New Standard on Accounting for Joint Ventures Issued
FASB has published a new standard intended to improve the accounting for joint venture formations, Accounting Standards Update (ASU) 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60), Recognition and Initial Measurement. ASU 2023-05 is intended to “provide investors and other allocators of capital with more decision-useful information in a joint venture’s separate financial statements and reduce diversity in practice in this area of financial reporting,” FASB stated. The new standard requires a joint venture, upon formation, to recognize and initially measure its assets and liabilities at fair value with exceptions to fair value measurement that are consistent with guidance for business combinations. The standard does not change the definition of a joint venture, the accounting by an equity method investor for its investment in a joint venture, or the accounting by a joint venture for contributions received after formation. The publication of the new standard follows the board members’ unanimous decision in April to finalize a proposal issued in October 2022. “In the absence of specific guidance, practice has been influenced by various sources, including speeches given by the U.S. Securities and Exchange Commission (SEC) staff,” ASU 2023-05 states. “As a result, there is diversity in practice in how a joint venture accounts for the contributions it receives upon formation—some joint ventures initially measure their net assets at fair value at the formation date, while other joint ventures initially measure their net assets at the venturers’ carrying amounts.”
Investor Outreach Dipped 10% from Last Year, but Core Strides Made
FASB has published its third Investor Outreach Report, which reveals that proactive outreach to investors dipped by about 10% from last year’s figures, but more advancements were made on the standards-setting front. The board held 435 proactive investor interactions for the period ending June 30, 2023, a drop from the 485 interactions held in the same prior year period ending June 30, 2022, but higher than the 430 interactions in 2021 period. Direct investor interviews, added to advisory group meetings, establishing working groups, and public roundtables helped FASB reach key milestones on topics that investors view as a priority, including getting the newly effective disclosures related to the use of supplier finance programs, according to the 2023 report. The use of supplier finance programs, for example, appeared in many quarter-ended March 2023 filings “in response to investor calls for better information about the use and magnitude of such programs in financial statements.” The board also completed the most significant improvement to segment reporting in the last 25 years, and it advanced proposals on income tax disclosures, crypto assets, and purchased financial assets—all priorities identified in investor outreach. This is in addition to the progress made on the full agenda, including projects on environmental, social and governance (ESG)-related transactions, the statement of cash flows, intangible assets (including software), and financial key performance indicators, the report stated.
No Accounting Rules Will Stem from Data Transparency Act, but GASB Should Play a Role
GASB Chair Joel Black said the Financial Data Transparency Act (FDTA) will not raise any accounting issues for state and local governments that require standards-setting, but the board wants to play a role in ensuring the right rules are digitalized, as that is core to its mission. The FDTA is “definitely a hot topic” and frequently raised at conferences, Black said on the GASB’s inaugural podcast, “Bridging the GAAP,” launched on Spotify on Aug. 14. “The act itself says ‘that no new reporting requirements can be created in the implementation of this act, it only can make machine readable information that is already required,’ so there will be no changes that we will have to take in GAAP to implement in GAAP,” he said. “No GASB standard will result from this.” The FDTA was signed into law by U.S. legislators in December 2022 as part of the National Defense Authorization Act. The FDTA requires federal financial regulators, including the SEC, to create a data standard that makes all the information filed with them machine-readable (i.e., digitized). The FDTA wants the data that is in those reports to be part of a taxonomy that is machine-readable and have the same meaning from report to report. The topic has generated broad scrutiny from counties, cities, and states because the act requires the SEC specifically to require any information filed with the Municipal Securities Rulemaking Board (MSRB) to have a data standard. This would thus encompass the municipal bond market, which uses U.S. GAAP that is developed by the GASB.