New guidance
In August 2023, the FASB issued ASU 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement. The new guidance is addressed in EM 6.4.
In the period in which the formation date occurs, a joint venture entity is required to disclose information that enables the users of its financial statements to understand the nature and financial effects of the joint venture formation. The disclosure requirements in ASC 805-60-50-2 indicate that the following should be disclosed in the period of formation:
  • Formation date
  • Description of the joint venture’s purpose and why it was formed
  • Formation date fair value of the joint venture as a whole
  • Description of the assets and liabilities recognized at formation
  • Amounts recognized for each major class of assets and liabilities at formation
  • Qualitative description of factors that make up any goodwill recognized
In lieu of disclosure in the footnotes, a joint venture may elect to present a balance sheet as of the formation date that reflects the amounts recognized for each major class of assets and liabilities.
Additionally, if a measurement period is needed because the initial accounting for the joint venture formation is incomplete and therefore the amounts recognized in the financial statements are provisional, a joint venture entity is required to disclose the following:
  • The reasons why the initial accounting is incomplete
  • The assets, liabilities, noncontrolling interest or formation-date fair value of the joint venture entity as a whole for which the initial accounting is incomplete
  • The nature and amount of any measurement period adjustments that are recognized in the period, including separately the amount of adjustments to current-period income statement line items relating to the income effects that would have been recognized in previous periods if the adjustment to provisional amounts was recognized as of the formation date
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