What constitutes a business?

FASB proposes clarifying the definition.

FASB wants to clarify the definition of a business to help financial statement preparers evaluate whether they should account for transactions as acquisitions or disposals of assets or businesses.

FASB's proposal arose out of concerns that the current definition of a business is applied too broadly. This can lead to transactions being reported as acquisitions or disposals of businesses rather than assets.

Stakeholders also told FASB that analyzing such acquisitions and disposals is costly and complex, echoing concerns raised in the post-implementation review report on FASB Statement No. 141 (revised 2007), Business Combinations (Statement 141(R)).

Proposed Accounting Standards Update, Business Combinations (Topic 805): Clarifying the Definition of a Business, would require that under FASB's definition, a business would include at least an input and a substantive process that together contribute to the ability to create outputs and would remove the evaluation of whether a market participant could replace any missing element.

The proposal provides a framework to assist organizations in evaluating whether both an input and a substantive process are present.

FASB also is proposing a screen that would reduce the number of transactions that need to be evaluated under that framework. Under application of that screen, a business would not exist when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

FASB also is proposing to narrow the definition of "outputs" to make it consistent with how outputs are described in Topic 606, the board's new revenue recognition standard.

Comments were due Jan. 22.

SPONSORED REPORT

Cybersecurity threats proliferating for midsize and smaller businesses

This report details how SMBs can properly protect private information from breaches, design and implement a cybersecurity policy, and create safeguards for training and education.

QUIZ

News quiz: Senate health care bill in the spotlight

Reports related to the Republican bill to repeal many provisions of the PPACA, other tax issues, and the giant AICPA ENGAGE Conference offered a diverse reading list for June. See how much you know about recent news with this short quiz.