Companies Can Use New Business Definition in 2017

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 tentatively decided at its October 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 December 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. 

  

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