Joint Arrangements

BACKGROUND

Section 3055, Interests in Joint Ventures, in Part II of the Handbook, will be updated so that the nature of an entity’s interest in a joint venture is faithfully represented.

(Read more)

The project will address the accounting for an interest in a joint arrangement (previously called a joint venture) when an entity has:

  • rights to the arrangement’s assets and obligations for its liabilities; and
  • rights to the arrangement’s net assets.

The current accounting policy choice continues the differential reporting option from pre-changeover standards in Part V of the Handbook. It can result in accounting that is not faithfully representational.

  • Proportionate consolidation of an interest in a jointly controlled enterprise may result in reporting:
    individual assets that the entity does not control;
    liabilities for which it has no direct obligation; and
    cash flows to which the entity does not have direct access.
  • Accounting for an interest in a jointly controlled asset or a jointly controlled operation using the equity or cost methods results in not recording:
    assets the entity controls; and
    obligations it is liable for.

(Hide)


PROJECT NEWS

Basis for Conclusions – Joint Arrangements  –Sections 3051 and 3056
March 30, 2015. This document sets out how the AcSB reached its conclusions. As well, it sets out significant matters arising from comments received in response to its Exposure Draft and indicates how the Board dealt with the issues raised.

FYI Article – Joint Arrangements and Investments: Embrace the Changes
October 8, 2014. This article discusses the AcSB’s recently issued Section 3056, Joint Arrangements, and amendments to Section 3051, Investments.

Final Standard – Joint Arrangements
September 5, 2014. The AcSB has issued new Section 3056, Interests in Joint Arrangements and amendments to Section 3051, Investments. Section 3056 replaces Section 3055, Interests in Joint Ventures, and eliminates the free choice in accounting for joint arrangements. The new and amended Sections are effective for fiscal years beginning on or after January 1, 2016 with earlier application permitted.

AcSB Decision Summary – March 18-19, 2014
The AcSB approved the issuance of Section 3056, Joint Arrangements, and amendments to Section 3051, Investments subject to final drafting and a written ballot.  Section 3056 will replace Section 3055, Interests in Joint Ventures.

Section 3056 will require investors to select one of three policy choices to account for interests in jointly controlled enterprises. All jointly controlled enterprises may be accounted for using either the equity method or the cost method. A third option will permit an investor to make an accounting policy choice to undertake additional analysis of its interests in all jointly controlled enterprises. For all such interests representing interests in individual assets and liabilities, the investor will be required to account for its interest in each of those assets and liabilities. Alternatively, for those interests determined to represent interests in the net assets of jointly controlled enterprises, the investor will be required to account for its interests using the equity method. Under the exposure draft proposal, investors would have been required to follow the third policy choice described above and would not have been able to elect a policy choice of either cost or equity for all interests in jointly controlled enterprises. The AcSB agreed that no other significant changes to the Exposure Draft proposals were required as a result of the feedback received from stakeholders.

The AcSB expects to issue Section 3056 and the amendments to Section 3051 in the third quarter of 2014. The new standards will be effective for fiscal years beginning on or after January 1, 2016. Early adoption will be permitted.

Private Enterprise Advisory Committee Notes – February 24, 2014
The Committee continued its discussion on the responses received on the Exposure Draft, “Joint Arrangements and Investments,” issued in August 2013. The Committee discussed whether a simplification should be added to proposed Section 3056, Interests in Joint Arrangements, to permit all jointly controlled enterprises to be accounted for using the equity or cost method. An investor with an interest in the individual assets and liabilities of a jointly controlled enterprise would also have an accounting policy choice to account for its interest in those individual assets and liabilities, which was the required accounting under the exposure draft proposals. If that choice is made, the investor would be required to undertake an analysis of each interest in a jointly controlled enterprise to determine whether it has an interest in the individual assets and liabilities or an interest in the net assets of the jointly controlled enterprise. The Committee agreed to recommend to the AcSB that it consider simplifying Section 3056 and adding guidance to help investors determine whether they have an interest in the net assets or the individual assets and liabilities of a jointly controlled enterprise.

