Joint Ventures

Date recorded:

The staff made a presentation on the objectives of this project and the project plan.

The objective of this session was to provide the Board with an update on the work of the definition stage of the project; discuss some questions brought forward by the staff; and decide on the direction of future work on the project in light of the IASB's decisions in relation to the short-term convergence project.

At the December 2005 meeting, the Board had asked the staff to explore whether substantive guidance could be developed to distinguish jointly controlled assets or operations and jointly controlled entities. At this stage of the project, the staff had addressed classification of joint arrangements for accounting purposes by proposing to divide arrangements into:

  • non-integrated resource arrangements in which the participants continue to hold direct rights in assets contributed and assume direct responsibilities for obligations arising from the joint economic activity. In this case, each participant primarily pursues its own economic activity within the arrangement to achieve its own specific objectives
  • integrated resource arrangements, where rights in assets and responsibilities for liabilities reside with the joint arrangement itself, which utilises them to achieve its own separate objectives. The arrangement is a separate entity carrying on an economic activity of its own. It has a separate decision making identity.

Classification as integrated/non-integrated arrangement would be based on an analysis of the specific features in the arrangement as described in the bullets above. Furthermore the staff introduced some indicators that should give additional guidance on whether a joint arrangement exists.

The Board had a lengthy discussion, which did not take a clear path. It was rather obvious that the Board had no consensus on how they wanted to pursue the definition issue. However, Board members expressed their concern about the proposed model, and how it defined whether a joint venture could exist or not, and it was clear that the Board did not agree with the starting point of the staff, that existence of a joint venture should be defined by whether the arrangement is set out in a separate entity or not (this is in accordance with statements the Board have made at previous meetings). Rather the Board seemed to think that a joint venture would be defined based on the nature of the contractual arrangement.

Board members discussed the various scenarios set out in the staff paper and indicated that it was difficult to articulate what are the key differences between an undivided interest and a joint venture.

The Board also discussed the approach to joint control. Board members expressed that the first question that needed to be asked, before defining whether a joint venture exists, is whether the arrangement is jointly controlled. If the arrangement is not jointly controlled by the parties involved, no special accounting rules should apply. It was expressed that this concept had to be explored further and integrated in the decision process for whether you define the arrangement as a joint venture or not.

The Board also reiterated the fact that the project should not be over-complicated as the primary objective in the short-term convergence project was to get rid of proportionate consolidation as an accounting option in IAS 31.

It was decided that the staff should go back and redraft their papers based on the discussion the Board had during this session and bring them back at a later meeting.

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