FASB's New Guidance on the Definition of a Business

Published on April 20, 2017

The FASB changed its definition of a business in an effort to assist entities with evaluating whether a set of transferred assets and activities is a business. The changes will likely result in more acquisitions being accounted for as asset acquisitions rather than business combinations. The new guidance will require an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If the threshold is not met, the entity evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue guidance. The new guidance is effective for public business entities (PBEs) for fiscal years beginning after December 15, 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. Clarifications to guidance on the de-recognition of nonfinancial assets

(Source: EY AccountingLink - Financial Reporting Briefs - March 2017)