The FASB has issued ASU 2023-05, Business Combinations - Joint Venture Formations. The ASU is intended to provide users with more decision-useful information and to reduce diversity in practice in the accounting for the formation of joint ventures in the joint venture’s separate financial statements.

Under the new guidance, a joint venture is considered a new entity that would apply a new basis of accounting upon formation. The newly formed joint venture would initially measure its assets and liabilities at fair value in a manner that is largely consistent with the guidance under Topic 805, Business Combinations, with certain exceptions. These exceptions include, among other things, no acquirer is identified, initial measurement of the total net assets must equal the fair value of the joint venture’s outstanding equity and the measurement date is the formation date of the joint venture.

The provisions of this ASU are to be applied prospectively to all joint ventures with a formation date after January 1, 2025. Joint ventures formed before the effective date have the option to apply the amendments retrospectively, if there is sufficient information. Early adoption is permitted, either prospectively or retrospectively, in any period in which financial statements of the joint venture have not yet been issued.

The full text of ASU 2023-05 can be found here.