Objective: IFRS 11 establishes principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (joint arrangements).
- Applies to all entities that are a party to a joint arrangement
- Replaced IAS 31 Interests in Joint Ventures
- Focuses on rights and obligations rather than legal form
- Requires a single method for accounting for joint operations and joint ventures
Joint Arrangement: An arrangement of which two or more parties have joint control.
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.
- Contractual Arrangement: Must be in writing, usually in a contract or other documented form
- Unanimous Consent: All parties with joint control must agree on decisions about relevant activities
- Separate Vehicle: May or may not be structured through a separate vehicle
| Type | Characteristics | Accounting Method |
|---|---|---|
| Joint Operation | Parties have rights to assets and obligations for liabilities | Recognize assets, liabilities, revenues, expenses |
| Joint Venture | Parties have rights to net assets only | Equity method |
Key Factor: Classification depends on the parties' rights and obligations arising from the arrangement, not the legal structure.
Joint Operation: 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.
- Parties account for their share of assets, liabilities, revenues, and expenses
- Recognize in financial statements according to applicable IFRSs
- Common in industries like oil & gas, construction, and real estate development
Two companies jointly operate a pipeline:
Company A recognizes 60% of pipeline assets and liabilities
Company B recognizes 40% of pipeline assets and liabilities
Each recognizes its share of revenues and expenses
Joint Venture: A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
- Parties account for their interest using the equity method
- Initial recognition at cost
- Subsequently adjusted for share of profit/loss and other comprehensive income
- Dividends reduce the carrying amount
- Common structure: incorporated entity or partnership
Three companies form a joint venture company:
Each investor accounts for its investment using equity method
Initial investment: $1,000,000 (30% share)
Share of profit: $150,000 → Carrying amount becomes $1,150,000
Classification is based on the parties' rights and obligations arising from the arrangement:
- Analyze the terms of the contractual arrangement
- Consider the structure and legal form of the arrangement
- Evaluate other facts and circumstances when relevant
Important: If the arrangement is conducted through a separate vehicle, the assessment focuses on the rights and obligations conferred on the parties by the contractual arrangement and, sometimes, the separate vehicle's legal form.
| Type | Assets & Liabilities | Revenues & Expenses |
|---|---|---|
| Joint Operation | Recognize share of assets and liabilities | Recognize share of revenues and expenses |
| Joint Venture | Recognize investment (equity method) | Recognize share of profit/loss |
- Nature, purpose, size, and financial effect of joint arrangements
- Method used to account for joint arrangements
- Significant restrictions on ability to access/transfer resources
- Contingent liabilities relating to interests in joint arrangements
- For joint ventures: summarized financial information
- For joint operations: relevant information about assets, liabilities, revenues, and expenses
- Applied retrospectively from January 1, 2013
- Eliminated proportionate consolidation for joint ventures
- Introduced classification based on rights and obligations
- Required reassessment of existing joint arrangements