FASB Clarifies Definition of a Business

January 12, 2017

Improving the guidance for defining whether a transaction includes the purchase or sale of a business or an asset, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.

Per ASU No. 2017-01, in order to be considered a business, an asset or group of assets should include an input and a practical process that form outputs. FASB Chairman Russell Golden said the new standard addresses stakeholders’ concerns about the U.S. GAAP’s business definition being applied too broadly, and that several transactions disclosed as business acquisitions are more in line with asset acquisitions. Golden also noted the clarified definition reduces the costs and complexities of analyzing such transactions.

Public companies must implement the revised guidance for fiscal years, as well as interim reporting periods within, beginning after December 15, 2017. All other organizations must apply the changes for reported fiscal years beginning after December 15, 2018; interim periods starting after December 15, 2019, will be impacted by the amendments.