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.
ASC 805 and ASU 2017-01
- A company with acquisition or disposal transactions
- A company involved with variable interest entities (VIEs)
Mandatory effective dates and early adoption provisions:
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.
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?
- 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
- 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
KPMG’s Handbook: Accounting for business combinations and noncontrolling interests
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