The FASB has issued an Exposure Draft, Business Combinations – Joint Venture Formations (Subtopic 805-60), Recognition and Initial Measurements, for public comment that 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 proposed guidance, a joint venture would form 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 would be identified, initial measurement of the total net assets must equal the fair value of the joint venture’s outstanding equity and measurement period adjustments would be prohibited. Appropriate disclosure of these facts would be required. In the Exposure Draft, the Board requested feedback on a number of questions.

The effective date of the Exposure Draft would be determined after feedback has been considered. Joint ventures formed after the effective date would apply the guidance prospectively while entities formed before the effective date would have the option to apply the amendments retrospectively. Comments on the Exposure Draft are due by December 27, 2022.

The full text of Exposure Draft can be found here.

 

^{Readers should not act upon information presented without individual professional consultation.}