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FASB More Clearly Defines Business Combination

FASB More Clearly Defines Business Combination

by sevaa

By January 17, 2017September 18th, 2021Insights

The Financial Accounting Standards Board (FASB) has provided an updated definition of a business combination to assist financial statement preparers in determining whether certain transactions should be accounted for as acquisitions of assets or of a business.  This clarification, announced on January 5, 2017, is described in Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.  This definition, as it is now described, may result in more acquisitions being accounted for as asset acquisitions instead of business combinations.

The new guidance suggests that to be considered a business combination, the acquired business needs to have an input that when combined with a process, produces an output.  However, if the fair value of the acquisition is concentrated in a single asset or group of assets, it would be considered an asset acquisition.

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For public business entities with a calendar year end, the standard is effective in 2018. All other entities have an additional year, although early adoption is permitted.

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For more information on the updated FASB definition, please contact Gina Miller by calling 770.396.2200.