FASB ASC 808 – Collaborative Arrangements

The Financial Accounting Standards Board (FASB) released the 800 section of the Accounting Standards Codification for the purpose of discussing broad topics.

Accounting Standards Codification 808 (ASC 808) was released to address the more specific topic of collaborative arrangements and endeavors. As at times businesses do not always enter an arrangement entirely by themselves, this topic is necessary to address those issues that come up when collaboration is entered.

What types of arrangements does ASC 808 cover?

  • Joint Ventures
  • Activities with Unrelated Third Parties
According to the standard, it defines an endeavor as an activity which two or more entities take part in, which all have significant influence in the operations as well as risks exposure from the venture.  These are typically not undertaken by separate legal entities created for the purpose of running the endeavor.  Under the standard, only providing funding to the activity is not enough for it to be considered a collaborative arrangement.
Certain disclosures must be made in the notes to the financial statements for companies involved in the collaborative arrangement.  This includes certain items such as:
  1. The accounting policy for reporting said arrangement
  2. Information about the nature and purpose of the arrangement
  3. The company’s rights and obligations that result
  4. The amounts in the consolidated income statement that relate to the collaborative arrangement
Understanding how to apply these concepts of collaborative arrangements is important for an accountant as they are commonly used in some industries, and typically used for certain purposes, as follows:
  • Building hospitals and clinics
  • Developing pharmaceutical drugs
  • Developing computer software and hardware
  • Producing motion pictures
  • Building large real estate projects

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