IFRS 11 Joint Arrangements

and related
disclosures in
IFRS 12

B
C
September 2013
IFRS Foundation

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IFRS Foundation

IFRS 11 Joint Arrangements

REPLACES
IAS 31 &
SIC-13
PERIODS
STARTING
1 Jan 2013

IFRS Foundation

PART OF
PACKAGE OF
STANDARDS:
IFRSs 10, 11,
& 12 , and
IASs 27 & 28

Contents
Introduction
Scope
Joint Arrangement - Joint Control
- Contractual Arrangement

Classification of joint arrangement

Accounting treatment
Disclosure
Transition provisions
Future developments
Summary
IFRS Foundation

Introduction

Objective of general purpose financial reporting - to

provide financial information about the reporting entity
that is useful to existing and potential investors,
lenders and other creditors in making decisions about
buying, selling or holding equity and debt
instruments, and providing or settling loans and other
forms of credit.
In order to meet this objective IFRS 11 establishes
principles to help entitys reflect their interests in joint
arrangements in their financial statements.
IFRS Foundation

Introduction

Principle:
A party to a joint
arrangement recognises
its rights and obligations
arising from the
arrangement

IFRS Foundation

Introduction

7 7

IFRS 11: Principle-based accounting for joint arrangements

When parties have

rights to the assets and
obligations for the
liabilities, account for
those assets and
liabilities directly
JOINT OPERATION

When parties have

rights only to the net
assets, account as an
investment using the
equity method
JOINT VENTURE

Enhances verifiability, understandability, consistency

and comparability
IFRS Foundation

Scope

IFRS 11 Joint Arrangements must be applied by all

entities that are a party to a joint arrangement.

IFRS Foundation

What is a joint arrangement?

E and F run complementary businesses:

- E sells bathroom suites
- F is a plumber fitting bathroom suites
Activity 1
E advertises Fs website on its own website, and
F advertises Es website on its own website.
Activity 2
E and F together approach a builder that is
refurbishing a block of flats and agree to supply
and fit the bathroom suites for each flat in the
block.

IFRS Foundation

What is a joint arrangement?

10

A joint arrangement is an arrangement in which :

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

IFRS Foundation

What is a joint arrangement?

11

E and F run complementary businesses:

- E sells bathroom suites
- F is a plumber fitting bathroom suites
Activity 1
E advertises Fs website on its own website, and
F advertises Es website on its own website.
Activity 2
E and F together approach a builder that is
refurbishing a block of flats and agree to supply
and fit the bathroom suites for each flat in the
block.

IFRS Foundation

Joint control

12

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.

IFRS Foundation

Joint control?

13

D
IFRS Foundation

Joint control?

A
33.33%

14

B
33.33%

D
IFRS Foundation

C
33.34%

Joint control?

15

B
50%

30%

D
IFRS Foundation

C
20%

Joint control defined

16

IFRS 11 defines joint control as:

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.

Those activities that significantly

affect the returns of the
arrangement
IFRS Foundation

Assessing joint control

Does the contractual
arrangement give the parties
control collectively?

17

No

Not in
IFRS 11

Yes
Do decisions about the relevant
Do decisions
for relevant
activities require the unanimous
activities
require
unanimous
consent
of all the parties,
or of a
group of the parties, that collectively
consent
of the parties that
control the arrangement?
collectively control?

Yes
Arrangement is jointly controlled:
a joint arrangement.
IFRS Foundation

No

Not in
IFRS 11

Interaction of IFRS 11
with other standards

18

Control (IFRS 10)

Joint Control (IFRS 11)

Disclosures
(IFRS 12)

Significant influence (IAS 28)

Investment (IFRS 9 (or IAS 39) & IFRSs 7&13)

IFRS Foundation

Interaction of IFRS 11
with other Standards

19
19

Control alone?
yes

no

Consolidation in accordance
with IFRS 10

Joint control?
yes

Disclosures in accordance with

IFRS 12

no

Define type of joint arrangement

in accordance with IFRS 11
Joint Operation

Joint Venture

Significant
influence?
yes

no

Account for assets, liabilities, revenues

and expenses

Account for an investment in

accordance with IAS 28

IFRS 9
(or IAS 39)

Disclosures in accordance with

IFRS 12

Disclosures in accordance with

IFRS 12

Disclosures in
accordance with
IFRSs 7 and 13

IFRS Foundation

What is a joint arrangement?

