IASB publishes near final drafts on consolidation, joint ventures and disclosures

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21 Apr 2011

The IASB published a 'near final draft' of the forthcoming package of five new and revised standards addressing the accounting for consolidation, involvements in joint arrangements and disclosure of involvements with other entities.

The final standards are expected to be published in the next few weeks.

Each of the five standards will have an effective date for annual periods beginning on or after 1 January 2013, with earlier application permitted so long as each of the other standards in the package of five' are also early applied. However, entities will be permitted to incorporate any of the disclosure requirements in IFRS 12 into their financial statements without technically early applying the provisions of IFRS 12 (and thereby each of the other four standards).

The 'package of five' standards

IFRS 10 Consolidated Financial Statements

IFRS 10 will replace the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e., whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). Under IFRS 10, control will be based on whether an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the amount of the returns.

IFRS 11 Joint Arrangements

IFRS 11 will introduce new accounting requirements for joint arrangements, replacing IAS 31 Interests in Joint Ventures. The option to apply the proportional consolidation method when accounting for jointly controlled entities will be removed. Additionally, IFRS 11 will eliminate jointly controlled assets to now only differentiate between joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets.

IFRS 12 Disclosures of Involvement with Other Entities

IFRS 12 will require enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to require information so that financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders' involvement in the activities of consolidated entities.

IAS 27 Separate Financial Statements (2011)

The requirements relating to separate financial statements will remain unchanged and will be included in the amended IAS 27. The other portions of IAS 27 will be replaced by IFRS 10.

IAS 28 Investments in Associates and Joint Ventures (2011)

IAS 28 will be amended for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12.

The near final drafts are available to eIFRS subscribers (link to IASB website).

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