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Basis for conclusions on IFRS 11 scope

Basis for conclusions on IFRS 11 scope

Basis for conclusions on IFRS 11 scope


The IFRS should be applied by all entities that are a party to a joint arrangement.The IFRS does not change the two essential characteristics that IAS 31 required arrangements to have in order to be deemed ‘joint ventures’, ie that a contractual arrangement that binds the parties to the arrangement exists, and that the contractual arrangement establishes that two or more of those parties have joint control of the arrangement.

The Board believes that the new definition of control and the application requirements to assess control in IFRS 10 Consolidated Financial Statements will assist entities in determining whether an arrangement is controlled or jointly controlled, and in that respect it might cause entities to reconsider their previous assessment of their relationship with the investee. Despite the changes that these reassessments might cause, the Board believes that arrangements that were within the scope of IAS 31 would generally also be within the scope of
IFRS 11.

Basis for conclusions on IFRS 11 scope

Scope exception

The Board reconsidered the scope exception of IAS 31 that had also been proposed in ED 9. The Board concluded that the scope exception in ED 9 for interests in joint ventures held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment-linked insurance funds, that are measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments, is more appropriately characterised as a measurement exemption, not as a scope exception

The Board observed that when venture capital organisations, or mutual funds, unit trusts and similar entities, including investment-linked insurance funds, conclude that they have an interest in a joint arrangement, this is because the arrangement has the characteristics of a joint arrangement as specified in IFRS 11 (ie a contractual arrangement exists that establishes that two or more parties have joint control of the arrangement).

The Board also observed that the scope exception in ED 9 did not relate to the fact that these arrangements do not have the characteristics of joint arrangements, but to the fact that for investments held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment-linked insurance funds, fair value measurement provides more useful information for users of the financial statements than would application of the equity method.

Accordingly, the Board decided to maintain the option that permits such entities to measure their interests in joint ventures at fair value through profit or loss in accordance with IFRS 9, but clarified that this is an exemption from the requirement to measure interests in joint ventures using the equity method, rather than an exception to the scope of IFRS 11 for joint ventures in which these entities have interests.

Basis for conclusions on IFRS 11 scope


Relevant activities’ is a new concept which is integral to the control model as it assists in determining whether an investor has power over an investee

Definition of ‘relevant activities’ – these are activities of the investee that SIGNIFICANTLY affect the investee’s returns

Examples of relevant activities include, but are not limited to:

• Selling and purchasing of goods or services

• Managing financial assets during their life

• Selecting, acquiring and disposing of assets

• Researching and developing new products or processes

• Determining a funding structure or obtaining funding

Basis for conclusions on IFRS 11 scope

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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