An Executive Guide to IFRS: Content, Costs and Benefits to Business

Joint ventures

IAS 31 Interests in Joint Ventures deals with joint ventures but a replacement standard (IFRS 11) is due to be issued in 2011. The replacement standard will probably have an effective date of 1 January 2013, with earlier adoption allowed. The new standard talks about ‘joint arrangements’ rather than joint ventures. As compared with IAS 31, the new standard prohibits the use of proportional consolidation, and bases the accounting on the substance of the arrangement rather than the legal form. Under IAS 31 where a joint venture was operated through a company in which the venturers each held shares, they would likely equity account their shareholding. If one venturer had a contract to manage the joint venture, that company would treat it as a subsidiary.

The analysis done by the initial project team, from the Australian standard-setter, was that some joint arrangements were more in the nature of pooling agreements where the venturers contributed assets and shared outputs. The new standard therefore says that the substance of the arrangement should determine the accounting. If the venturer has ‘joint control’ over an independent company, then it applies the equity method. However if it is contributing assets, or is responsible for liabilities, which are used in a joint arrangement but which remain under its ownership, these should be accounted for using the appropriate asset or liability standard. These would be treated as an ‘investment in joint operations’ in the balance ...