IFRS 11 Joint arrangements – 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. These IFRS 11 summary notes are prepared by mindmaplab team and covering, IFRS 11 revised amendment, the key definitions, full standard with illustrative examples, with IFRS 11 disclosure requirements. This IFRS 11 is a guide for dummies as well as for professionals. This is the IFRS 11 full text guide; we have also prepared IFRS 11 pdf version download.
IAS 2 Inventories
IAS 7 Statement of cash flows – Revisited
IAS 33 Earnings per share – Revisited
- A controlling interest in an investee results in an investment (a subsidiary) which is consolidated.
- A fairly small interest in the equity shares of another company would give no influence of any kind and such investments are treated as follows:
- The shares are shown in the statement of financial position as long-term assets (an investment) and valued in accordance with IFRS 9; and
- Any dividends received for the shares are included in profit or loss for the year as other income.
- Still other investments might result in joint control or significant influence. The rules for accounting for these are given in:
- IFRS 11 Joint Arrangements: and
- IAS 28 Investments in Associates and Joint ventures.
IFRS 11 Definitions
Joint arrangement – A joint arrangement is an arrangement of which two or more parties have joint 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.
Separate vehicle – A separate vehicle is a separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality.
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 party to a joint arrangement is an entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement.
- Any contractual arrangement will usually be evidenced in writing, between the parties.
- A joint arrangement might be structured through a separate vehicle.
- Any contractual arrangement sets out the terms upon which the parties participate in the activity that is the subject of the arrangement and would generally deal with such matters as:
- the purpose, activity and duration of the joint arrangement.
- how the members of the board of directors, of the joint arrangement, are appointed.
- the decision-making process (the matters requiring decisions from the parties, the voting rights of the parties and the required level of support for those matters).
- the capital or other contributions required of the parties.
- how the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint arrangement.
IFRS 11 states that decisions about the relevant activities require unanimous consent of all parties that collectively control the arrangement.
It is not necessary for every party to the arrangement to agree in order for unanimous consent to exist.
IFRS 11 Types of joint arrangements
There are two types of joint arrangement. A joint arrangement is either a joint operation or a joint venture.
- Joint operation – A 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 – A joint venture is a joint arrangement where the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
*Investors may or may not establish a joint arrangement as a separate vehicle.
- IFRS 11 says that if a joint arrangement is not structured through a separate vehicle it MUST be a joint operation.
- If a joint arrangement is structured through a separate vehicle it could be a joint operation or a joint venture.
*For a joint arrangement to be a joint venture, it is the separate vehicle that must have the rights to the assets and the obligations to the liabilities with the investor only having an interest in the net assets of the entity. If an investor has a direct interest in specific assets and direct obligation for specific liabilities of the separate vehicle then the joint arrangement is a joint operation.
Accounting for joint operations and joint ventures
A joint operator must recognise the following in its own financial statements:
- its assets, including its share of any assets held jointly;
- its liabilities, including its share of any liabilities incurred jointly;
- its revenue from the sale of its share of the output arising from the joint operation;
- its share of the revenue from the sale of the output by the joint operation; and
- its expenses, including its share of any expenses incurred jointly.
A joint venturer must recognise its interest in a joint venture as an investment and account for it using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures.