Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

Wednesday, April 5, 2023 FASB Board Meeting

Joint venture formations. The Board redeliberated the proposed Accounting Standards Update, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, and made the following decisions.

Formation Date

The Board affirmed its decision to define the formation date as the date on which an entity initially meets the definition of a joint venture (JV).

New Basis of Accounting

The Board affirmed its decision that a JV be required to recognize and initially measure its assets and liabilities at fair value using a new basis of accounting upon formation. In applying a new basis of accounting, the Board decided to affirm its decisions to require that a JV:

1. Account for its formation in accordance with business combinations guidance in Subtopic 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, and Subtopic 805-30, Business Combinations—Goodwill or Gain from Bargain Purchase, Including Consideration Transferred, regardless of whether the assets or group of assets recognized by the JV constitute a business in accordance with Subtopic 805-10, Business Combinations—Overall.
2. Recognize goodwill as of the formation date as the difference between the JV’s total net assets and its identifiable net assets, when applicable. Total net assets should be measured as the fair value of the JV as a whole, which is equal to the fair value of 100 percent of a JV’s equity immediately following formation (including any noncontrolling interest in the net assets recognized by the JV). In reaching this decision about goodwill, the Board expects it to be uncommon that an entity that meets the definition of a JV would have significant goodwill at formation if it did not meet the definition of a business.
3. Recognize any negative goodwill (measured as the amount of the identifiable net assets recognized by the JV in excess of the fair value of the JV as a whole) resulting from the formation transaction as an adjustment to equity.
4. Capitalize contributed tangible and intangible research and development assets regardless of whether (a) those assets have an alternative future use and (b) the JV meets the definition of a business in accordance with Subtopic 805-10.
5. Determine whether transfers of financial assets that are within the scope of Subtopic 860-10, Transfers and Servicing—Overall, should be recognized by the JV by applying the guidance in that Subtopic.

Additionally, the Board decided that a JV may apply the measurement period guidance in accordance with Subtopic 805-10 to the amounts recognized upon formation and, accordingly, require measurement period disclosures. Those disclosures would include the reasons why the initial accounting is incomplete and any adjustments made within the measurement period as a result of the initial accounting being incomplete.

Determining What Is Part of the JV Formation

The Board affirmed its decisions to require that a JV determine whether certain arrangements between the JV and the venturers are part of the JV formation or are separate transactions by applying the guidance in paragraphs 805-10-55-24 through 25-26, as well as affirmed its decisions to:

1. Prohibit analogy of the guidance for a transaction that in effect settles preexisting relationships between the acquirer and the acquiree (in paragraphs 805-10-55-20 through 55-23) and the guidance in paragraph 805-10-55-23 for acquisition-related costs and transactions that reimburse the acquiree or its former owners for paying the acquirer’s acquisition-related costs
2. Provide guidance for scenarios in which the JV replaces share-based payment awards
3. Require that any contingent arrangements deemed to be part of the JV formation and classified within assets or liabilities follow the guidance in Subtopic 805-20.

Scope of Amendments

The Board affirmed its decision that the scope of the amendments is the recognition and initial measurement upon formation of a JV. Accordingly, the Board affirmed its decision that the following will not be changed as part of the amendments:

1. Equity method of accounting applied by venturers under Topic 323, Investments—Equity Method and Joint Ventures
2. The definition of a JV in the Master Glossary.

The Board affirmed its decisions to provide a scope exception for:

1. All entities that may be proportionately consolidated by one or more of the venturers and not-for-profit entities
2. Collaborative arrangements within the scope of Topic 808, Collaborative Arrangements, with the exception of any part of a collaborative arrangement that is conducted in a separate legal entity that meets the definition of a JV.

Transition

The Board affirmed its decision that a JV formed after the effective date is required to apply the amendments prospectively. Additionally, the Board decided that a JV formed before the effective date can elect to apply the amendments retrospectively if it has sufficient information available to do so.

Effective Date

The Board decided that the amendments will be effective for all JV formations with a formation date on or after January 1, 2025. The Board also decided that early adoption is permitted.

Analysis of Costs and Benefits

The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs and expected benefits of the amendments and that the expected benefits of those amendments would justify the expected costs.

Next Steps

The Board directed the staff to draft an Accounting Standards Update for vote by written ballot.



Accounting for and disclosure of software costs. The Board discussed the recent feedback received from a wide variety of stakeholders on potential recognition and measurement models for the accounting for software costs. The Board discussed two models:

1. The initial development cost model (the single model), which would require an entity to capitalize all direct software costs from the point at which it is probable that the software project will be completed and the software will be used to perform the function intended
2. The dual model, which would require an entity to account for certain software costs as an expense as incurred model and other software costs under the initial development cost model.

The Board directed the staff to continue its research on the single model and provided direction for elements of that model. The Board decided not to research the dual model further.