Short-term Convergence — Joint Ventures

Date recorded:

The staff used this session to introduce the approach they had adopted in drafting the proposed amendments to IAS 31, and to discuss examples intended to illustrate the application of the Board's decisions regarding the definition of a joint venture.

In addition to proposing the principal change of eliminating the proportionate consolidation method for joint venture entities, the Board will take the opportunity to rearrange IAS 31 to make it more logical and to clarify the language. As it did with the exposure draft of proposed changes to IAS 8 in the 2002 Improvements Project, the ED of IAS 31 will be presented as 'clean text' with a table of concordance, rather than use extensive 'mark-up' text, which might obscure the changes in principle being made.

The Board affirmed their proposed approach to accounting for contractual arrangements that 'establish shared decision-making over the activities of a joint arrangement.' Board members noted that there was an inconsistency between the flow chart (paragraph 9 of Observer Note 9 on the IASB Website) and the staff proposals. Both should refer to rights to individual assets and obligations for individual liabilities, rather than the phrase used in the flow chart. The Board agreed the approach outlined by the staff.

The Board discussed the examples (see Observer Note 9). Example 1 was agreed without discussion. The staff proposed to withdraw Example 3 but to include certain variations to Example 2 (joint interests in an asset). Examples 4, 5 and 6 were discussed briefly and minor changes proposed. Examples 7 and 8 (relating to extractive activities) attracted more attention. Constituents as well as Board members had proposed changes, so these examples will be comprehensively re-written. Board members wanted to the examples to demonstrate that the imposition of a company structure can have accounting effects; however, the presence of a company is not determinative. That is, not all jointly-owned companies are 'joint ventures' and joint asset and joint operation arrangements can be carried on through companies.

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