IASB clarifies accounting for acquisitions of interests in joint operations
The International Accounting Standards Board (IASB) has issued 'Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)'. The amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
IFRS 11 Joint Arrangements does not provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The IFRS Interpretations Committee received a submission asking whether the acquirer of such interests in joint operations should apply the principles in IFRS 3 Business Combinations on initial recognition of the interest or whether the acquirer should instead account for it as the acquisition of a group of assets.
The Interpretations Committee confirmed that diversity in practice had arisen in this context and referred the matter to the IASB suggesting that the most appropriate approach was to apply the relevant principles for business combinations in IFRS 3 and other IFRSs.
The conclusion was published as ED/2012/7 Acquisition of an Interest in a Joint Operation (Proposed Amendment to IFRS 11) in December 2012.
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) amends IFRS 11 such that the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3, is required to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs with the exception of those principles that conflict with the guidance in IFRS 11. Accordingly, a joint operator that is an acquirer of such an interest has to:
- measure most identifiable assets and liabilities at fair value;
- expense acquisition-related costs (other than debt or equity issuance costs);
- recognise deferred taxes;
- recognising any goodwill or bargain purchase gain;
- perform impairment tests for the cash generating units to which goodwill has been allocated;
- disclose information required relevant for business combinations.
The amendments apply to the acquisition of an interest in an existing joint operation and also to the acquisition of an interest in a joint operation on its formation, unless the formation of the joint operation coincides with the formation of the business.
IFRS 1 First-time Adoption of International Financial Reporting Standards was also amended to extend the business combination exemptions, so that they include past acquisitions of interests in joint operations in which the activity of the joint operation constitutes a business.
The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted but corresponding disclosures are required. The amendments apply prospectively.
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- (link to IASB website)
- IFRS in Focus newsletter explaining the amendments
- Our project page outlining the history of this project.