FASB Issues FAS 146, Ending Six-Year Project

Yesterday, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The statement has been six years in the making. It arrives at the tail end of an economic downturn that has forced many companies to make difficult decisions of the type addressed by the standard. Earlier in the week, FASB also announced it would soon address the implications of decisions involving employee stock options.

The new standard covers a wide range of exit and disposal activities:

  • Exit activities include restructurings planned and controlled by management that materially change the scope of the business undertaken by an enterprise or the manner in which that business is conducted. Examples include the sale or termination of a line of business, the closure of business activities in a particular location or relocation of business activities from one location to another, and changes in management structure.

  • Costs associated with disposal activities include costs of terminating a contract that is not a capital lease, costs of consolidating facilities or relocating employees, and some types of termination benefits provided to employees.

"The principal effect of applying Statement 146 will be on the timing of recognition of costs," explained FASB Project Manager Linda MacDonald. "In many cases, those costs [costs associated with exit and disposal activities] will be recognized as liabilities in periods following a commitment to a plan, not at the date of the commitment."

FAS 146 will be effective for exit or disposal activities initiated after December 31, 2002. It completes the second phase of a project begun in August 1996. The first phase led to issuance of FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in August 2001. Copies of the statements may be ordered from FASB's Web site or by telephoning FASB's Order Department at 800-748-0649.

-Rosemary Schlank

You may like these other stories...

The split over convergenceDavid M. Katz of CFO wrote an interesting article on Thursday about the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) backing away from their...
Read more from Larry Perry here and in the Today's World of Audits archive.Because of the importance of revenue recognition auditing procedures, and because of the breadth of the principles for the FRF for SMEs, this...
World Health Organization backs higher tobacco taxes to cut smokingThe World Health Organization (WHO) approved guidelines on Wednesday urging countries to increase cigarette taxes to help discourage smoking, wrote Martinne...

Already a member? log in here.

Upcoming CPE Webinars

Oct 21Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience’s communication style.
Oct 22This webinar will include discussions of important issues in AU-C 800, Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks.
Oct 23Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30Many Excel users have a love-hate relationship with workbook links.