The Financial Accounting Standards Board has proposed a new accounting standard to narrow what qualifies as a discontinued operation that must be explained in financial statements, but increase the disclosure requirements around those that qualify for reporting.

The proposal would amend the definition of “discontinued operations” in accounting standards to more clearly establish that disposals of components that represent a significant strategic shift for the company would qualify for reporting as a discontinued operation. FASB says investors have raised concerns that the current accounting standards capture too many asset disposals as discontinued operations, cluttering financial statements with information that's not relevant.

The proposal would require additional disclosures about discontinued operations and other instances where companies shed individual components of the business that are material. It also would require companies to say more about their continuing involvement with discontinued operations until the results of those operations are no longer separately presented in the statement where net income is reported.

FASB Chairman Leslie Seidman said in a statement the board is looking for feedback on whether it has correctly defined continued operations to scope in only important information. “The Board is seeking stakeholder input on changes intended to capture only those disposals that represent major strategic shifts as discontinued operations and to provide enhanced disclosures about the financial effects of discontinued operations and other disposals of significant components of an organization,” she said.

FASB and the International Accounting Standards Board undertook measures in 2008 and 2009 to more clearly define what constitutes a discontinued operation, focusing then on operating segments that have been disposed or are held for sale, or any business or non-profit activity that meets the criteria to be classified as held for sale on acquisition. In certain industries, however, according to FASB, investors believed companies were finding too many simple asset disposals as meeting the criteria for discontinued operations.

The new proposal instructs companies to focus more on components of an entity that represent a separate, major line of business or major geographic area of operations and report those as discontinued operations. It also tells companies that a discontinued operation would include a business that on acquisition meets the criteria to be classified as held for sell, or a disposal of an equity-method investment that otherwise meets the definition of a continued operation.

FASB published a brief summary to the proposal, and the board is accepting comments on it through Aug 30.