IFRS 11 — Joint Arrangements
IFRS 11 Joint Arrangements outlines the accounting by entities that jointly control an arrangement. Joint control involves the contractually agreed sharing of control and arrangements subject to joint control are classified as either a joint venture (representing a share of net assets and equity accounted) or a joint operation (representing rights to assets and obligations for liabilities, accounted for accordingly).
IFRS 11 was issued in May 2011 and applies to annual reporting periods beginning on or after 1 January 2013.
History of IFRS 11
|November 2004||Project on joint arrangements added to the IASB's agenda||History of the project|
|13 September 2007||Exposure Draft ED 9 Joint Arrangements published||Comment deadline 11 January 2008|
|12 May 2011||IFRS 11 Joint Arrangements issued||Effective for annual periods beginning on or after 1 January 2013|
|28 June 2012||Amended by Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance||Effective for annual periods beginning on or after 1 January 2013|
|6 May 2014||Amended by Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)||Effective for annual periods beginning on or after 1 January 2016|
- IFRS 11 superseded SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers
Amendments under consideration by the IASB
The IASB has signalled an intention to conduct a post-implementation review of IFRS 11, commencing in 2016.
Publications and resources
- IFRS in Focus Newsletter IASB issues new standard on joint arrangements summarising the requirements of IFRS 11 (PDF 69k, May 2011)
- Deloitte IFRS Podcast (May 2011, 10 minutes, 7mb)
- Effect analysis for IFRS 11 (link to IASB website)
Summary of IFRS 11
The core principle of IFRS 11 is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement. [IFRS 11:1-2]
[IFRS 11:Appendix A]
|Joint arrangement||An arrangement of which two or more parties have joint control|
|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|
|Joint operation||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|
|Joint venture||A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement|
|Joint venturer||A party to a joint venture that has joint control of that joint venture|
|Party to a joint arrangement||An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement|
|Separate vehicle||A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality|
A joint arrangement is an arrangement of which two or more parties have joint control. [IFRS 11:4]
A joint arrangement has the following characteristics: [IFRS 11:5]
- the parties are bound by a contractual arrangement, and
- the contractual arrangement gives two or more of those parties joint control of the arrangement.
A joint arrangement is either a joint operation or a joint venture. [IFRS 11:6]
Joint control is 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. [IFRS 11:7]
Before assessing whether an entity has joint control over an arrangement, an entity first assesses whether the parties, or a group of the parties, control the arrangement (in accordance with the definition of control in IFRS 10 Consolidated Financial Statements). [IFRS 11:B5]
After concluding that all the parties, or a group of the parties, control the arrangement collectively, an entity shall assess whether it has joint control of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. [IFRS 11:B6]
The requirement for unanimous consent means that any party with joint control of the arrangement can prevent any of the other parties, or a group of the parties, from making unilateral decisions (about the relevant activities) without its consent. [IFRS 11:B9]
Types of joint arrangements
Joint arrangements are either joint operations or joint ventures:
- 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. [IFRS 11:15]
- 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. [IFRS 11:16]
Classifying joint arrangements
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. An entity determines the type of joint arrangement in which it is involved by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances. [IFRS 11:6, IFRS 11:14, IFRS 11:17]
Regardless of the purpose, structure or form of the arrangement, the classification of joint arrangements depends upon the parties' rights and obligations arising from the arrangement. [IFRS 11:B14; IFRS 11:B15]
A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation. [IFRS 11:B19]
A joint arrangement that is not structured through a separate vehicle is a joint operation. In such cases, the contractual arrangement establishes the parties' rights to the assets, and obligations for the liabilities, relating to the arrangement, and the parties' rights to the corresponding revenues and obligations for the corresponding expenses. [IFRS 11:B16]
Financial statements of parties to a joint arrangement
A joint operator recognises in relation to its interest in a joint operation: [IFRS 11:20]
- 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 of 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 accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation in accordance with the relevant IFRSs. [IFRS 11:21]
The acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3 Business Combinations, 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. [IFRS 11:21A] These requirements apply both to the initial acquisition of an interest in a joint operation, and the acquisition of an additional interest in a joint operation (in the latter case, previously held interests are not remeasured). [IFRS 11:B33C]
Note: The requirements above were introduced by Accounting for Acquisitions of Interests in Joint Operations, which applies to annual periods beginning on or after 1 January 2016 on a prospective basis to acquisitions of interests in joint operations occurring from the beginning of the first period in which the amendments are applied.
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 the above if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation. [IFRS 11:23]
A joint venturer recognises 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. [IFRS 11:24]
A party that participates in, but does not have joint control of, a joint venture accounts 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 accounts for it in accordance with IAS 28 (as amended in 2011). [IFRS 11:25]
Separate Financial Statements
The accounting for joint arrangements in an entity's separate financial statements depends on the involvement of the entity in that joint arrangement and the type of the joint arrangement:
- If the entity is a joint operator or joint venturer it shall account for its interest in
- a joint operation in accordance with paragraphs 20-22;
- a joint venture in accordance with paragraph 10 of IAS 27 Separate Financial Statements. [IFRS 11:26]
- If the entity is a party that participates in, but does not have joint control of, a joint arrangement shall account for its interest in:
There are no disclosures specified in IFRS 11. Instead, IFRS 12 Disclosure of Interests in Other Entities outlines the disclosures required.
Applicability and early adoption
Note: This section has been updated to reflect the amendments to IFRS 11 made in June 2012.
IFRS 11 is applicable to annual reporting periods beginning on or after 1 January 2013. [IFRS 11:Appendix C1]
When IFRS 11 is first applied, an entity need only present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the first annual period for which the standard is applied [IFRS 11:C1B]
Special transitional provisions are included for: [IFRS 11.Appendix C2-C13]
- transition from proportionate consolidation to the equity method for joint ventures
- transition from the equity method to accounting for assets and liabilities for joint operations
- transition in an entity's separate financial statements for a joint operation previously accounted for as an investment at cost.
In general terms, the special transitional adjustments are required to be applied at the beginning of the immediately preceding period (rather than the the beginning of the earliest period presented). However, an entity may choose to present adjusted comparative information for earlier reporting periods, and must clearly identify any unadjusted comparative information and explain the basis on which the comparative information has been prepared [IFRS 11.C12A-C12B].
An entity may apply IFRS 11 to an earlier accounting period, but if doing so it must disclose the fact that is has early adopted the standard and also apply: [IFRS 11.Appendix C1]