Parties to Joint Arrangements that do not share in 'joint control'

The Board discussed whether the final standard should refer in some manner to parties to joint arrangements that do not share in joint control and, if so, how such parties should account for their interests. Respondents to ED9 had suggested that there was diversity in practice and the Board wished to clarify what they thought the appropriate accounting should be.

After discussion, the Board agreed that the final standard should acknowledge that a party to a joint arrangement might not have joint control. Such participants should account for shall account for their assets, liabilities, revenues and expenses, including their share of any assets, liabilities, revenues and expenses arising from the joint operation. A cross-reference for investors in 'joint ventures' (as now defined) to guidance in IAS 39 (or IAS 28) might be necessary.

Clarification of the accounting requirements for 'joint operations'

Unit of account and nature of the assets and liabilities to be recognised

Respondents to ED9 had challenged the Board's conclusions on certain aspects of the unit of account, especially in relation to its decision to eliminate the proportionate consolidation method (ED9, BC8-BC10), when compared to its other conclusions on the unit of account (e.g. ED9 BC18).

The Board noted that BC8-BC10, and in particular BC9 were conclusions specifically related to its conclusions related to the unsuitability of the proportionate consolidation method. In determining the accounting for joint operations, the Board intended that participants in such arrangements would account for the assets, liabilities, revenues and expenses that were contributed to the joint operation. Such items would be defined in the terms of the joint operating agreement, which would specify the rights and obligations of the joint operating agreement parties. The accounting should follow those rights and obligations. The over-all effect might look like proportionate consolidation, but it was fundamentally different.

The Board agreed that the basis for conclusions accompanying the final standard should describe the Board's conclusions about when it is appropriate for an entity to account for its share of assets/ liabilities and when to account for an investment rather than focusing on the elimination of the proportionate consolidation method.

Nature of the assets and liabilities to be recognised

The Board agreed that the final standards should clarify the accounting requirements in relation to the nature of the assets and liabilities to be recognised by the parties in 'joint operations' to be 'shares of assets/liabilities' instead of 'rights. In doing so, the guidance in IAS 31 relating the classification of the share of assets according to their nature should be retained.

Next steps

The senior staff noted that, although the major items of ED9 had been redeliberated and resolved, the staff needed to undertake a careful review of the consequential amendments, in particular given that the consolidation standard was being redeliberated. There were potential conflicts between ED9 and other standards that needed to be analysed carefully and brought before the Board.