FASB clarifies the definition of a business
Defining Issues | January 2017
The ASU sets out a new framework for classifying transactions as acquisitions (disposals) of assets vs. businesses.
KPMG reports on ASU 2017-01, which revises ASC 805 as part of FASB’s definition of a business project.
Applicability
ASU 2017-01
- A company with acquisition or disposal transactions
Relevant dates
Mandatory effective dates and early adoption provisions:
Effective dates
Mandatory effective dates and early adoption provisions:
Effective date : | Public business entities and certain not-for-profit entities | All other entities |
Annual periods – Fiscal years beginning after | Dec. 15, 2017 | Dec. 15, 2018 |
Interim periods – In fiscal years beginning after | Dec. 15, 2017 | Dec. 15, 2019 |
Early adoption allowed? | Yes – immediately for transactions that have not been reported in financial statements that have been issued or made available for issuance. | |
Key Impacts:
- An integrated set of activities and assets (a set) is a business if it has, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs
- ASU 2017-01 creates a 2-step method in assessing whether a transaction is an acquisition/disposal of assets or a business
- Fewer transactions are expected to involve acquiring or selling a business
- Real estate and life science industries will likely be most affected
Report contents
- Why does the definition of a business matter?
- Examples that illustrate the definition
- Effective dates and transition
- FASB’s next steps
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FASB clarifies definition of a business
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Resource
Handbook: Business combinations
Latest edition: Our in-depth guide to accounting for acquisitions of businesses, updated for recent application issues.
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