The International Accounting Standards Board (IASB) has issued amendments to IFRS 3 Business Combinations in order to redefine the term business.
Amendments made to the definition aims to help companies determine whether an acquisition is made is of a business or a group of assets.
This distinction between a business and a group of assets is significant because an acquirer recognises goodwill only when acquiring a business.
Previous definitions of the term business focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. Now the amended definition emphasises that the output of a business is to provide goods and services to customers.
The amendments followed a post-implementation review of IFRS 3, which looked at whether the standard was working as intended.
Companies are required to apply the amended definition of a business to acquisitions that occur on or after the 1st of January 2020, however earlier application is also permitted.
The board is also said to be working on another project linked to IFRS 3, in which it is exploring possible improvements to the accounting of goodwill.