The Board discussed several sweep issues identified in drafting the exposure draft of proposed amendments to IAS 31 Interests in Joint Ventures (ED).
Disclosures in IAS 31
The staff proposed to require similar disclosure requirements of interests in joint ventures in IAS 31 as would be required for associates in IAS 28 Investments in Associates given that the ED requires an entity to account for both joint ventures and associates by using the equity method.
The proposed disclosure requirements in the ED would read as follows (the reference to disclosure requirements of the current standards was added in brackets):
"41 A venturer shall make the following disclosures relating to interests in joint ventures:
(a) a list and description of interests in significant joint ventures and the proportion of ownership interest held; [carried forward from IAS 31 paragraph 56. Also required for interests in joint ventures measured at fair value in accordance with IAS 39] (b) summarised financial information of joint ventures, including the venturer's interest in the amount of each of current assets, non-current assets, current liabilities, non-current liabilities, revenues and profit or loss. This disclosure is presented in total for all joint ventures; [carried forward from IAS 31 paragraph 56 with some changes] (c) the reporting date of the financial statements of a joint venture, when such financial statements are used in applying the equity method and are as of a reporting date or for a period that is different from that of the venturer, and the reason for using a different reporting date or different period; [new disclosure consistent with IAS 28 paragraph 37] (d) the nature and extent of any significant restrictions (for instance, resulting from borrowing arrangements or regulatory requirements) on the ability of joint ventures to transfer funds to the venturer in the form of cash dividends, or repayment of loans or advances; [new disclosure consistent with IAS 28 paragraph 37. Also required for interests in joint ventures measured at fair value in accordance with IAS 39] (e) the unrecognised share of losses of a joint venture, both for the period and cumulatively, if a venturer has discontinued recognition of its share of losses of a joint venture. [new disclosure consistent with IAS 28 paragraph 37]
42 A venturer shall classify interests in joint ventures accounted for using the equity method as non-current assets. The venturer shall disclose separately its share of the profit or loss of such joint ventures, and the carrying amount of those interests. The venturer shall also disclose separately its share of any discontinued operations of such joint ventures. [new disclosure consistent with IAS 28 paragraph 38]
43 A venturer shall recognise directly in equity its share of changes recognised directly in the joint venture's equity. The venturer shall disclose its share of those changes in the statement of changes in equity as required by IAS 1 Presentation of Financial Statements. [new disclosure consistent with IAS 28 paragraph 39 - note: the wording of this disclosure will change when the amendments to IAS 1 are final]
44 A party shall disclose the aggregate amount of the following commitments separately from other commitments:
(a) any capital commitments of the party relating to its interests in joint arrangements; and (b) its share of capital commitments incurred jointly with other parties. [carried forward from IAS 31 paragraph 55(a); paragraph 55(b) deleted. Also required for interests in joint arrangements measured at fair value in accordance with IAS 39]
45 In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, an entity shall disclose:
(a) any contingent liabilities incurred relating to its interests in joint arrangements; and (b) its share of contingent liabilities incurred jointly with other parties. [carried forward from IAS 31 paragraph 54(a); paragraph 54(b) and (c) deleted because the disclosure requirements of paragraph 54(b) and (c) are incorporated within the disclosure requirements of paragraph 54(a) reproduced here as paragraph 45(a)]"
The Board made the following decisions:
- Paragraphs 41(b) to 41(d), 44. and 45 above were unanimously agreed without further discussion.
- The Board also agreed to paragraph 41(a) above and noted that a similar disclosure should be required in IAS 28. It was decided to propose a consequential amendment in the ED and explicitly ask for comments.
- In connection with paragraph 41(e) above the Board had a lengthy discussion on the accounting treatment of losses occurring after the investment has been written down to zero. Two Board member were severely concerned about the fact that unrecognised losses can arise under the equity method and one of these Board members indicated to dissent to the ED for that reason. Finally, the Board agreed that all unrecognised losses should be disclosed and agreed to paragraph 41(e) above.
- With regard to paragraph 42 above the Board questioned whether the statement that a venturer shall classify interests in joint ventures accounted for using the equity method as non-current assets would be correct in all circumstances. The issue was pushed back to the staff.
- Paragraph 43 above was not discussed.
- In addition, the Board decided to delete paragraphs 37(h) and 37(i) of IAS 28 as consequential amendments.
The Board decided to require retrospective application of the proposed amendments. It was noted that the information required to account for interests in joint ventures using the equity method should be the same as that required to apply proportionate consolidation.
Incorporation of SIC 13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers
Subject to some editorial amendments the Board agreed to incorporate the consensus of SIC 13 by adding the following paragraph to the ED:
"When a venturer contributes a non-monetary asset to a joint venture in exchange for an equity interest in the joint venture, a venturer recognises in its financial statements a gain or loss resulting from the transaction only to the extent of unrelated investors' interests in the joint venture except when:
- (a) the venturer retains control of the contributed asset;
- (b) the gain or loss resulting from the transaction cannot be measured reliably; or
- (c) the transaction lacks commercial substance, as described in IAS 16 Property, Plant and Equipment.
One Board member indicated an intention to dissent to the Exposure Draft for the reason that the application of the equity method can result in unrecognised losses. One Board member was indecisive and stated that he might dissent for the same reason.