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IFRS 11, Joint Arrangements [Completed]

Effective date: Fiscal years beginning on or after January 1, 2013 with early adoption permitted

Transitional provisions:

IFRS 11 is effective for fiscal years beginning on or after January 1, 2013. Earlier application is permitted, provided IFRS 10, IFRS 12 and the related amendments to IFRS 27 and 28 are adopted at the same time.

Last updated:

January 2012

Overview

IFRS 11 replaces supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-Monetary Contributions by Venturer.

IFRS 11 improves on IAS 31 by requiring 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. The standard also addresses inconsistencies in the reporting of joint arrangements by requiring a single method to account for interests in jointly controlled entities, namely the equity method.

Key features

  • IFRS 11 classifies joint arrangements as either joint operations (combining the existing concepts in IAS 31of jointly controlled assets and jointly controlled operations) or joint ventures (equivalent to the existing concept of a jointly controlled entity in IAS 31).
  • IFRS 11 requires the use of the equity method of accounting for interests in joint ventures thereby eliminating the proportionate consolidation method.
  • The determination of as to whether a joint arrangement is a joint operation or a joint venture is based on the parties’ rights and obligations under the arrangement, with the existence of a separate legal vehicle no longer being the key factor.
  • The disclosure requirements for entities involved with joint arrangements are established in IFRS 12.
  • The effective date is for annual periods beginning on or after January 1, 2013. Earlier application is permitted, provided IFRS 10IFRS 12 and the related amendments to IFRS 27 and 28 are adopted at the same time (the “package of five”).

Details of Significant Requirements

  • IFRS 11 defines a joint arrangement as an “arrangement of which two or more parties have joint control” and makes clear that joint control exists only when “decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.
  • The new Standard establishes two types of joint arrangements: joint operations and joint ventures. The two types of joint arrangements are distinguished by the rights and obligations of those parties to the joint arrangement. In a joint operation, the parties to the joint arrangement (referred to as “joint operators”) have rights to the assets and obligations for the liabilities of the arrangement. By contrast, in a joint venture, the parties to the arrangement (referred to as “joint venturers”) have rights to the net assets of the arrangement.
  • The existence of a separate vehicle is a necessary, but not sufficient, condition for a joint arrangement to be considered a joint venture. This is a significant change from the requirements of IAS 31, which treats the establishment of a separate legal vehicle as the key factor in determining the existence of a jointly controlled entity.
  • The new Standard provides guidance on factors to consider in the identification of a joint venture.
  • IFRS 11 requires that a joint operator recognize its share of the assets, liabilities, revenues and expenses in accordance with applicable IFRSs.
  • IFRS 11 requires that a joint venturer account for its interest using the equity method of accounting under IAS 28 (revised 2011), Investments in Associates and Joint Ventures. The option of proportional consolidation included in IAS 31 has not been retained.

Recent activities

January 2012

On January 25-27, 2012, the IASB considered a request from EFRAG to defer the effective dates of IFRS 10IFRS 11 and IFRS 12. The Board decided to retain the mandatory January 1, 2013 effective date of these new standards. 

September 2011

On September 8, 2011, the IASB issued its Effect Analysis of IFRS 11. The effect analysis provides detailed insights into the potential impacts of the new requirements using case studies and other quantitative and qualitative material, as appropriate.

May 2011

On May 12, 2011, the IASB issued IFRS 11, Joint Arrangements. IFRS 11 establishes principles for financial reporting by parties to a joint arrangement. A Basis for Conclusions has also been issued by the IASB.

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