What is the primary limitation on reporting for cost-sharing agreements?

The primary limitation on reporting for cost-sharing agreements is that only note disclosure is permitted. In the context of cost-sharing arrangements, entities are collaborating on certain costs but are not conveying ownership of the assets jointly. As a result, the financial activities related to these agreements do not get fully reflected in the primary financial statements of the participating entities. Instead, relevant details about the cost-sharing arrangement are required to be disclosed in the notes to the financial statements. This ensures transparency while maintaining the principle that the entities retain their individual financial integrity and do not co-mingle assets or liabilities.

This approach allows users of the financial statements to understand the nature of the cost-sharing agreement without altering the core financial data that is reported. In contrast, other options, such as capitalizing assets or requiring detailed financial statements, do not align with the framework provided for cost-sharing agreements, as these arrangements typically do not establish formal joint ownership or necessitate a full consolidation of financial results.