PROJECT UPDATE

Joint Venture Formations

Last updated on August 4, 2022. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Sections updated on the date above are indicated with an asterisk *)

 

Objective:

The objectives of the Joint Venture Formations (formerly known as the Accounting by a Joint Venture for Nonmonetary Assets Contributed by Investors) project are to (1) reduce diversity in practice in the accounting for contributions made to a joint venture upon formation in a standalone joint venture’s financial statements and (2) provide useful financial reporting information to financial statement users.
 

Background:

The accounting by a joint venture, specifically the initial recognition and measurement of contributions made by venturers to a joint venture at formation, is not currently addressed in the Codification. Joint venture accounting is specifically not within the scope of both Topic 845, Nonmonetary Transactions, and Topic 805, Business Combinations. In the absence of authoritative guidance by the Board, practice has been influenced by several speeches given by the U.S. Securities and Exchange Commission (SEC) staff. That lack of authoritative guidance has been brought to the Board’s attention through several avenues over the last several years, both by the SEC staff and several practitioners that have requested that the Board clarify this issue through standard setting to improve practice and eliminate diversity.

At the September 18, 2019 Board meeting, the Board decided to add to its technical agenda a project on accounting by a joint venture for the initial measurement of contributions of nonmonetary assets made into the joint venture, and at the July 22, 2020 Board meeting, the Board decided to expand the scope of the project to include all contributions, irrespective of whether they are monetary or nonmonetary.

Exposure Draft(s):


There are no exposure documents at this time.

There are no media releases or educational materials at this time.

Decisions Reached at Last Meeting (October 13, 2021):


The Board continued its initial deliberations and discussed (1) whether a joint venture should be permitted to apply the measurement period guidance in accordance with Subtopic 805-10, Business Combinations—Overall, (2) disclosure requirements for a joint venture upon formation, and (3) valuation considerations.

The Board decided to:
  1. Prohibit a joint venture from applying the measurement period guidance in accordance with Subtopic 805-10 to the amounts recognized upon formation.
  2. Require a joint venture to disclose the following information in the period of formation to enable users of its financial statements to evaluate the nature and financial effect of the joint venture formation:
    1. The formation date
    2. A description of the purpose for which the joint venture was formed (for example, to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities) 
    3. The formation-date fair value of the joint venture as a whole
    4. A description of the recognized assets and businesses acquired by the joint venture
    5. The amounts recognized by the joint venture for each major class of assets and liabilities as a result of accounting for its formation, either on the face of the financial statements or in notes
    6. A qualitative description of the factors that make up the goodwill recognized, such as expected synergies from combining operations of the contributed assets or businesses, intangible assets that do not qualify for separate recognition, or other factors.

Tentative Board Decisions Reached to Date (as of October 13, 2021):


A summary of the Board’s tentative decisions reached to date can be found here.

The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.  To view Board meetings and handouts from the past 90 days, click here.
 
October 13, 2021 Board Meeting—The Board continued its initial deliberations on the project.
August 4, 2021 Board Meeting—The Board continued its initial deliberations on the project. 
February 17, 2021 Board Meeting—The Board continued its initial deliberations on the project.
July 22, 2020 Board Meeting—The Board continued its initial deliberations on the project.
January 22, 2020 Board Meeting—The Board began its initial deliberations on the project.
September 18, 2019 Board Meeting—The Board added the project to the technical agenda.

The staff will begin drafting a proposed Accounting Standards Update and complete the external review process. After the external review process is complete, the staff will meet with the Board to discuss a summary of external review comments, present an analysis on comment period and any remaining sweep issues, and ask the Board for permission to ballot a proposed Accounting Standards Update.

Aarika Friend
Senior Project Manager
afriend@fasb.org

Chris Bohdan
Project Manager
cbohdan@fasb.org

Gary Sardo
Practice Fellow
gsardo@fasb.org

Dylan Ehrnst
Postgraduate Technical Assistant
dehrnst@fasb.org

Charley Heyd
Postgraduate Technical Assistant
cheyd@fasb.org

The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
 

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