The FASB issued the ASU in response to feedback from stakeholders who felt that companies apply the definition of a business too broadly. Many transactions recorded as business acquisitions actually more resemble asset acquisitions. “The new standard addresses this,” FASB Chairman Russell G. Golden explained, “by clarifying the definition of a business while reducing the cost and complexity of analyzing these transactions.”
The FASB noted that the ASU’s amendments provide a better framework to determine when a set of assets and activities is a business and to apply the guidance more consistently. They also lower the costs of application and make the definition of a business more usable.
PwC Senior Manager John McKeever described the ASU as more than just a simple update. “The FASB has raised the bar on what qualifies as a business,” McKeever pointed out. “And this could have a pervasive impact on the accounting for acquisitions, dispositions, and even consolidations.”
March 2017
