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  • IFRS in Practice

    Applying IAS 11 Joint arrangements

Publikation:

IFRS in Practice 2019-2020: IAS 11 Joint Arrangements

03. Juli 2020

Background

In May 2011 the International Accounting Standard Board (IASB) issued IFRS 11 Joint Arrangements, which superseded IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers.

IFRS 11 establishes principles for financial reporting by parties to a joint arrangement.

A binding contractual arrangement that results in two or more of parties having joint control over the investee’s relevant activities gives rise to a joint arrangement, and this is subsequently classified into one of two classifications, being either:

– A joint operation, or
– A joint venture.

A joint operation is a joint arrangement whereby the joint controlling parties (‘joint operators’) have rights to the assets, and obligations for the liabilities, relating to the arrangement.

A joint venture is a joint arrangement whereby joint controlling parties (‘joint venturers’) have rights to the net assets of the arrangement.

In terms of joint arrangements structured through a separate vehicle (e.g. an incorporated entity), under IFRS 11 the legal structure of the arrangement is not the only factor in determining the classification of the arrangement. Instead, the rights and obligations specified in the joint arrangement agreement must be analysed to determine whether the parties with joint control have either:

– Rights to the assets, and obligations for the liabilities, or
– Rights to the net assets. The disclosure requirements for joint arrangements are incorporated into IFRS 12 Disclosure of Interests in Other Entities.

There are a wide variety of industries where joint arrangements are common, either through strategic alliances, or having separate vehicles. IFRS 11 has many implications in practice for these industries, which include:

– Business services
– Software
– Wholesale trade - durable and non-durable goods
– Investment and commodity firms
– Electronics
– Telecommunications
– Extractives – mining, oil & gas
– Real estate.

IFRS 11 was mandatorily effective for reporting periods beginning on or after 1 January 2013 and endorsed for use in the EU at the end of 2012 with a mandatory effective date of 1 January 2014.

 

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