At its meeting yesterday, the FASB made three tentative decisions related to its project on the definition of a business:¹ 

1. The guidance would include a framework² for an entity to follow when evaluating whether “inputs and processes . . . substantively contribute to the ability to create outputs” (the Board had previously decided that to meet the definition of a business, a transferred set of assets and activities must include at least one process that substantively contributes to the ability to create outputs).
2. The definition of a business would no longer state that “a business need not include all the inputs and processes a seller used to create outputs if a market participant can replace missing elements and continue to produce outputs.”
3. A transferred set of activities would be considered an asset (and not a business) if “substantially all the fair value of the gross assets acquired is concentrated in a single tangible or identifiable, intangible asset (or group of similar tangible or identifiable, intangible assets).” The guidance would include (1) indicators of when assets are similar and (2) examples illustrating groups of similar and dissimilar assets.

Next Steps

The Board directed the staff to develop the indicators and examples discussed above and will then decide whether to hold a meeting before giving the staff permission to begin developing an external review draft. Once the external review is completed, the Board will discuss the effective date and transition of the new guidance. 

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1 Quoted material is from the Board’s May 21, 2015, meeting handout.