FASB Proposes Clarifications to the Definition of a Business

Guidance would improve financial reporting of acquisitions of nonfinancial assets

NORWALK, Conn.--()--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

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.

Contacts

Financial Accounting Standards Board
Christine L. Klimek, 203-956-3459
clklimek@f-a-f.org

Contacts

Financial Accounting Standards Board
Christine L. Klimek, 203-956-3459
clklimek@f-a-f.org