What is usually stated, is the fact that a company ‘operates’ in specific field of industry. On the IFRS Income Statement the results of such activities are reflected under ‘continuing operations’. This is to simplify things however.
The phrase ‘continuing operations’ means a bit more. As you may guess, the stress is on the word ‘continuing’. Continuing is something that is expected to and will do so in the future as well. Continuing operations are those that generate revenue through sale of goods or providing services in coming periods, meaning for a longer period than 12 months. The management expects to have those activities up and running and hence their results are disclosed under ‘continuing operations’. From this the readers of the financial statements and annual report and investors can see how much money is made through ongoing business activities.
The opposite would be ‘discontinued operations’, which are those management had closed down or intends to shut down in near future, usually in next 12 months, which is the next reporting period under normal conditions. It would not be fair to show the results of discontinued operations within the same section with continuing ones as it would spoil the understanding of future financial perspectives of the company.
What however are misleading here still are the new operations, which are disclosed under continuing operations. Some say that it’s not fair to the investors as it messes up the company’s organic growth calculation. The reasoning behind such disclosure is however pretty reasonable if you ask me. Since we are displaying continuing operations results, we need to look into the future. The performance of all activities closed down is really not relevant any longer.
Yes, the figures from your general ledger are coming from top to bottom in some order, but think before presenting them on your income statement. They need to show also where your company is heading.