To establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (joint arrangements).
Define joint control and distinguish between different types of joint arrangements.
Provide guidance on the classification and accounting for joint arrangements.
Ensure consistent treatment based on the rights and obligations of the parties involved, rather than just the legal form.
IFRS 11 applies to all entities that are a party to a joint arrangement as defined in the standard.
Interests in joint ventures held by venture capital organisations, mutual funds, unit trusts, and similar entities that are measured at fair value through profit or loss (FVTPL) in accordance with IFRS 9 (if elected).
Interests in joint arrangements where the entity participates but does not have joint control (these may be investments under IFRS 9, associates under IAS 28, or subsidiaries under IFRS 10).
IFRS 11 replaced IAS 31 *Interests in Joint Ventures* and SIC-13 *Jointly Controlled Entitiesā€”Non-Monetary Contributions by Venturers*.
IFRS 11 identifies two types of joint arrangements:
Parties (joint operators) have direct rights to the assets and direct obligations for the liabilities relating to the arrangement.
Often, but not always, occurs when the arrangement is not structured through a separate vehicle (e.g., co-production of an asset).
Even if structured through a separate vehicle, it can be a joint operation if the legal form and contractual terms give parties rights to assets and obligations for liabilities.
Examples: Jointly controlled oil and gas exploration, joint manufacturing of a product where parties take a share of output and bear a share of costs.
Parties (joint venturers) have rights to the net assets of the arrangement.
Typically structured through a separate vehicle (e.g., a distinct company, partnership) which holds the assets and incurs liabilities.
The separate vehicle, not the parties, has rights to assets and obligations for liabilities.
Examples: A jointly owned company set up to develop and sell a specific product or service.
Assessment Considerations for Classification:
Structure of the joint arrangement: Is it structured through a separate vehicle?
When structured through a separate vehicle, assess the legal form of the vehicle.
Assess the contractual terms agreed by the parties.
Assess other facts and circumstances (e.g., design and purpose of arrangement, whether parties are primary source of finance, whether parties take substantially all output).
If structured through a separate vehicle whose legal form causes the vehicle to be considered in its own right (i.e., assets/liabilities are the vehicle's), it's usually a Joint Venture unless contractual terms or other facts override this.
Joint Operations (by a Joint Operator):
A joint operator recognizes in its financial statements in relation to its interest in a joint operation:
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.
Its expenses, including its share of any expenses incurred jointly.
The operator accounts for these items in accordance with relevant IFRSs applicable to those specific assets, liabilities, revenues, and expenses.
Joint Ventures (by a Joint Venturer):
A joint venturer recognizes its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 *Investments in Associates and Joint Ventures*, unless exempted.
Proportional consolidation is NOT permitted for joint ventures under IFRS 11.
Under the equity method (IAS 28):
Investment initially recognized at cost.
Carrying amount adjusted for post-acquisition share of investee's profit/loss (recognized in investor's P&L) and OCI (recognized in investor's OCI).
Distributions received reduce the carrying amount of the investment.
When an entity contributes or sells assets to a joint arrangement in which it is a joint operator or joint venturer:
To a Joint Venture: Recognition of any gain or loss from the transaction depends on the substance. Gain/loss is recognized only to the extent of the other parties' interests in the joint venture. The entity's own share of the gain/loss is eliminated against the investment.
To a Joint Operation: If the entity transfers assets it controls to a joint operation in which it retains rights to those assets, it recognizes gain/loss only to the extent of other parties' interests. If it loses control of the assets contributed, it recognizes the full gain/loss.
Similar principles apply to the purchase of assets from a joint arrangement.
IFRS 12 requires entities to disclose information that enables users to evaluate:
The nature, extent, and financial effects of its interests in joint arrangements.
The nature of the risks associated with its interests in joint arrangements.
Key disclosures under IFRS 12 for joint arrangements include:
Name, principal place of business, country of incorporation, and proportion of ownership interest/voting rights for each material joint arrangement. Nature of relationship.
For material joint ventures: Summarized financial information (e.g., cash, current/non-current assets & liabilities, revenue, P&L from continuing operations, post-tax P&L from discontinued operations, OCI, total comprehensive income). Reconciliation of summarized financials to carrying amount of investment. Fair value if published quotes exist.
Nature and extent of any significant restrictions on ability of joint ventures to transfer funds (e.g., dividends, loan repayments).
Commitments relating to joint ventures.
Contingent liabilities incurred relating to interests in joint ventures or joint operations (unless probability of loss is remote).
Determining whether joint control exists (requires unanimous consent for relevant activities).
Assessing the substance of the arrangement over its legal form to classify it correctly.
Evaluating whether the contractual terms and other facts give parties rights to individual assets and obligations for liabilities (Joint Operation) versus rights to net assets (Joint Venture), especially when a separate vehicle is used.
Determining the accounting for contributions or sales of assets to/from a joint arrangement, including assessing transfer of control.
For joint ventures, applying the equity method correctly, including assessing impairment of the investment (IAS 28 & IAS 36).
