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Reasons for issuing the IFRS standards 11

Reasons for issuing the IFRS standards 11

Reasons for issuing the IFRS standards 11: The objective of this IFRS is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (ie joint arrangements).

Meeting the objective 2

To meet the objective in paragraph 1, this IFRS defines joint control and requires an entity that is a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement.

IFRS 11 Joint Arrangements outlines the accounting by entities that jointly control an arrangement. Joint control involves the contractually agreed sharing of control and arrangements subject to joint control are classified as either a joint venture (representing a share of net assets and equity accounted) or a joint operation (representing rights to assets and obligations for liabilities, accounted for accordingly).

IFRS 11 was issued in May 2011 and applies to annual reporting periods beginning on or after 1 January 2013.

Reasons for issuing the IFRS standards 11: principle

The core principle of IFRS 11 is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement.

Reasons for issuing the IFRS standards 11: Definitions

An arrangement of which two or more parties have joint control
The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement
A party to a joint venture that has joint control of that joint venture
An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement
A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality

Reasons for issuing the IFRS standards 11: Arrangements

A joint arrangement is an arrangement of which two or more parties have joint control.

A joint arrangement has the following characteristics:

  • the parties are bound by a contractual arrangement, and
  • the contractual arrangement gives two or more of those parties joint control of the arrangement.

A joint arrangement is either a joint operation or a joint venture.

Reasons for issuing the IFRS standards 11: Control

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Before assessing whether an entity has joint control over an arrangement, an entity first assesses whether the parties, or a group of the parties, control the arrangement (in accordance with the definition of control in IFRS 10 Consolidated Financial Statements).

After concluding that all the parties, or a group of the parties, control the arrangement collectively, an entity shall assess whether it has joint control of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement.

The requirement for unanimous consent means that any party with joint control of the arrangement can prevent any of the other parties, or a group of the parties, from making unilateral decisions (about the relevant activities) without its consent.

Types of joint arrangements

Joint arrangements are either joint operations or joint ventures:

  • joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.
  • joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.

Reasons for issuing the IFRS standards 11: Classifying joint arrangements

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.

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.

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.

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

Reasons for issuing the IFRS standards 11: Disclosure

There are no disclosures specified in IFRS 11. Instead, IFRS 12 Disclosure of Interests in Other Entities outlines the disclosures required.

Note: This section has been updated to reflect the amendments to IFRS 11 made in June 2012.

IFRS 11 is applicable to annual reporting periods beginning on or after 1 January 2013.

When IFRS 11 is first applied, an entity need only present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the first annual period for which the standard is applied

Special transitional provisions are included for:

  • transition from proportionate consolidation to the equity method for joint ventures
  • transition from the equity method to accounting for assets and liabilities for joint operations
  • transition in an entity’s separate financial statements for a joint operation previously accounted for as an investment at cost.

Reasons for issuing the IFRS standards 11: In general terms, the special transitional adjustments are required to be applied at the beginning of the immediately preceding period (rather than the the beginning of the earliest period presented).  However, an entity may choose to present adjusted comparative information for earlier reporting periods, and must clearly identify any unadjusted comparative information and explain the basis on which the comparative information has been prepared.

Reasons for issuing the IFRS standards 11

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