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IFRS 11 – Analysis of implementation issues

Date recorded:

The Project Manager introduced the agenda papers detailed below related to the larger issue around the application of IFRS 11, especially regarding the application of ‘substance over form’ for assessing ‘other facts and circumstances’ when classifying a joint arrangement. The discussion built on the following agenda papers:

  • Agenda Paper 2A—Feedback from consultations with IASB members,
  • Agenda Paper 2B—Implication for accounting within separate financial statements,
  • Agenda Paper 2C—Consideration of the direction going forward.


Agenda Paper 2A

The project manager introduced Agenda Paper 2 A which provided two approaches:

Approach A (narrow view): The assessment of ‘other facts and circumstances’ focuses on whether the parties have ‘indirect’ rights and ‘indirect’ obligations, relating to the joint arrangement, that can be identified to be, in substance, ‘direct’ rights to the assets and ‘direct’ obligations for the liabilities, relating to the joint arrangement. So, if the entity has such ‘indirect’ rights and obligations, the joint arrangement would be classified as a joint operation.

Approach B (broader view): View B is broader than View A in terms of considering what can give rise to ‘indirect’ rights and ‘indirect’ obligations. Design, economic compulsion and business needs should also be taken into account.

These views had been discussed by the IFRS Interpretations Committee at their meeting in January 2014 where the IC members had tentatively decided on the narrow view. The project manager clarified that from consultations with IASB members, they have indicated their preference for A, thus supporting the tentative agenda decision not to add this issue to the agenda. (The tentative agenda decision would be formally finalised in connection with the discussion of the next item on the agenda for this meeting (Agenda Paper 13).)

Discussion: No comments were raised from IC members.


The project manager introduced Agenda Paper 2 B which provided an analysis to consider the implication for accounting within separate financial statements, when examining the issue of how and why particular ‘other facts and circumstances’ create rights and obligations that result in the joint arrangement being classified as a joint operation, particularly when the joint arrangement is structured through a separate vehicle.

The concern raised was that the financial statements of a joint operation (ie the separate vehicle) would provide the same information as the financial statements of the joint operators, because the joint operators, in their separate financial statements, would recognise all the assets, liabilities, revenues and expenses of the separate vehicle, because they have pierced the veil of incorporation of the separate vehicle. Consequently, the concern was that the same assets, liabilities, income and expense would appear in the financial statements of the joint operators and the financial statements of the joint operation.

The staff considered that the accounting of the separate vehicle needed to be viewed from the perspective of the separate vehicle. Accordingly, the legal form of the separate vehicle would ring-fence/circumscribe the assets, liabilities, income and expense from the perspective of the separate vehicle. The staff also noted that the accounting within the separate financial statements of the joint operation would not necessarily be the same as that of the joint operator. In their outreach activity, staff had not heard of any significant practical concern relating to the separate financial statements of the joint operation in terms of financial reporting although concerns were raised in terms of tax purposes. The staff recommended not to take this issue onto the agenda.


In general IC members agreed with the staff conclusion not to add this item to the agenda on the basis that focusing on the reporting entity is the right direction. One IC member raised a concern because of the fact that the assets and liabilities of the JA and the investor in some cases would be the same; this was an issue that needed to be addressed. Other IC members indicated that there were a whole range of issues related to separate financial statements which could not be addressed by the IC.  IC members also agreed that general IFRS principles should be applied in the separate financial statements of the joint arrangement.

There was also a discussion as to whether this conclusion might contradict the definition of control, because both the separate FS of the joint operation and the consolidated FS of the investor would present the same assets. Some argued that there was a similar situation with subsidiaries and a parent that consolidates a subsidiary or a branch.  Some IC members indicated however, that this issue related to separate FS of a joint arrangement where parties have joint control which was different.

The chairman summarised the discussion by stating that all IC members agreed with the staff recommendation. There were concerns with separate FS that could not be addressed by the IC.

The chairman also indicated that the IC will consult informally IASB members to see whether they would identify any issue with this decision.


The project manager introduced Agenda Paper 2 C which addresses next steps given that the IC members have decided on not adding a larger project on the classification of joint arrangements to their agenda (Agenda Paper 2A, ‘narrow view’). The staff announced that it will bring to the July 2014 Interpretations Committee meeting

  • an analysis of common joint arrangement structures (so-called project entities) and
  • the issue of recognition and measurement when the parties’ interests in the assets and liabilities of the joint operation differ from their ownership interest in the joint operation.

The project manager also clarified that the IC had reached a consensus on how to apply the assessment of ‘other facts and circumstances’ at past meetings, with its view documented in the March 2014 IFRIC Update. Specifically, the view of the IC was that the assessment of ‘other facts and circumstances’ should be based on a narrow view. A Post-implementation Review (PiR) of IFRS 11 is expected to start towards the end of 2015.

For dealing with these two issues, the staff proposed two alternatives:

  1. Wait for practice to continue to develop over the next 18 months and allow the PiR of IFRS 11 to consider whether any further standard-setting action is required; or
  2. Convert the Interpretations Committee’s conclusions from this and previous meetings into guidance by:
    1. Issuing an Interpretation; or
    2. Adding to the application guidance (ie to Appendix B) of IFRS 11.


No significant comments were raised during the discussion. However, the IC members agreed with finalising the issues discussed without waiting for the PIR of IFRS 11 as this was a narrow project and also suggested to neither issue an interpretation nor application guidance but to see at the next discussion of this topic in July how the two issues can best be dealt with.

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