D.1 Definition of a Business
Separate financial statements under Rule
3-05 or Rule 3-14 are required only if the acquiree meets the
definition of a business for SEC reporting purposes. Therefore, a
company must carefully determine whether an acquiree qualifies as
such. The definition of a business for SEC reporting purposes is not
the same as the definition under U.S. GAAP, and financial statements
may be required under Rule 3-05 or Rule 3-14 even if the acquisition
does not meet the U.S. GAAP definition of a business.
The SEC definition of a business, which is
based on Rule 11-01(d), focuses primarily on whether the nature of
the revenue-producing activity generally remains the same after the
acquisition (see Section 2.1.1 of Deloitte’s Roadmap SEC Reporting
Considerations for Business
Acquisitions for further information). The
definition of a business under U.S. GAAP focuses first on whether
substantially all of the fair value of the gross assets acquired is
concentrated in a single identifiable asset or group of similar
identifiable assets (referred to as the “screen”) and, if not, by
further evaluating a “framework” to determine whether an input and a
substantive process were acquired (referred to as the “framework”).
See Section
2.4 for more information about the U.S. GAAP
definition of a business in ASC 805.