Financial Reporting


G4+1 Report on Joint Ventures Issued

In late September, FASB issued a special report developed by the G4+1 on how best to consolidate the varied international accounting practices and standards relating to interests in joint ventures. The G4+1 is a group of accounting standard setters that consists of representatives from Australia, Canada, New Zealand, the United Kingdom and the United States, with representatives from the IASC participating as observers.

FASB Project Manager Francis E. Scheuerell, Jr., said, “The most important issues raised in the report, Reporting Interests in Joint Ventures and Similar Arrangements, are the definitions of joint venture and joint control over an enterprise and whether the equity method of accounting or proportionate consolidation is best for reporting an investment in a joint venture.” The document concludes that an investor meeting the definitions should employ the equity method.

With international commerce growing by leaps and bounds, companies of all sizes are eager to stake claims in potentially lucrative, but unfamiliar, new markets. But not every company that yearns to do business in a foreign country has the skills and resources to establish a successful overseas presence on its own. The result? Many find participating in joint ventures can not only enhance their international capabilities but also spread the risk.

Although it is difficult for companies involved in international joint ventures to issue adequate financial reports in multiple, unfamiliar forms and contexts, it is nevertheless essential that they do. To make that process clearer and easier, the G4+1 and like-minded others in the financial world support the creation of international standards that provide requirements for complete, accurate and consistent reporting on the financial activities of international business combinations, including joint ventures.

Controversy over the equity method led the G4+1 to issue the report, Scheuerell said. “Some don’t believe that method is the best and prefer proportionate consolidation—if you own 40% of a company, you should be picking up 40% of those assets and liabilities. Other companies say that since you don’t have access or rights to that 40%, it’s not accurate to show those assets in your balance sheet so they prefer the equity method—because it shows your net investment in the company and what you have a right to.”

Although FASB is distributing the report on behalf of the G4+1, it has not taken an official position on the issues. Scheuerell pointed out that the report’s disclaimer explains that the views expressed are those of the individual members of the working group and don’t represent those of their national standard-setting bodies.

Comments on the joint venture report are due to FASB no later than January 31, 2000. FASB also has issued a questionnaire that seeks comments on several specific questions raised in the report. The report and questionnaire are available on its Web site ( ) and also are available from the FASB order department at 800-748-0659 (product code SRRIJV).


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