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Have You Analyzed Your 2022 Investments in Joint Ventures?

6 Key Considerations for your Organization

A new year has begun and that means another audit season has just commenced. As real estate entities begin to close their books and finalize records for their upcoming audits, key accounting and financial reporting stakeholders should be asking the following six questions about joint venture investments that your company entered during 2022.

1. Did your company make an equity investment in a legal entity in which the ownership interest is less than 50% or has there been a change in circumstances of an existing legal entity whereby the equity interest fell below 50%?
2. At the formation of the joint venture, is there insufficient equity in the legal entity to finance the operations of the investee without additional financial support?
3. Do the equity holders of the investee, as a group, lack the characteristics of a controlling financial interest?
4. Does the legal form of the joint venture allow for voting rights from parties that are not equity investors?
5. Is your company the guarantor of a lease, debt, or any other commitment of an entity that is not otherwise consolidated for financial reporting purposes?
6. Does your company provide management or service contracts where fees earned: (i) may not be commensurate with the level of effort required; (ii) may not be considered at-market; or (iii) potentially represent an equity interest in a legal entity that could absorb losses or receive returns that are more than insignificant to the legal entity?

If the answer to any of these questions is “YES”, you may need to consider whether your Company is required to consolidate this investee entity pursuant to Accounting Standards Codification Topic 810, Consolidations. Every deal and every transaction is different and the evaluation of these types of investments is often complex. Find out how the experts at Centri can assist your company in navigating you through this maze to provide timely, accurate financial reporting.

Contact us to learn how our experts can help you.