The AASB is conducting preliminary research for a re-examination of IAS 31. The project focuses on two major issues:
- The definitions of joint ventures and jointly controlled entities.
- The method(s) of accounting by investors in such entities.
The project team proposed to remove 'contractual arrangement' from the definition, arguing that some joint ventures could exist by taking a 50% equity interest without a specific contract. The Board disagreed, and re-affirmed that the contractual arrangement is essential because it establishes joint control and all of the other attributes of the joint venture. The Board proposed that the project team should focus its work on the distinction between joint venture and shared interests.
Regarding the method(s) of accounting by investors, several points were noted:
- Proportionate consolidation leads to a conceptual problem on the balance sheet side, because the investor reports in its balance sheet assets that it does not control.
- On the other hand, if proportionate consolidation is prohibited, the equity method will be applied for two very different types of investments: associates (in which the investor has only significant influence) and joint ventures (in which the investor has joint control).
As this project cannot be finished by March 2004, the Board suggested that the project team work on accounting for associates in parallel with joint ventures. The Board agreed (by vote of 10 to 4) that proportionate consolidation should be eliminated from IAS 31 and that the project team should go further with the expansion of equity method, considering in particular presentation on the balance sheet and in the income statement.