FASB approves new joint venture accounting rules.

The Financial Accounting Standards Boards (FASB), the private, not-for-profit organization that sets Generally Accepted Accounting Principles (GAAP), approved new rules earlier this week requiring companies following GAAP rules to disclose assets, liabilities, and intangible assets when creating a standalone joint venture. The new standard is intended to provide clarity and information to investors when companies invest in and form joint ventures.

Until now, companies forming a joint venture did not have to account for the individual assets and liabilities that each company initially brought to the deal. That led to a “diversity in practice” in how joint ventures have been accounted for, according to FASB.

Under the new rules, finance departments involved in creating joint ventures will now need to measure and report to investors the value of their contributions to the new company.

Companies also will now have to report their formation date and the current fair value of the joint venture at the time of formation. The new rules require that joint ventures disclose the amount of goodwill—intangible assets that hold value, like intellectual property or brand recognition—recognized by the joint venture. This allows investors to see the financial impacts—and benefits—of the joint venture much sooner.

These rules only apply to joint ventures that create new, independent businesses rather than two companies working together on a joint project, such as an oil and gas operation jointly owned and run by multiple companies.

The new rules also only apply at the formation of the company and do not have to be reported beyond that. FASB will release the finalized standards in the second or third quarter of the year and are slated to be effective as of January 2025.—DA