This free, guided checker walks your finance team through the key decision points for ASC 805 Business Combination Assessment. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
A business combination is a transaction in which an acquirer obtains control of one or more businesses. Without control, the acquisition method does not apply and other guidance governs the interest.
No controlling financial interest is obtained, so the acquisition method in ASC 805-10-25-1 does not apply; evaluate the interest under ASC 810, ASC 323, or ASC 321.
Official guidance: FASB Accounting Standards Codification
Transfers between entities that the same parent ultimately controls before and after the transaction are outside the acquisition method and are recorded at carryover basis under ASC 805-50.
Common-control transfer under ASC 805-50-15-6; record the net assets at the parent's carrying amounts under ASC 805-50-30-5, with no fair value step-up or new goodwill.
Official guidance: FASB Accounting Standards Codification
The concentration screen in ASC 805-10-55-5A is optional and elected on a transaction-by-transaction basis; when it applies, it can conclude the set is not a business without the full input-and-process analysis. Weigh whether substantially all of the gross-asset fair value is concentrated in a single asset or a group of similar assets before electing it. Two common errors are treating the screen as mandatory and assuming that failing the screen means the set is automatically a business - failing the screen only sends you to the full framework.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
The screen is a shortcut: if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business and no further analysis is required. Gross assets exclude cash, deferred tax assets, and goodwill effects from deferred tax liabilities.
The optional concentration screen is met under ASC 805-10-55-5A, so the set is not a business; account for the transaction as an asset acquisition under ASC 805-50.
Official guidance: FASB Accounting Standards Codification
Outputs are the result of inputs and processes applied to those inputs that provide goods or services to customers, investment income, or other revenues. The criteria for a substantive process differ depending on whether the set has outputs.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
A set with no outputs is a business only if it includes both an organized workforce with the skills, knowledge, or experience to perform a critical acquired process and other acquired inputs that the workforce could develop or convert into outputs.
An organized workforce performs a substantive process on acquired inputs under ASC 805-10-55-5D, so the set is a business; apply the acquisition method under ASC 805-10-25-1. No substantive process is present under ASC 805-10-55-5D, so the set is not a business; account for the transaction as an asset acquisition under ASC 805-50.
Official guidance: FASB Accounting Standards Codification
A set with outputs has a substantive process if it includes an organized workforce that performs a critical process, an acquired contract that provides access to such a workforce, or an acquired process that cannot be replaced without significant cost, effort, or delay or that is considered unique or scarce.
A substantive process significantly contributes to continued outputs under ASC 805-10-55-5E, so the set is a business; apply the acquisition method under ASC 805-10-25-1. The continuing outputs rely only on replaceable assets under ASC 805-10-55-5E, so the set is not a business; account for the transaction as an asset acquisition under ASC 805-50.
Official guidance: FASB Accounting Standards Codification
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