FASB More Clearly Defines Business Combination | Bennett Thrasher Skip to main content

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.