PROJECT UPDATE

Improving the Accounting for Asset Acquisitions and Business Combinations (Phase 3 of the Definition of a Business Project)

Last updated on August 4, 2021. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Sections updated on the date above are indicated with an asterisk *)

 

Objective:

The objective of this project (Phase 3) is to improve the accounting for asset acquisitions and business combinations by narrowing the differences between the recognition of assets and businesses.

Background:

On May 29, 2013, the Board added a project to its agenda on clarifying the definition of a business with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or acquisitions (or disposals) of businesses. At its October 8, 2014 meeting, the Board decided to split the project into three phases:

Phase 1: Clarify the definition of a business.

Phase 2: Clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and clarify the reference to in substance nonfinancial assets and address the guidance on partial sales or transfers of assets within the scope of Subtopic 610-20 and the corresponding accounting for retained interests in those assets.

Phase 3: Discuss whether there are differences in the acquisition guidance for assets and businesses that could be aligned.

The Board decided to approach this project in phases because of the interdependency of the topics.

For more information on the first two phases, see the following:

Phase 1: Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. Phase 2: Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.

Exposure Draft:

There are no Exposure Drafts at this time.

There are no media releases or educational materials at this time.

Decisions Reached at Last Meeting (May 26, 2021):

The Board continued its deliberations on the accounting for contingent consideration at the acquisition date for both business combinations and asset acquisitions. No decisions were reached.

The Board directed the staff to bring the following issues to future Board meetings in sequence:
  1. The initial and subsequent accounting for contingent consideration in a business combination (including a summary and analysis of outreach with private company stakeholders)
  2. The initial and subsequent accounting for contingent consideration in an asset acquisition, including additional analysis on what is included and excluded from the scope of that guidance (including a summary and analysis of outreach with private company stakeholders)
  3. Interaction with the derivatives and other financial instruments guidance.

Tentative Board Decisions Reached to Date (as of May 26, 2021):


A summary of decisions reached to date can be found here.

The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.  To view Board meetings and handouts from the past 90 days, click here.
 
May 26, 2021* Board Meeting —The Board continued its deliberations on the accounting for contingent consideration at the acquisition date for both business combinations and asset acquisitions.
September 2, 2020 Board Meeting —The Board affirmed the objective of the project and removed narrowing the differences between the accounting for IPR&D in acquisitions of assets and acquisitions of businesses from the scope of the project.
May 8, 2019 Board Meeting —The Board expanded the scope of the project to include the accounting for in-process research and development and contingent consideration obligations recognized upon the initial consolidation of a variable interest entity that is not a business.
May 9, 2018 Board Meeting —Non-decision-making meeting to update the Board on issues related to improving the accounting for asset acquisitions and business combinations.
August 2, 2017 Board Meeting —The Board discussed the scope and direction of Phase 3 of the project.
October 8, 2014 Board Meeting —Non-decision-making meeting to provide an update on research performed and to get feedback from the Board on the direction of the project. The Board directed the staff to focus on clarifying the definition of a business, while continuing to research potential solutions for differences in the recognition and derecognition accounting for assets and businesses.

The staff will perform research to be presented to the Board during deliberations.

Adriana Yepes
Supervising Project Manager
ayepes@fasb.org

Christopher Roberge
Senior Project Manager
ceroberge@fasb.org

Sally Bishop
Practice Fellow
sbishop@fasb.org

David Yates
Practice Fellow
dyates@fasb.org

Matthew Nordhoff
Postgraduate Technical Assistant
mnordhoff@fasb.org

The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
 

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