What impact does separate reporting of discontinued operations have on stakeholders?

What impact does separate reporting of discontinued operations have on stakeholders?

• A. It leads to greater confusion about the company's earnings
• B. It allows stakeholders to make informed decisions about their investments
• C. It typically results in lower stock prices
• D. It complicates the comparison between similar companies

Answer: (B)

Separate reporting of discontinued operations enhances transparency in financial statements by clearly defining which segments of a company's business are no longer active. This distinction allows stakeholders—such as investors, analysts, and creditors—to isolate the performance of ongoing operations from those that are being phased out. By having a clear picture of continuing operations, stakeholders can make well-informed investment decisions based on the sustainable earnings and cash flows generated by the active parts of the business. When companies report discontinuing operations separately, it helps eliminate ambiguity regarding the ongoing profitability and potential risk associated with their investments. In summary, the clear separation of discontinued operations informs stakeholders about the actual operational performance and strategic direction of the company, facilitating better investment choices and risk assessments.

Separate reporting of discontinued operations enhances transparency in financial statements by clearly defining which segments of a company's business are no longer active. This distinction allows stakeholders—such as investors, analysts, and creditors—to isolate the performance of ongoing operations from those that are being phased out.

By having a clear picture of continuing operations, stakeholders can make well-informed investment decisions based on the sustainable earnings and cash flows generated by the active parts of the business. When companies report discontinuing operations separately, it helps eliminate ambiguity regarding the ongoing profitability and potential risk associated with their investments.

In summary, the clear separation of discontinued operations informs stakeholders about the actual operational performance and strategic direction of the company, facilitating better investment choices and risk assessments.