International Financial Reporting Standard 11
Joint Arrangements

 

 In April 2001 the International Accounting Standards Board (IASB) adopted IAS 31 Financial Reporting of Interests in Joint Ventures, which had originally been issued by the International Accounting Standards Committee in December 1990. In December 2003 the IASB amended and renamed IAS 31 with a new title—Interests in Joint Ventures. This amendment was done in conjunction with amendments to IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries and IAS 28 Accounting for Investments in Associates. In May 2011 the IASB issued IFRS 11 Joint Arrangements to replace IAS 31. IFRS 12 Disclosure of Interests in Other Entities, also issued in May 2011, replaced the disclosure requirements in IAS 31. IFRS 11 incorporated the guidance contained in a related Interpretation (SIC-13 Jointly Controlled Entities-Non-Monetary Contributions by Venturers). In June 2012, IFRS 11 was amended by Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). These amendments provided additional transition relief to IFRS 11, limiting the requirement to present adjusted comparative information to only the annual period immediately preceding the first annual period for which IFRS 11 is applied.

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CONTENTS

 

 

INTRODUCTION

INTERNATIONAL FINANCIAL REPORTING STANDARD 11

JOINT ARRANGEMENTS

 

OBJECTIVE

Meeting the objective

SCOPE

JOINT ARRANGEMENTS

Joint control

Types of joint arrangement

FINANCIAL STATEMENTS OF PARTIES TO A JOINT ARRANGEMENT

Joint operations

Joint ventures

SEPARATE FINANCIAL STATEMENTS

International Financial Reporting Standard 11 Joint Arrangements (IFRS 11) is set out in paragraphs 1-27 and Appendices A-D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 11 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

Introduction

Overview

International Financial Reporting Standard 11 Joint Arrangements establishes principles for financial reporting by parties to a joint arrangement. The IFRS supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities—Non-Monetary Contributions by Venturers and is effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted.

Reasons for issuing the IFRS

The IFRS is concerned principally with addressing two aspects of IAS 31: first, that the structure of the arrangement was the only determinant of the accounting and, second, that an entity had a choice of accounting treatment for interests in jointly controlled entities.  IFRS 11 improves on IAS 31 by establishing principles that are applicable to the accounting for all joint arrangements.

Main features of the IFRS

The IFRS requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement.

General requirements

The IFRS is to be applied by all entities that are a party to a joint arrangement. A

joint arrangement is an arrangement of which two or more parties have joint control. The IFRS defines joint control as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities (ie activities that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control.

The IFRS classifies joint arrangements into two types—joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (ie joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (ie joint venturers) have rights to the net assets of the arrangement.

An entity determines the type of joint arrangement in which it is involved by considering its rights and obligations. An entity assesses its rights and obligations by considering the structure and legal form of the arrangement, the contractual terms agreed to by the parties to the arrangement and, when relevant, other facts and circumstances.

The IFRS requires a joint operator to recognise and measure the assets and liabilities (and recognise the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses.

The IFRS requires a joint venturer to recognise an investment and to account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures, unless the entity is exempted from applying the equity method as specified in that standard.

The disclosure requirements for parties with joint control of a joint

arrangement are specified in IFRS 12 Disclosure of Interests in Other Entities.

Onceit has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.

In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arrangement.

An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement. This IFRS distinguishes between parties that have joint control of a joint arrangement (joint operators or joint venturers) and parties that participate in, but do not have joint control of, a joint arrangement.

An entity will need to apply judgement when assessing whether all the parties, or a group of the parties, have joint control of an arrangement. An entity shall make this assessment by considering all facts and circumstances (see paragraphs B5-B11).

If facts and circumstances change, an entity shall reassess whether it still has joint control of the arrangement.

Types of joint arrangement

An entity shall determine the type of joint arrangement in which it is

involved. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement.

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.

An entity applies judgement when assessing whether a joint arrangement is a joint operation or a joint venture. An entity shall determine the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement. An entity assesses its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances (see paragraphs B12-B33).

Sometimes the parties are bound by a framework agreement that sets up the general contractual terms for undertaking one or more activities. The framework agreement might set out that the parties establish different joint arrangements to deal with specific activities that form part of the agreement. Even though those joint arrangements are related to the same framework agreement, their type might be different if the parties' rights and obligations differ when undertaking the different activities dealt with in the framework agreement. Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same framework agreement. If facts and circumstances change, an entity shall reassess whether the type of joint arrangement in which it is involved has changed.

Financial statements of parties to a joint arrangement  Joint operations

 A joint operator shall recognise in relation to its interest in a joint operation:

its assets, including its share of any assets held jointly;

its liabilities, including its share of any liabilities incurred jointly;

its revenue from the sale of its share of the output arising from the joint operation;

its share of the revenue from the sale of the output by the joint operation; and  its expenses, including its share of any expenses incurred jointly.

A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.

The accounting for transactions such as the sale, contribution or purchase of assets between an entity and a joint operation in which it is a joint operator is specified in paragraphs B34-B37.

A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with paragraphs 20-22 if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation. If a party that participates in, but does not have joint control of, a joint operation does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it shall account for its interest in the joint operation in accordance with the IFRSs applicable to that interest.

Joint ventures

A joint venturer shall recognise its interest in a joint venture as an

investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures unless the entity is exempted from applying the equity method as specified in that standard.

A party that participates in, but does not have joint control of, a joint venture shall account for its interest in the arrangement in accordance with IFRS 9 Financial Instruments, unless it has significant influence over the joint venture, in

which case it shall account for it in accordance with IAS 28 (as amended in 2011).

In its separate financial statements, a joint operator or joint venturer

shall account for its interest in:

(a) a joint operation in accordance with paragraphs 20-22;

(b)   a joint venture in accordance with paragraph 10 of IAS 27 Separate

Financial Statements.

27   In its separate financial statements, a party that participates in, but does

not have joint control of, a joint arrangement shall account for its

interest in:

(a)  a joint operation in accordance with paragraph 23;

(b)a joint venture in accordance with IFRS 9, unless the entity has

significant influence over the joint venture, in which case it shall apply paragraph 10 of IAS 27 (as amended in 2011).

Appendix A

Defined terms

This appendix is an integral part of the IFRS.

joint arrangement

joint control

joint operation

joint operator

joint venturer

party to a join

arrangement separate vehicle

An arrangement of which two or more parties have joint control. The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.  A joint arrangement whereby the parties that have joint controlof the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A party to a joint operation that has joint control of that joint operation. A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A party to a joint venture that has joint control of that joint venture. An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement. A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality.

The following terms are defined in IAS 27 (as amended in 2011), IAS 28 (as amended in 2011) or IFRS 10 Consolidated Financial Statements and are used in this IFRS with the meanings specified in those IFRSs:

●        control of an investee●    equity method●   power●     protective rights●  relevant activities●   separate financial statements●        significant influence.

 

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