FACT SHEET September 2011 IAS 31 Interests in joint ventures (This fact sheet is based on the standard as at 1 January 2011.) Important note: This fact sheet is based on the requirements of the International Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety, in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the most recent changes made to the standard. IASB application date (non-jurisdiction specific) IAS 31 is applicable for annual reporting periods commencing on or after 1 July 2010. SCOPE IAS 31 is applied in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place. However, it does not apply to venturers interests in jointly controlled entities held by: Venture capital organisations or Mutual funds, unit trusts and similar entities including investment-linked insurance funds that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with IAS 39. A venturer with an interest in a jointly controlled entity is exempted from proportionate consolidation and equity method when it meets the following conditions: a. The interest is classified as held for sale in accordance with IFRS 5 b. The exception in paragraph 10 allowing a parent that also has an interest in a jointly controlled entity not to present consolidated financial statements or c. All of the following apply: i. The venturer is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the venturer not applying proportionate consolidation or the equity method ii. The venturer s debt or equity instruments are not traded in a public market iii. The venturer did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation, for the purpose of issuing any class of instruments in a public market and iv. The ultimate or any intermediate parent of the venturer produces consolidated financial statements available for public use that comply with IFRS.
Prescribed accounting treatment Recognition and measurement Joint ventures take many different forms and structures. IAS 31 identifies three broad types: Jointly controlled operations Jointly controlled assets and Jointly controlled entities that are commonly described as, and meet the definition of, joint ventures. The following characteristics are common to all joint ventures: a. Two or more venturers are bound by a contractual arrangement and b. The contractual arrangement establishes joint control. The accounting for joint ventures, by type of venture, is detailed in Table 1. Table 1: Accounting for joint ventures Joint venture type Jointly controlled operations Jointly controlled assets Jointly controlled entities Involves the use of assets and other resources of the venturers rather than the establishment of an entity separate from the venturers. The venturer shall recognise in its financial statements: the assets that it controls and the liabilities that it incurs the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture. Involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purpose of the joint venture. The assets are used to obtain benefits for the venturers. The venturer shall recognise in its financial statements: its share of the jointly controlled assets, classified according to the nature of the assets any liabilities it has incurred and its share of jointly incurred liabilities any income from the sale or use of its share of the output of the joint venture, plus its share of expenses incurred by the joint venture any expenses that it has incurred in respect of its interest in the joint venture. Involves the establishment of a separate corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity. The venturer shall recognise its interest in a jointly controlled entity using the proportionate consolidation or equity method for the period of time it has joint control in a jointly controlled entity. Proportionate consolidation v equity method IAS 31 provides a choice for accounting for joint ventures between proportionate consolidation and the equity method. Proportionate consolidation The application of proportionate consolidation means that the statement of financial position of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The statement of comprehensive income of the venturer includes its share of the income and expenses of the jointly controlled entity. 2
The two formats a venturer may use are: to combine its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements e.g. share of jointly controlled entity s inventory with its inventory, or to include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements e.g. share of property, plant and equipment of the jointly controlled entity as part of its property, plant and equipment. Proportionate consolidation is stopped from the date on which the entity ceases to have joint control over a jointly controlled entity. Equity accounting As an alternative to proportionate consolidation, joint venturers can recognise their interest in a jointly controlled entity using the equity method as described in IAS 28. Disclosures Refer Appendix 1 for a checklist to assist with IAS 31 disclosure requirements. Important definitions Control Equity method Investor in a joint venture Joint control Joint venture Proportionate consolidation Venturer the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it. accounting for the interest in a jointly controlled entity initially at cost and adjusted thereafter for the post-acquisition change in the venturer s share of net assets of the jointly controlled entity. The profit or loss of the venturer includes the venturer s share of the profit or loss of the jointly controlled entity. a party to a joint venture and does not have joint control over that joint venture. the contractually agreed sharing of control over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing the control. a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. a method of accounting whereby a venturer s share of each of the assets, liabilities, income and expenses of a jointly controlled entity is combined line by line with similar items in the venturer s financial statements or reported as separate line items in the venturer s financial statements. a party to a joint venture and has joint control over that joint venture. Australian specific requirements The Australian equivalent standard is AASB 131 which is applicable for annual reporting periods beginning on or after 1 July 2010. 3
Appendix 1 Disclosure checklist This checklist can be used to review your financial statements you should complete the Yes / No / N/A column about whether the requirement is included and provide an explanation for No answers to ensure the completeness of disclosures. Yes / No / N/A Explanation (if required) IAS 31: Interests in Joint Ventures Applicable for financial statement periods beginning on or after 1 July 2010. IAS 31.54 IAS 31.55 IAS 31.56 IAS 31.57 Has the venturer disclosed the aggregate amount of the following contingent liabilities (unless the probability of loss is remote), separately from other contingent liabilities: a. any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share in each of the contingent liabilities that have been incurred jointly with other ventures; b. its share of the contingent liabilities of the joint ventures themselves for which it is contingently liable; and c. those contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other ventures of a joint venture. Has the venturer disclosed the aggregate amount of the following commitments in respect of its interests in joint ventures separately from other commitments: a. any capital commitments of the venturer in relation to its interests in joint ventures and its share in the capital commitments that have been incurred jointly with other ventures; and b. its share of the capital commitments of the joint ventures themselves. Has the venturer disclosed a listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities? If the venturer recognises its interests in jointly controlled entities using the line-by-line reporting format for proportionate consolidation or the equity method have they disclosed the aggregate amounts of each of current assets, long-term assets, current liabilities, long-term liabilities, income and expenses related to its interests in joint ventures? Has the venturer disclosed the method it uses to recognise its interests in jointly controlled entities? 4
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