On 22 October 2018, the International Accounting Standards Board (IASB) has issued narrow-scope amendments to IFRS 3 Business Combinations to improve the definition of a business.The amendments assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition.
The previous definition of a business as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants, whereas the new definition emphasises that the output of a business is providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities.
It is important to differentiate between a business and a group of assets because an acquirer recognises goodwill only when acquiring a business. The IASB has also provided supplementary guidance for further clarity and application.
Entities are required to apply the amendments to transactions for which the acquisition date is on or after 1 January 2020. Earlier application is permitted.
Source: IFRS, 23 October 2018