FASB proposes modifications in accounting for joint ventures

The Monetary Accounting Requirements Board issued a proposed accounting requirements replace Thursday to present buyers extra details about a three way partnership’s monetary statements.

The proposed ASU goals to scale back the variations in how joint ventures do their monetary reporting. The proposal would apply to the formation of entities that meet the definition of a three way partnership (or a company three way partnership) as outlined within the FASB Accounting Requirements Codification Grasp Glossary.

Whereas joint ventures are outlined within the Grasp Glossary, there isn’t any particular steerage on the formation accounting by a three way partnership in its separate monetary statements, particularly on the three way partnership’s recognition and preliminary measurement of web belongings, together with companies contributed to it. Within the absence of particular steerage, totally different practices have developed, influenced by varied sources, together with speeches given by members of the Securities and Change Fee’s employees. 

FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut

Courtesy of GASB

Constituents have advised FASB that the shortage of steerage has led to variety in follow in how a three way partnership accounts for the contributions it receives upon formation. “Whereas some joint ventures initially measure their web belongings at honest worth on the formation date, different joint ventures account for his or her web belongings on the venturers’ carrying quantities,” mentioned FASB. 

To scale back this variety in follow and supply decision-useful data to a three way partnership’s buyers, FASB determined to require joint ventures to use a brand new foundation of accounting once they’re shaped. By making use of a brand new foundation of accounting, a three way partnership would acknowledge and initially measure its belongings and liabilities at honest worth (with sure exceptions which might be in keeping with the enterprise combos steerage), upon formation. 

FASB is asking for feedback on the proposed replace by Dec. 27, 2022.