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MASB clarifies definition of ‘business’ and definition of ‘material’ (14 December 2018)

The Malaysian Accounting Standards Board (Board) has today issued:

(a)

Definition of a Business (Amendments to MFRS 3 Business Combinations).

(b)

Definition of Material (Amendments to MFRS 101 Presentation of Financial Statements and Amendments to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors).

The amendments are word-for-word Definition of a Business (Amendments to IFRS 3 Business Combinations) and Definition of Material (Amendments to IAS 1 Presentation of Financial Statements and Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors) respectively issued by the International Accounting Standards Board.

The “Notice of Issuance” can be downloaded here.

 

ABOUT THE PRONOUNCEMENTS

Definition of a Business

The amendments clarify the definition of a business with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The distinction is important because an acquirer does not recognise goodwill in an asset acquisition.

The amendments, amongst others, clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments also add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

Companies are required to apply the amended definition of a business to transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020. Earlier application is permitted.

Definition of Material

The amendments refine the definition by including ‘obscuring information’ in the definition of material to respond to concerns that the effect of including immaterial information should not reduce the understandability of a company’s financial statements. The prior definition focuses only on information that cannot be omitted (material information) and does not also consider the effect of including immaterial information.

Other refinements to the definition include incorporating some existing wording in MFRS 101 and the Conceptual Framework for Financial Reporting. Consequently, the amendments align the definition of material across MFRS Standards and other publications.

Companies are required to apply the amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted.

END

For enquiries, please contact:

Malaysian Accounting Standards Board
Unit 13A-1, Menara MBMR,
1, Jalan Syed Putra,
58000 Kuala Lumpur.
Tel: 03-2273 2100
Fax: 03-2273 9400

Email: technical@masb.org.my