FASB Clarifies Definition of Business

The Financial Accounting Standards Board (FASB) issued a final standard on Jan. 5 that clarifies the definition of a business.

The standard aims to assists in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. Under today’s accounting, transaction costs associated with business combinations are expensed as incurred.

NAREIT believes that most acquisitions of investment property will qualify as asset acquisitions (as opposed to business combinations) under the clarified definition of a business in the standard. Therefore, transaction costs associated with asset acquisitions will be capitalized, while these costs associated with business combinations will continue to be expensed as incurred.

(Contact: Chris Drula at cdrula@nareit.com)

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