Real Estate Ventures — Checklist Supplement and Illustrative Financial Statements

This financial accounting and reporting practice aid is invaluable to anyone who prepares financial statements and reports for real estate ventures. The checklist supplement has been updated to reflect AICPA and FASB pronouncements and interpretations issued as of September 30, 2008. This checklist supplement can be used by preparers of real estate ventures financial statements prepared in conformity with generally accepted accounting principles and by practitioners who audit, review, or compile those financial statements as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information. Illustrative financial statements and auditor's reports are included in this practice aid.

This checklist supplement and illustrative financial statements should be used in conjunction with the Checklists and Illustrative Financial Statements for Corporations (008939).

This nonauthoritative practice aid has been prepared by the AICPA staff and has not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.

Description

    .01 Real estate joint ventures are entities organized to accomplish a business purpose for the benefit of the members of the group. They are formed in a variety of legal ways. There are, for example, corporate joint ventures, partnerships (general or limited), undivided interests, and limited liability companies.

    .02 Real estate joint ventures ordinarily are formed to accomplish various activities, such as to sell homes and homesites, to complete development of commercial or residential real estate, or to operate and maintain those facilities.

    .03 An AICPA Issues Paper, "Joint Venture Accounting," dated July 17, 1979, describes certain characteristics common to joint ventures: The entities are "(1) owned, operated, and jointly controlled by a small group as a separate and specific business project; (2) operated for the mutual benefit of the ownership group; (3) frequently organized to share risks and rewards in developing a new market, product, or technology by pooling resources and facilities; (4) operated under arrangements by which each venturer may participate in overall management regardless of the percentage of ownership; (5) usually of limited duration; (6) usually operated as an extension of the business or investment of one or more of the venturers; and (7) owned by a small number of venturers." In addition to real estate activities, joint ventures are used for various purposes including to explore for oil and gas and construct and operate manufacturing facilities.

Accounting Literature

    .04 Historically, the accounting literature has given little attention to the accounting by a joint venture. Most literature in this area deals with the accounting by the investor for an investment in a joint venture. For example, the following all deal primarily with the accounting and disclosure by an investor in a joint venture or investee:

• AICPA Issues Paper, "Joint Venture Accounting," issued July 17, 1979
• AICPA Issues Paper, "Accounting by Investors for Distributions Received in Excess of Their Investment in a Joint Venture" (an addendum to the AICPA Issues Paper, "Joint Venture Accounting"), issued October 8, 1979
• Statement of Position (SOP) 78-9, Accounting for Investments in Real Estate Ventures (AICPA, Technical Practice Aids, ACC sec. 10,240), (as amended by Financial Accounting Standards Board (FASB) Staff Position SOP 78-9-1, Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5)
• AICPA Accounting Principles Board 18, The Equity Method of Accounting for Investments in Common Stock

In December 2003, FASB issued FASB Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities, which interprets Accounting Research Bulletin (ARB) 51, Consolidated Financial Statements, and addresses the consolidation of variable interest entities.

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