Definition of a business

Date recorded:


At the end of last year, the IASB started its discussions on how to clarify the definition of a business and related application guidance.

In the December 2015 meeting, the Board tentatively decided to:

  1. clarify, in the illustrative examples of the proposed amendments, that a building acquired and an in-place operating lease shall be considered a single asset for the evaluation of the ‘substantially all’ threshold;
  2. clarify, in the proposed amendments to the application guidance of IFRS 3, that an acquired outsourcing agreement may be considered to provide an organised workforce and that the acquirer should consider whether the organised workforce accessed through the acquired outsourcing agreements perform a substantive process;
  3. explain, in the Basis for Conclusions of the proposed amendments, that when an entity acquires a supplier that then ceases generating revenues, because all output is consumed by the acquirer, the supplier would still be 'capable of' generating revenues, and so it might qualify as a business, if the other criteria are met; and
  4. add two illustrative examples on how to apply the proposed guidance in the financial sector and in the extractive industries sector.

In this meeting the staff asked the Board whether they agreed with the proposals to expose amendments to the Application Guidance of IFRS 3 that are different from the wording exposed by the FASB.

The following changes were proposed compared with the FASB exposure:

  • change the order of some paragraphs;
  • wording changes in the explanation of gross assets acquired;
  • wording changes in the explanation about acquired contracts; and
  • streamlining of wording of some illustrative examples.


There was a very short discussion. No significant issues were raised other than the importance to maintaining convergence. One Board member suggested the staff to reach out to the FASB staff and provide them with the IASB’s current analysis and obtain their feedback. Some Board members suggested that there should be a discussion on (i) whether convergence should be maintained at all costs; and (ii) whether it is feasible to have Standards issued with different wording (by the IASB and FASB) which are intended to achieve the same outcome. The Chairman disagreed with discussing the first suggestion.

As regards the wording of the agenda paper, there was only one question raised by a Board member. That related to the lack of clarity of paragraph 13, which states that an acquired contract is not in of itself a substantive process. The paragraph explored a situation in which an acquirer obtained a contract to get access to an organised workforce. The Board member pointed out the need to clarify that an acquirer should focus on the substance of a contract. The staff indicated that a contract was an input and accordingly, an acquirer should analyse whether it also obtained the substantive processes performed by the workforce. The staff will review the wording of that part of the proposed amendment.


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