Accounting for Joint Ventures Moves Closer to Convergence

Are Financial Statement Users Better Off?

Luis Betancourt, PhD, CPA, and Charles P. Baril, PhD, CPA

In recent years, FASB and the IASB have made substantial progress in converging U.S. GAAP and IFRS. As a result of the recent issuance of IFRS 11, Joint Arrangements, the accounting for joint ventures—where significant differences persisted between the two sets of standards—is now an area of “closer convergence,” according to the IASB (IFRS 11, BC3). Under U.S. GAAP, joint ventures are generally accounted for using the equity method; under IFRS, in contrast, joint ventures may be accounted for under either the equity method or proportionate consolidation. With the passage of IFRS 11, however, the IASB now requires the use of the equity method for joint ventures. The accounting policy choice of proportionate consolidation has been eliminated.