FASB proposes guidance on accounting for joint venture formations

ARTICLE | November 18, 2022

Authored by RSM US LLP

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU), Business Combinations – Joint Venture Formations (Subtopic 805-60) – Recognition and Initial Measurement (the proposed ASU). The proposed ASU was issued to address the accounting for joint venture formations in the separate financial statements of the joint venture. Currently transactions between a corporate joint venture and its owners are outside the scope of Topic 845, Nonmonetary Transactions, and the accounting for the formation of a joint venture is outside the scope of Topic 805, Business Combinations. Although there is a definition for “joint venture’ in FASB’s Accounting Standards Codification Master Glossary, the lack of guidance on the initial measurement of assets contributed and liabilities assumed in a newly formed joint venture has led to diversity in practice.

To reduce this diversity in practice and provide decision-useful information to a joint venture’s investors, the proposed ASU would require a newly formed joint venture to initially measure its assets and liabilities at fair value (with certain exceptions that are consistent with the business combinations guidance) at the formation date (i.e., the date that an entity initially meets the definition of a joint venture), regardless of whether the joint venture meets the definition of a business. The measurement of the initial net assets at fair value:

  • Would equal the fair value of 100% of the joint venture’s outstanding equity interests immediately following formation, including any noncontrolling interest in the net assets recognized by the joint venture, and
  • Could not be adjusted by applying the measurement period guidance in Subtopic 805-10 to the amounts recognized upon formation.

The proposed ASU would also require a joint venture to disclose information about the nature and financial effect of the joint venture formation in the period in which the formation date occurs, including information about:

  • The formation date
  • A description of the purpose for the which the joint venture was formed
  • The formation-date fair value of the joint venture as a whole
  • A description of the assets and liabilities recognized at the formation date
  • The amounts recognized for each major class of assets and liabilities (either presented on the face of the financial statements or disclosed in the notes)
  • A qualitative description of the factors that make up any goodwill recognized

The proposed changes do not amend the definition of a joint venture, the accounting by an equity method investor for its investment in the joint venture, including the accounting for a joint venture that is proportionately consolidated by one or more of the venturers, the accounting for formations of entities determined to be not-for-profit entities in accordance with Topic 958, or the accounting for contributions received by a joint venture after its formation.

If finalized as exposed, the proposed ASU would require prospective application for joint ventures formed on or after the effective date to be determined after the FASB receives feedback on its proposal. In addition, the proposed ASU would make full retrospective application optional for any joint ventures that were formed before the effective date of the proposed amendments, subject to additional conditions described in the proposal.

The proposed ASU is out for comment until December 27, 2022.

Let's Talk!

Call us at +1 213.873.1700, email us at or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by RSM US LLP and originally appeared on 2022-11-18.
2022 RSM US LLP. All rights reserved.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

​Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how ​Vasquez & Company LLP can assist you, please call +1 213.873.1700.

Subscribe to receive important updates from our Insights and Resources.

  • Should be Empty: