Industry Insights

FASB Proposes Update to Definition of “Business”

December 2015

Executive Summary

On November 23, 2015, the Financial Accounting Standards Board (FASB) issued a proposal narrowing the definition of a business. This definition is significant because it determines which accounting model to use on the acquisition and disposal of a business or a group of nonfinancial assets; financial assets are covered by other specific guidance. The updated definition also is necessary to clarify the scope of sales of nonfinancial assets with noncustomers for the new revenue recognition standard (Accounting Standards Update (ASU) 2014-09). In addition, the changes will more closely align with existing practice under generally accepted accounting principles and International Financial Reporting Standards.

This is the first phase of a broader project. The second phase will focus on in-substance nonfinancial assets, partial sales and retained interests. The third phase will focus on alignment of measurement and recognition guidance for assets versus business.

Comments to the first proposal are due by Friday, January 22, 2016. The effective date will be determined after feedback is reviewed.

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