Companies Can Use New Business Definition in 2017

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By Steve Burkholder

Oct. 11 — Companies wanting to use what U.S. accounting standard setters call an improved definition of a business may start to apply the new principles in January 2017.

The Financial Accounting Standards Board’s proposed changes to the definition of a business are aimed at better distinguishing a business combination from a purchase or sale of a bundle of assets.

Big Affect

Drawing a clearer line between a business that is bought or sold and a transferal of a group of assets can have big financial reporting implications—with prescriptions for either significant capitalizations or expensing of items, for example.

FASB tentatively decided at its Oct. 10 meeting that both public and non-public companies would be able to have a 2017 early adoption timetable for planned guidance to be issued by Dec. 31. The new guidance will be the product of two related phases of an effort on:

  •  clarifying the definition of a business; and
  •  clarifying what transactions are covered by rules on derecognizing nonfinancial assets.

Public entities not using the option to apply the planned standards early will be required to apply the rules in financial reports covering fiscal years starting after Dec.15, 2017, including interim periods within those fiscal years, FASB decided.

Non-public enterprises will have a year longer than that schedule—effectively for calendar-year companies, in January 2019 for fiscal-year reporting and interim-period reporting starting in January 2020.

Stressing 2016 Completion Date

A desire to complete the planned rulemaking by the end of this year helped drive FASB to refrain Oct. 10 from delving into financial reporting issues pertaining to derecognition of nonfinancial assets that would take added time to resolve.

The Board also decided that entities would be required to adopt the planned guidance on derecognition at the same time that they adopt the far-reaching 2014 standard on revenue, ASC 606.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

A summary of board decisions on definition of a business and derecognition of nonfinancial assets is posted at

For a general discussion of business combinations, see 5170-3rd, Business Combinations .

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