20

A joint arrangement is an arrangement in which :

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

IFRS Foundation

Contractual arrangement

21

Sets out the enforceable terms upon which the

parties participate in the activity. Generally deals with
matters such as:

Decision-making
process (which
matters, voting rights
& level of support)

Capital or other
contributions

IFRS Foundation

Purpose, activity &

duration of joint
arrangement

How members of
Board of Directors or
other governing body
are appointed

How assets,
liabilities, revenues,
expenses, or profit or
loss are shared

What is a joint arrangement?

22

A joint arrangement is an arrangement in which :

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

IFRS Foundation

Types of joint arrangement

Joint
operations

IFRS Foundation

23

Joint
ventures

Joint operation or joint venture?

B
50%

50%

C
IFRS Foundation

24

IAS 31

25

Structure of the joint arrangement

Not structured through an

entity

Jointly
controlled
operations

Jointly
controlled
assets

Structured through an
entity

Jointly controlled entities

option
Accounting for assets, liabilities,
revenues and expenses in
accordance with the contractual
arrangements

IFRS Foundation

The structure of the

arrangement is the
only driver for the
accounting

Proportionate
consolidation

Equity
method

When arrangements
are structured in
entities, preparers
have an accounting
option

IFRS 11
Principle-based accounting for joint arrangements

Parties to a joint arrangement recognise their

rights and obligations arising from
the arrangement

IFRS Foundation

26

IFRS 11

27

Parties that have rights to the

assets and obligations for the
liabilities relating to the
arrangement are parties to a
JOINT OPERATION

Parties that have rights to the

net assets of the
arrangement are parties to a
JOINT VENTURE

A joint operator accounts for

its assets, liabilities and
corresponding revenues and
expenses arising from the
arrangement

A joint venturer accounts for

an investment in the
arrangement using the
equity method

IFRS Foundation

Joint operation or joint venture?

Car
manufacturer

Car
manufacturer

50%

50%

Engine
manufacturer
IFRS Foundation

28

Classification and Accounting

Not structured through a separate vehicle

Joint operation
Accounting for assets, liabilities, revenues
and expenses in accordance with the
contractual arrangement
IFRS Foundation

2929

Joint operation or joint venture?

Car
manufacturer

Car
manufacturer

50%

50%

C
Engine
manufacturer
IFRS Foundation

30

Classification and Accounting

Structured through a
separate vehicle *

Not structured through a

separate vehicle *

Assess the parties rights and obligations

arising from the arrangement by considering:

3131

Assessment
of the parties
rights and
obligations

(a) the legal form of the separate vehicle

(b) the terms of the contractual arrangement,
and, if relevant,
(c) other facts and circumstances
Parties have rights to the assets
and obligations for the liabilities

Parties have rights

to the net assets

Joint operation

Joint venture

Accounting for assets, liabilities, revenues and

expenses in accordance with the contractual
arrangement

Accounting for an
investment using the
equity method

IFRS Foundation

Accounting
reflects
the parties
rights and
obligations

Structured through a separate vehicle:

assessment of rights and obligations
Does the legal form give the parties rights to the
assets and obligations for the liabilities?

32

Yes

No

Does the contractual arrangement specify that the

parties, not vehicle, have rights to the assets and
obligations for the liabilities?

Yes

No

Do other facts & circumstances give the parties

rights to the assets and obligations for the
liabilities?
No

Joint venture
IFRS Foundation

Yes

Joint
operation

Joint operation or joint venture?

Car
manufacturer

Car
manufacturer

50%

50%

C
Engine
manufacturer
IFRS Foundation

33

Example 1:

Construction and real estate

34

Separate vehicle, C, formed, over which two parties,

A and B, have joint control:
the purpose of the joint arrangement is to construct
and sell houses to the public
the contractual terms do not give A and B rights to the
assets or obligations for the liabilities of C
contributed equity by A and B is sufficient to buy the
land
debt finance is raised for the construction
sales proceeds will be used to repay external debt and
remaining profit is distributed to A and B
IFRS Foundation

Example 2:

Pharmaceutical

35

A pharmaceutical manufacturer (X) established a viral research

centre (RC) at a university:
X determined the sole and unalterable purpose of RC being to
research and develop immunisation and cures for viruses that
cause human suffering
RC is owned and staffed by the university
All costs of establishing and running RC are paid by the
university from the proceeds of a grant from X
The budget for the research centre is approved by X yearly in
advance
A benefits from the research centre by association with the
university and through exclusive right to patent any
immunisations and cures developed
IFRS Foundation

Example 1:

Construction and real estate

36

Separate vehicle, C, is formed, over which two parties,

A and B, have joint control:
the purpose of the Joint Arrangement is to construct and
sell houses to the public
the contractual terms do not give A and B rights to the
assets or obligations for the liabilities of C
contributed equity by A and B is sufficient to buy the land
debt finance is raised for the construction
sales proceeds will be used to repay external debt and
remaining profit is distributed to A and B
parties provide guarantee to financier
IFRS Foundation

As financial statements

37

Statement of profit or loss (Extract)

CU
Revenue
Cost of sales
Gross profit
Net operating expenses
Profit before finance costs
Finance costs
Profit before taxation

IFRS Foundation

As financial statements: Joint operation38

Statement of profit or loss (Extract)
Revenue
Cost of sales
Gross profit
Net operating expenses
Profit before finance costs
Finance costs
Profit before taxation

IFRS Foundation

CU
150,000
115,000
35,000
6,000
29,000
4,000
25,000

As financial statements: Joint venture

39

Statement of profit or loss (Extract)

CU
Revenue
Cost of sales
Gross profit
Net operating expenses
Profit before finance costs
Finance costs
Share of profit of joint venture
Profit before taxation
IFRS Foundation

25,000
25,000

As financial statements

40

Statement of financial position (Extract)

CU
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets

IFRS Foundation

400,000

400,000

As financial statements: Joint operation41

Statement of financial position (Extract)
CU
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets

IFRS Foundation

635,000
(85,000)
(125,000)
425,000

As financial statements: Joint venture

42

Statement of financial position (Extract)

CU
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets

IFRS Foundation

425,000

425,000

Transactions with joint arrangement

B
50%

50%

A sells
bricks to C

B buys two
houses from C

C
House builder

IFRS Foundation

43

Differences between IFRS 11 & IAS 31

IFRS 11
Classification in
accordance with rights
and obligations

44

IAS 31
Classification in
accordance with legal
form

No choice in accounting Choice of accounting

for JVs

IFRS Foundation

Meeting the objective

45

Control (IFRS 10)

Joint Control (IFRS 11)

Disclosures
(IFRS 12)

Significant influence (IAS 28)

Investment (IFRS 9 (or IAS 39) & IFRSs 7&13)

IFRS Foundation

IFRS 12:
Disclosure of Interests in Other Entities

46

Applies to entities that have an interest in a

subsidiary, a joint arrangement, an associate and/or
an unconsolidated structured entity.
Requires an entity to disclose information that
enables users of its financial statements to evaluate:
the nature of, and risks associated with, its interests in
other entities; and
the effects of those interests on its financial position,
financial performance and cash flows.

IFRS Foundation

IFRS 12:
Disclosures about joint arrangements

47

Significant judgements and assumptions made by the

entity in determining: (i) that it has joint control; and
(ii) if structured through a separate vehicle, whether
the arrangement is a joint operation or a joint venture.
Prescribed information aimed at disclosing the :
nature, extent and financial effects of its interests in joint
arrangements , including the nature and effects of its
contractual relationship with the other joint venturers and
joint operators; and
nature of, and changes in, the risks associated with its
interests in joint ventures.
IFRS Foundation

Summarised financial information

48

Disclose in respect of each material joint venture:

Dividends received from the joint venture
Current assets

Revenue

Cash and cash equivalents included in

current assets

Depreciation and amortisation

Non-current assets

Interest income

Current liabilities

Interest expense

Current financial liabilities (excl trade & Income tax expense or income
other payables & provisions) included in
current liabilities
Non-current liabilities

Profit or loss from continuing operations

Non-current financial liabilities (excl

trade & other payables & provisions)
included in non-current liabilities

Post-tax profit or loss from discontinued

operations
Other comprehensive income
Total comprehensive income

IFRS Foundation

IFRS 11s transitional provisions

Beginning of
immediately
preceding
period

IFRS Foundation

49

IFRS 11s transitional provisions

Beginning of
immediately
preceding
period

IFRS Foundation

50

IFRS 11s transitional provisions

Proportionate consolidation

CU
PPE
1,000

1,000
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
700

51

Equity accounting

InvinJV
en
m
air

p
Im

CU
st
e
t
t

700
700

IFRS Foundation

Netassets

700

51

IFRS 11s transitional provisions

Proportionate consolidation

CU
PPE
1,000

1,000
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
700

52

Equity accounting

CU

InvinJV

700
700

IFRS Foundation

Netassets

700

52

IFRS 11s transitional provisions

Proportionate consolidation

CU
PPE
200

200
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
(100)

Equity accounting

53

CU

If there is a legal or
constructive obligation for
the CU100:

IFRS Foundation

Provisions

Netassets

100
100
(100)

53

IFRS 11s transitional provisions

Proportionate consolidation

CU
PPE
200

200
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
(100)

Equity accounting

54

CU

If there is no legal or
constructive obligation for
the CU100:

IFRS Foundation

Netassets

54

IFRS 11s transitional provisions

Equity accounting

CU

Investment

700
700

Netassets

700

Individual assets & liabilities

CU
PPE
1,000

1,000
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
700
IFRS Foundation

55

55

IFRS 11s transitional provisions

Equity accounting

CU

Investment

700
700

Netassets

Individual assets & liabilities

CU
PPE
1,100

1,100
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
800
IFRS Foundation

56

700

56

IFRS 11s transitional provisions

Equity accounting

CU

Investment

700
700

Netassets

Individual assets & liabilities

CU
PPE
900

900
Inventories
100
Tradereceivables
150
Derivatives
100
Cash
50

400
Tradepayables
160
S/Tborrowings
50

210
L/Tborrowings
300
Provisions
190

490
Netassets
600
IFRS Foundation

57

700

57

Future developments

58

ED/2012/7 Acquisition of an Interest in a Joint

Operation issued in December 2012.
Apply the relevant principles on business combinations
accounting in IFRS 3 and other IFRSs.
Amendment to Standard due in the fourth quarter of 2013.

IFRS Foundation

Future developments

59

cash
shares

33.34%

33.33%

D
IFRS Foundation

E becomes a party to
the contractual
arrangement with A & B

Future developments

60

Shares

Shares

Cash

E
100%

G
100%

F
IFRS Foundation

Cash

Cash

Shares

C
A, B & C enter into
a contractual
arrangement
to run DF

IFRS 11

61

Principle:
A party to a joint
arrangement recognises
its rights and obligations
arising from the
arrangement

IFRS Foundation

IFRS 11

6262

IFRS
IFRS11:
11:Principle-based
Principle-basedaccounting
accounting for
for joint
jointarrangements
arrangements

When parties have

rights to the assets and
obligations for the
liabilities, account for
those assets and
liabilities directly
JOINT OPERATION

When parties have

rights only to the net
assets, account as an
investment using the
equity method
JOINT VENTURE

Enhances verifiability, understandability, consistency

and comparability
IFRS Foundation

IFRS 11: The assessments required

1st
assessment

JOINT ARRANGEMENT

Are the parties bound by a

contractual arrangement giving
the parties, or a group of the
parties, joint control of the
joint arrangement?

No

Outside the
scope of IFRS 11

2nd
assessment

Yes
Classification of the
JOINT ARRANGEMENT

Analysis of the parties rights

and obligations arising from
the arrangement

IFRS Foundation

Joint Operation

Joint Venture

63

Interaction of IFRS 11
with other Standards

64
64

Control alone?
yes

no

Consolidation in accordance
with IFRS 10

Joint control?
yes

Disclosures in accordance with

IFRS 12

no

Define type of joint arrangement

in accordance with IFRS 11
Joint Operation

Joint Venture

Significant
influence?
yes

no

Account for assets, liabilities, revenues

and expenses

Account for an investment in

accordance with IAS 28

IFRS 9
(or IAS 39)

Disclosures in accordance with

IFRS 12

Disclosures in accordance with

IFRS 12

Disclosures in
accordance with
IFRSs 7 and 13

IFRS Foundation