Consolidating joint ventures under gaap dating pro social
More information and links to previous versions and amendments are available on our main FRS 102 page.
A VIE MUST BE CONSOLIDATED INTO THE FINANCIAL statements of the primary beneficiary company when it does not have enough equity at risk or its equity investors lack any of three characteristics of controlling financial interest.Proportional consolidation, in accounting for joint ventures, is a method of including items of income, expense, assets and liabilities in proportion to the firm's percentage of participation in the venture. GAAP, a firm's interest in a joint venture is accounted for using the equity method.The proportional consolidation method was initially favored by IFRS accounting standards, though it also allows use of the equity method. Recently, IFRS standards have begun to converge with those of GAAP on this matter. Proponents of proportional consolidation argue that this method provides more detailed information, since it breaks out the performance of the joint venture interest into its component parts.This option will be attractive to venture capital companies, which may hold an equity stake for several years.
The previous requirements for excluding subsidiaries held for resale from consolidation were much more onerous.This guidance may impact your company’s accounting for current and new investments.Determining how to apply the guidance and how to operationalize financial reporting preparation requires careful analysis and planning.General guidance and information on the accounting standard is available from our FRS 102 page.