FASB PROPOSES CLARIFICATIONS TO THE DEFINITION OF A BUSINESS
Guidance would improve financial reporting of acquisitions of nonfinancial assets
Norwalk, CT, November 23, 2015—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) intended to clarify the definition of a business with the objective of adding guidance to assist organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Stakeholders are encouraged to review and provide comment on the proposal by January 22, 2016.
The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill impairment, and consolidation. However, many stakeholders have said that the current definition of a business is applied too broadly, requiring many transactions to be treated as businesses when they should be treated as assets. They also noted that analyzing such transactions is costly and complex—concerns that also were raised in connection with the Post-Implementation Review Report on FASB Statement No. 141 (revised 2007), Business Combinations (Statement 141(R)).
The guidance in this proposed ASU would address these concerns by providing a more robust framework for determining when a set of assets and activities is a business. The framework would provide more consistency in the application of the guidance, reduce the costs of its application, and make the definition of a business more operable.
More information about the proposed ASU—including a high-level FASB in Focus overview—is available at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.