IFRS 11 | Joint Arrangements

1

Objective

The objective is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (joint arrangements).

2

Meeting the Objective

To meet the objective, the standard defines joint control and requires an entity to determine the type of joint arrangement by assessing its rights and obligations and to account for them accordingly.

3

Scope

This standard shall be applied by all entities that are a party to a joint arrangement.

4

Definition

A joint arrangement is an arrangement of which two or more parties have joint control.

5

Characteristics

A joint arrangement has the following characteristics: (a) the parties are bound by a contractual arrangement; and (b) the contractual arrangement gives two or more of those parties joint control of the arrangement.

6

Types

A joint arrangement is either a joint operation or a joint venture.

7

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.

8

Collective Control

An entity assesses whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. This occurs when they must act together to direct the relevant activities.

9

Unanimous Consent

Once collective control is determined, joint control exists only if decisions about relevant activities require the unanimous consent of the parties that control the arrangement collectively.

10

No Single Control

In a joint arrangement, no single party controls the arrangement on its own. A party with joint control can prevent any of the other parties from controlling the arrangement.

11

Parties

An arrangement can be a joint arrangement even if not all parties have joint control. The standard distinguishes between parties with joint control (joint operators/venturers) and those who participate but do not have joint control.

12

Judgement

An entity applies judgement when assessing whether joint control exists, considering all facts and circumstances.

13

Reassessment

An entity shall reassess whether it still has joint control if facts and circumstances change.

14

Determining Type

An entity shall determine the type of joint arrangement (joint operation or joint venture) based on the rights and obligations of the parties.

15

Joint Operation

A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. These parties are joint operators.

16

Joint Venture

A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement. These parties are joint venturers.

17

Assessment Basis

Classification depends on rights and obligations assessed by considering the structure and legal form of the arrangement, the contractual terms, and other relevant facts and circumstances.

18

Framework Agreements

Parties may be bound by a framework agreement that sets up general terms for multiple activities. Different joint arrangements related to the same framework might be classified differently if rights and obligations differ for different activities.

19

Change in Type

If facts and circumstances change, an entity shall reassess whether the type of joint arrangement has changed.

20

Joint Operation Accounting

A joint operator shall recognise in relation to its interest in a joint operation: (a) its assets, including its share of any assets held jointly; (b) its liabilities, including its share of any liabilities incurred jointly; (c) its revenue from the sale of its share of the output; (d) its share of the revenue from the sale of the output by the joint operation; and (e) its expenses, including its share of any expenses incurred jointly.

21

Applicable IFRSs

A joint operator accounts for the assets, liabilities, revenues, and expenses relating to its interest in accordance with the IFRSs applicable to those particular items.

21A

Business Acquisition

When an entity acquires an interest in a joint operation that constitutes a business (as defined in IFRS 3), it applies the principles of business combinations accounting in IFRS 3 and other IFRSs, and discloses required information. This applies to initial and additional acquisitions.

22

Transactions

The accounting for transactions such as the sale, contribution, or purchase of assets between an entity and a joint operation is specified in the application guidance.

23

No Joint Control

A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in accordance with paragraphs 20-22 if it has rights to the assets and obligations for the liabilities. If it does not, it accounts for its interest in accordance with applicable IFRSs.

24

Joint Venture Accounting

A joint venturer shall recognise its interest in a joint venture as an investment and account for it using the equity method in accordance with IAS 28, unless exempted by that standard.

25

No Joint Control (JV)

A party that participates in, but does not have joint control of, a joint venture accounts for its interest in accordance with IFRS 9, unless it has significant influence, in which case it applies IAS 28.

26

Separate Financial Statements

In separate financial statements, a joint operator or joint venturer accounts for its interest: (a) in a joint operation in accordance with paragraphs 20-22; (b) in a joint venture in accordance with IAS 27 (usually at cost or under IFRS 9).

27

Separate Statements (No Control)

In separate financial statements, a party without joint control accounts for its interest: (a) in a joint operation in accordance with paragraph 23; (b) in a joint venture in accordance with IFRS 9, unless it has significant influence (then apply IAS 27).

App A

Definitions

The following terms are defined:

• joint arrangement: An arrangement of which two or more parties have joint control.
• joint control: 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.
• joint operation: 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.
• joint operator: A party to a joint operation that has joint control of that joint operation.
• joint venture: A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
• joint venturer: A party to a joint venture that has joint control of that joint venture.
• party to a joint arrangement: An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement.
• separate vehicle: A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality.

B2

Contractual Arrangement

Contractual arrangements can be evidenced by contracts, documented discussions, or statutory mechanisms. They are usually enforceable.

B4

Terms

The contractual arrangement sets out terms such as the purpose/activity, appointment of governing body, decision-making process (voting rights/unanimous consent), capital contributions, and sharing of assets/liabilities/profit/loss.

B5

Assessing Control

An entity first assesses whether all parties, or a group of parties, control the arrangement collectively using the definition of control in IFRS 10.

B6

Assessing Joint Control

After determining collective control, the entity assesses if decisions about relevant activities require unanimous consent of the parties that collectively control the arrangement.

B14

Classification Basis

Classification depends on rights and obligations. If the entity has rights to assets and obligations for liabilities, it is a joint operation. If the entity has rights to net assets, it is a joint venture.

B15

Assessment Steps

To determine classification, an entity considers the structure (separate vehicle), legal form, contractual terms, and other facts and circumstances.

B16

Not Separate Vehicle

A joint arrangement not structured through a separate vehicle is a joint operation.

B19

Separate Vehicle

A joint arrangement structured through a separate vehicle can be either a joint venture or a joint operation depending on rights and obligations.

B22

Legal Form

The legal form helps assess rights to assets and obligations for liabilities. If the legal form confers separation (assets/liabilities are those of the vehicle), it indicates a joint venture, unless overridden by contractual terms or other facts.

B24

No Separation

If the legal form does not confer separation (e.g., general partnership where partners are liable), it indicates a joint operation.

B25

Contractual Terms

Parties can use the contractual arrangement to modify or reverse the rights and obligations conferred by legal form. For example, parties might agree to have direct rights to assets and primary responsibility for liabilities of a separate entity, making it a joint operation.

B29

Other Facts

Even if legal form and contract terms imply a joint venture, other facts may create a joint operation. This occurs if the arrangement is designed primarily to provide output to the parties, giving them rights to economic benefits of assets and obliging them to fund the settlement of liabilities.

B34

Sales to Joint Operation

When an entity sells or contributes assets to a joint operation it controls jointly, it recognises gains/losses only to the extent of other parties' interests. If the transaction provides evidence of impairment, the full loss is recognised.

B36

Purchases from Joint Operation

When an entity purchases assets from a joint operation, it does not recognise its share of the gains/losses until it resells the assets to a third party. It recognises its share of losses immediately if they represent impairment.

C1

Effective Date

An entity shall apply this IFRS for annual periods beginning on or after 1 January 2013.

C2

Transition (JV)

When changing from proportionate consolidation to the equity method for a joint venture, the initial investment is measured as the aggregate of the carrying amounts of assets and liabilities previously consolidated.

C7

Transition (JO)

When changing from the equity method to accounting for assets and liabilities for a joint operation, the entity derecognises the investment and recognises its share of assets and liabilities.