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Basis for conclusions on IFRS 11 disclosure

Basis for conclusions on IFRS 11 disclosure

Basis for conclusions on IFRS 11 disclosure


As part of its redeliberation of ED 9 and ED 10 Consolidated Financial Statements, the Board identified an opportunity to integrate and make consistent the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities, and to present those requirements in a single IFRS.

The Board observed that IAS 27 (as revised in 2003), IAS 28 (as revised in 2003) and IAS 31 contained many similar disclosure requirements. ED 9 had already proposed amendments to the disclosure requirements for joint ventures and associates to align the disclosure requirements for those two types of investments more closely. The Board noted that the majority of respondents agreed with the proposals in ED 9 to align the disclosures for joint ventures with the disclosures in IAS 28 for associates.

As a result, the Board combined the disclosure requirements for interest with subsidiaries, joint arrangements, associates and unconsolidated structured entities within a single comprehensive standard, IFRS 12.

The Basis for Conclusions accompanying IFRS 12 summarises the Board’s considerations in developing that IFRS, including its review of responses to the disclosure proposals in ED 9. Accordingly, IFRS 11 does not include disclosure requirements and this Basis for Conclusions does not incorporate the Board’s considerations of responses to the proposed disclosure requirements in ED 9.

Basis for conclusions on IFRS 11 disclosure

The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. An entity determines the type of joint arrangement in which it is involved by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances. [IFRS 11:6, IFRS 11:14, IFRS 11:17]

Regardless of the purpose, structure or form of the arrangement, the classification of joint arrangements depends upon the parties’ rights and obligations arising from the arrangement. [IFRS 11:B14; IFRS 11:B15]

A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation. [IFRS 11:B19]

A joint arrangement that is not structured through a separate vehicle is a joint operation. In such cases, the contractual arrangement establishes the parties’ rights to the assets, and obligations for the liabilities, relating to the arrangement, and the parties’ rights to the corresponding revenues and obligations for the corresponding expenses. [IFRS 11:B16]

Basis for conclusions on IFRS 11 disclosure

There are 3 basic elements of joint control:

Contractual arrangement

Please note that here, contractual arrangement must be present – often in writing in the form of contract or some documented decisions of the parties involved. Sometimes law or other statutory mechanisms are sufficient to create contractual arrangement.

Sharing of control

This condition or element is met when all parties, or group of parties, considered collectively, are able to direct the relevant decisions of the arrangement.

In other words – no single party can decide on its own.

Let me give you an example:

Imagine 3 joint venturers: Company Large has a share of 50% in a joint venture, companies Medium and Regular have shares of 25% each. Let’s say that the contract specifies that to make important decisions, at least 75% must agree.

What does that mean?

Well, although Large can veto or block any decisions by Medium and Regular (in other words, Medium and Regular do not have enough voting power to decide against Large’s decision), Large does not have a control, because to make a decision, Large still needs the support of either Medium or Regular.

In this example, collective control is present, but you still need to assess whether Large, Medium and Regular need to decide unanimously (all of them must agree) or not. That would be written in the contract, for example.

Unanimous consent

Unanimous consent means that every party of the joint arrangement must agree with (or at least does not object to) the decision and no one can block it.

In our above example, if the contract says it simply: 75% of voting power is enough to make all decisions, then there is NO unanimous consent, because just 2 parties are sufficient to present (Large and either Medium or Regular)

Basis for conclusions on IFRS 11 disclosure

The International Financial Reporting Standards Foundation, or IFRS Foundation, is a nonprofit accounting organization. Its main objectives include the development and promotion of the International Financial Reporting Standards (IFRSs) through the International Accounting Standards Board (IASB), which it oversees.[1][3]

The foundation was formerly named the International Accounting Standards Committee (IASC) Foundation until a renaming on 1 July 2010, and as of 2012 is governed by a board of 22 trustees.

The IFRS Foundation also develops and maintains the IFRS Taxonomy, which is the representation of the IFRSs in eXtensible Business Reporting Language (XBRL), via its XBRL team. The team is supported by the XBRL Advisory Council and the XBRL Quality Review Team, which respectively provide strategic advice and reviews developed taxonomies.Additionally, in 2012 the foundation issued a call for industry participants in a project to develop “common industry practice concepts” for the taxonomy.

XBRL provides a “common, electronic format for business and financial reporting”, which will contribute to the global convergence of accounting standards towards IFRS; the director of XBRL activities at the IFRS Foundation, Olivier Servais, hopes that “everybody will be using it” in future.As of March 2012, the IFRS Taxonomies have “considerably fewer” tags than GAAP taxonomies, and the Security and Exchange Commission has not approved the IFRS Taxonomy for use in XBRL filings in the United States.

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