Issues In-Depth   |  January 2018
 

The new definition of a business

KPMG’s in-depth guidance on and interpretation of ASU 2017-01, which revised ASC 805 as part of the FASB’s definition of a business project. KPMG provides examples and analysis on the identification of a transaction as an acquisition of assets or a business combination.

Applicability

ASC 805 and ASU 2017-01

  • A company with acquisition or disposal transactions
  • A company involved with variable interest entities (VIEs)

Effective dates

Mandatory effective dates and early adoption provisions:

Annual periods:

For public business entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2018.

Interim periods

For public business entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019.

Early adoption allowed?

Yes.

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 to assess whether a transaction is an acquisition/disposal of assets or a business
  • Fewer transactions are expected to qualify as acquisitions or disposals of a business
  • The ASU likely affects the real estate and life science industries most

Webcast

Listen to KPMG's webcast here

Report contents

  • A new definition
  • Inputs, processes and outputs
  • Determining what is a part of the set
  • Step 1 – Screening test
  • Step 2 – Evaluate whether an input and a substantive process exist
  • Acquired set with no outputs
  • Acquired set with outputs
  • Examples

Related content

KPMG’s Handbook: Accounting for business combinations and noncontrolling interests

Spotlight on contributors

Nick Burgmeier

Nick Burgmeier

Partner, DPP, KPMG (US)

+1 212-909-5455
David Elsbree Jr.

David Elsbree Jr.

Partner, Audit, AQPP - Accounting Standards, KPMG (US)

+1 212-909-5245
Sam Hall

Sam Hall

Partner, DPP, KPMG (US)

+1 212-954-2760

 

 

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