plans are as it relates to disposals.
• 36:44
  SPEAKER_01: Um, and then manager teams definitely bring in your auditors uh early because a lot of the criteria around held for sale and disconnected operations involve judgment.
• 36:52
  SPEAKER_01: Um, and anything that involves judgment is going to take some time, some documentation, uh, and and some back and forth.
• 36:58
  SPEAKER_01: Just should try to remember that the classifications for held for sale and disc ops are a little bit different, right?
• 37:03
  SPEAKER_01: So remember, held for sale is something that you generally think about um as it relates to the ASC360 disposal group.
• 37:09
  SPEAKER_01: You're thinking about it ahead of a transaction, but you're only really thinking about it as a sale, right?
• 37:13
  SPEAKER_01: Discops can be a little bit more broad and you know can relate to spins or abandonments, like we've talked about, even though those are rare.
• 37:21
  SPEAKER_01: So they are a little bit different, right?
• 37:22
  SPEAKER_01: And and again, most people think of held for sale as more balance sheet focused and disc ops as more income statement focused, if that helps.
• 37:28
  SPEAKER_01: The last thing is that you know, if if you're going down an avenue where you're gonna recast prior year's financial statements, it takes time.
• 37:34
  SPEAKER_01: So remember that was optional for held for sale, but required for disc ops, but that's an effort, right?
• 37:38
  SPEAKER_01: That's it involves systems, it involves um making sure everybody and all of the all of the departments are involved, it involves allocations and it involves, you know, a lot of times re-auditing.
• 37:48
  SPEAKER_01: So, you know, early.
• 37:50
  SPEAKER_03: Yeah, you don't want to hold up the sale because you've uh not gotten all your other pieces in a row.
• 37:56
  SPEAKER_01: Yeah, so it's very important to be timely.
• 37:57
  SPEAKER_03: All right.
• 37:57
  SPEAKER_03: And Katie, how about from your point of view?
• 38:00
  SPEAKER_02: I think we covered a lot during this session and wanted to highlight a couple of the great resources that we have available.
• 38:05
  SPEAKER_02: I know you alluded to that, Heather.
• 38:07
  SPEAKER_02: Um, so chapter six of the PwC property plant and equipment guide speaks to the help for sale criteria and has a number of different illustrative examples to consider as you're thinking through your potential sale.
• 38:17
  SPEAKER_02: Chapter eight of our financial statement presentation guide has disclosure considerations related to that.
• 38:22
  SPEAKER_02: And then we have a whole chapter, chapter 27 of our financial statement presentation guide on discontinued operations, which I think has a lot of fantastic guidance.
• 38:30
  SPEAKER_02: And another resource from a discontinued operations perspective is a podcast that we did in February of 2024.
• 38:36
  SPEAKER_02: Goes into a lot more detail on the presentation.
• 38:38
  SPEAKER_02: And so definitely give that one a listen.
• 38:40
  SPEAKER_03: All right, great.
• 38:41
  SPEAKER_03: Well, thanks both, Matt.
• 38:42
  SPEAKER_03: It's always a pleasure to have you on.
• 38:44
  SPEAKER_03: And Katie, welcome to the podcast.
• 38:45
  SPEAKER_03: Very glad you could join us today.
• 38:47
  SPEAKER_03: Thank you.
• 38:47
  SPEAKER_03: Thank you.
• 38:48
  SPEAKER_03: That's our show for today.
• 38:50
  SPEAKER_03: Tune in next week for more fresh episodes.
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• 39:01
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• 39:10
  SPEAKER_03: From Thought Leadership at PwC, I'm Heather Horn.
• 39:15
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