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Current guidance in FASB ASC 805 provides for three elements of a business:

 Inputs

 Processes

 Outputs

Typically, an integrated set of assets and activities (“a set”) that constitute a business usually has outputs. However, outputs are not required to be present. In addition, not all of the inputs and processes used by a seller need to be included in the set if the purchaser can separately obtain or already has those inputs and processes or can produce outputs without them.

This update provides an additional step (the screen) in the evaluation process to determine when a set is not a business. When substantially all of the fair value of the set of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or a group of similar identifiable assets, the set is not a business.

If the screen is not met, the update requires that, in order for the set to be considered a business, the set must include, at a minimum, an input and substantive process that together significantly contribute to the ability to create an output.

In addition, this update removes the evaluation of whether a market participant could replace the missing elements and narrows the definition of “output” so that it aligns with FASB ASC 606, Revenue Recognition.