FASB amendments address financials of newly formed joint ventures

FASB has issued an Accounting Standards Update (ASU) focused on bringing consistency to financial statements of joint ventures when they are formed.

The ASU noted that GAAP doesn’t provide “specific authoritative guidance on how a joint venture, upon formation, should recognize and initially measure assets contributed and liabilities assumed (including the assets and liabilities of businesses contributed).”

In response to stakeholder feedback on the gap in GAAP, the amendments in the ASU set out to

• provide decision-useful information to investors and other allocators of capital (collectively, investors) in a joint venture’s financial statements; and

• reduce diversity in practice.

The master glossary in FASB Accounting Standards Codification defines a joint venture, in part, as “an entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group.”

According to a FASB news release, the amendments are effective prospectively for all joint ventures with a formation date on or after Jan. 1, 2025. Early adoption is permitted, and a joint venture formed before the effective date may apply the amendments retrospectively if it has sufficient information.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.