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Real Estate & Construction

FASB Begins Next Phase of Business Definition Project

After issuing Proposed Accounting Standards Update (ASU) No. 2015-330, Business Combinations (Topic 805): Clarifying the Definition of a Business, the Financial Accounting Standards Board (“FASB”) recently moved forward with the second phase of its business definition project. On Monday, November 23rd, the accounting board began discussions on clarifying the accounting for partial sales and retained interests in real estate transactions and similar deals. No decisions were made because most FASB members need more time to focus on complex issues before taking any formal action.

In particular, the FASB has to consider ASU No. 2014-09, Revenue From Contracts With Customers. Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, was added to the standard and replaced the guidance in ASC 360-20-15, Property, Plant, and Equipment — Real Estate Sales — Scope and Scope Exceptions. Subtopic 610-20 also provides guidance for some real estate transactions, but businesses were confused over the term “in substance nonfinancial assets” when determining whether transactions should adhere to Subtopic 610-20 or Topic 810-10, Consolidation—Overall. Board members plan to either clarify or eliminate the term.

Discussions on the guidance for partial sales and retained interests in real estate transactions are expected to continue at a later date. For more on the FASB’s business definition project, Cherry Bekaert’s Real Estate & Construction Group is available to assist.