IMA FRC comment letter response to proposed ASU on joint venture formations

Monday, December 30, 2022

The IMA® (Institute of Management Accountants) Financial Reporting Committee (FRC or Committee) issued a comment letter in response to the Financial Accounting Standards Board (FASB or Board) Proposed Accounting Standards Update (ASU) No. 2022-ED300, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, (Proposal or Exposure Draft).

The FASB Accounting Standards Codification currently does not provide specific guidance regarding a joint venture’s initial recognition and measurement of venturers’ contributions at the formation on its stand-alone financial statements. Therefore, the FASB’s objectives in issuing the Exposure Draft are to reduce diversity in practice in the accounting for contributions made to a joint venture upon formation and provide useful financial reporting information to financial statement users. 

In its comment letter, the FRC supports the FASB’s efforts to resolve diversity in practice and enhance the usefulness of financial reporting. More specifically, the Committee agrees with the proposal’s use of fair value as the most relevant measurement for a joint venture’s recognition of the assets initially contributed and liabilities assumed at formation. The Committee, however, makes certain observations and suggestions to enhance the (1) operability and cost benefit of the proposed guidance and (2) relevance of information it brings forward, as follows:

  • Clarify the definition of a “joint venture.”
  • Expand the scope of the guidance to address contributions not only at a joint venture’s formation but also throughout its existence.
  • Call for the measurement of net assets contributed to a joint venture as of the date the joint venture takes control of them.
  • Limit the application of Topic 805, Business Combinations, to certain contributions to joint ventures.

Read the Letter