On Aug. 23, FASB issued joint venture formation accounting standards
FASB issued standard that improves accounting for joint venture formations.
Joint Venture Formation
Provides investors with more decision-useful information in a joint venture’s finances.
The updated standard reduces diversity in practice in this area of financial reporting.
The ASU applies to the formation of entities that meet the definition of a joint venture as defined in the FASB Accounting Standards Codification Master Glossary.
There has been no specific guidance that applies to formation accounting in separate financial statements, specifically recognition and initial measurement of net assets.
Stakeholders noted that lack of guidance has resulted in diversity in practice in how contributions to a joint venture upon formation are accounted for by the joint venture.
Amendments provide decision-useful information to venture’s investors and reduce diversity in practice by requiring a new basis of accounting upon venture's formation.
Newly formed joint venture would initially measure its assets and liabilities at fair value
There are exceptions to fair value consistent with the business combinations guidance.
Effectiveness
Effective for all joint ventures with a formation date on or after Jan. 1, 2025.
Early adoption is permitted, and a joint venture that was formed before effective date of the ASU may elect to apply amendments retrospectively if sufficient information.
Regulators
FASB
Entity Types
Auditor; Corp
Reference
PR, ASU 2023-05, 8/23/2023
Functions
Accounting; Actuarial and Valuation; Audit; Financial