Business combinations accounting

The accounting for business combinations (ASC 805), discontinued operations, divestitures, and related topics such as impairments, intangibles, and segment reporting continue to pose many challenges and remains on the SEC's radar screen.

Video perspectives

The FASB recently updated the definition of a business, but this is more than just an update to the codification glossary. It raises the bar on what qualifies as a business and may have a pervasive impact on accounting for acquisitions, dispositions, and even consolidations. Watch John McKeever discuss the three key areas of change.

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FASB changes definition of a business

 

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Read the latest developments on these accounting for business combinations topics

Definition of a business

  • The FASB issued new guidance, ASU 2017-01, Business Combinations (Topic 815): Clarifying the Definition of a Business, in January 2017 that changes the definition of a business.
  • The new definition is expected to reduce the number of transactions that are accounted for as a business combination across all industries.
  • The guidance is effective for Q1 2018 for calendar year-end public business entities and 2019 for calendar year-end nonpublic entities. Early adoption is permitted.
  • The guidance will be applied prospectively to any transactions occurring within the period of adoption.

Goodwill impairment

  • The FASB issued new guidance, ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, in January 2017 to simplify the accounting for goodwill impairment.
  • The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. An impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
  • The guidance is effective for Q1 2020 for calendar year-end public business entities that are SEC filers and Q1 2021 for calendar year-end public business entities that are not SEC filers and Q1 2022 for calendar year-end nonpublic entities. Early adoption is permitted for any impairment test performed after January 1, 2017.
  • The guidance will be applied prospectively.
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