Defining Issues | January 2017
FASB clarifies the definition of a business
KPMG reports on ASU 2017-01, which revises ASC 805 as part of FASB’s definition of a business project. The ASU sets out a new framework for classifying transactions as acquisitions (disposals) of assets vs. businesses.
Applicability
- A company with acquisition or disposal transactions
Relevant dates
Mandatory effective dates and early adoption provisions:
Effective date:
Annual periods – Fiscal years beginning after
Interim periods – In fiscal years beginning after
Public business entities and certain not-for-profit entities
Dec. 15, 2017
Dec. 15, 2017
All other entities
Dec. 15, 2018
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
Related content:
Handbook: Accounting for business combinations and noncontrolling interests