The Committee discussed whether the concept of “unanimous consent” should be added to the definition of “joint control”. The Committee noted that changing the wording of the definition might affect the determination of whether an arrangement is under joint control, which is not the intention of this project. Consequently, the Committee agreed to recommend to the AcSB that it not make this change.

AcSB Decision Summary – January 15, 2014
The AcSB began its consideration of responses to its August 2013 Exposure Draft, “Joint Arrangements and Investments.” Further input on certain issues was requested from the AcSB’s Private Enterprise Advisory Committee. The AcSB’s discussion will continue at its March 2014 meeting.

Private Enterprise Advisory Committee Notes – December 10, 2013
The Committee discussed the responses received on the Exposure Draft, “Joint Arrangements and Investments,” issued in August 2013. The Committee agreed that additional application guidance on determining the appropriate classification of an interest in a jointly controlled enterprise should be included in replacement Section 3056, Interests in Joint Arrangements. This classification determines the method of accounting. The Committee agreed to recommend to the AcSB that the proposals set out in the Exposure Draft be finalized substantially as exposed, with the addition of this application guidance and certain clarifications suggested by respondents.

Roundtable Discussions – Stakeholders’ Views Sought on Proposals on Consolidations and Joint Arrangements
October 24, 2013. Register to attend a roundtable discussion to share your views on the AcSB’s Exposure Drafts.  

Webinar – Revised Standards on Consolidations, Joint Arrangements and Investments 
August 22, 2013. Tune in to this webinar on September 16 (English) or October 18 (French) to get details about the AcSB’s Exposure Drafts on these topics. The webinar will help you prepare your responses to the proposals, due November 11, 2013.

Exposure Draft – Joint Arrangements and Investments
August 8, 2013.  The AcSB has issued an Exposure Draft which proposes to replace Section 3055, Interests in Joint Ventures with Section 3056, Interests in Joint Arrangements and amend Section 3051, Investments. Stakeholders are encouraged to submit their comments, on the form provided, by November 11, 2013.

AcSB Decision Summary – September 5-6, 2012
The AcSB approved the following recommendations from its Private Enterprise Advisory Committee regarding the disclosures and transitional provisions, to be included in the forthcoming exposure draft:

  • The existing disclosures in Sections 3051, Investments, and 3055, Interests in Joint Ventures, should be retained, except for certain disclosures that are no longer relevant. No new disclosures should be added.
  • On transition from proportionate consolidation to the equity or cost methods, the initial carrying amount of an investment in a joint venture will equal the net carrying amount of the assets and liabilities that the entity had previously proportionately consolidated.
  • On transition from the cost or equity methods to accounting for the entity’s interests in the individual assets and obligations of a joint arrangement, an entity will be able to use the same transition provisions as provided in the proposed new standard on Consolidations.

The AcSB expects to issue an exposure draft in the third quarter of 2013, at the same time as the exposure draft on Consolidations.

AcSB Decision Summary – July 11, 2012
The AcSB deferred discussion of the recommendations of its Private Enterprise Advisory Committee on disclosures and transition provisions to a future AcSB meeting.

Private Enterprise Advisory Committee Notes – June 18, 2012
The Committee continued its discussions of incorporating key elements of IFRS 11 Joint Arrangements into Part II of the Handbook. The focus of the current discussion was on disclosure and transition.

The Committee recommended that the disclosure requirements currently found in Interests in Joint Ventures, paragraph 3055.49, should be deleted and that all other disclosure requirements in the Section should be retained. The Committee could not identify any additional disclosures to be added as a result of this project.

In terms of transition from proportionate consolidation, the Committee recommended proceeding with an amended version of the transitional provisions found in IFRS 11 to provide appropriate guidance.

In terms of transition from the equity or cost method, the Committee recommended that transition should be a free choice between retrospective application and a simplified method to be developed. The simplified method would be consistent with that determined for the Consolidations project.

AcSB Decision Summary – May 9-10, 2012
The AcSB agreed with the recommendations from its Private Enterprise Advisory Committee on the accounting for contributions by an entity to a joint arrangement and transactions between an entity and a joint arrangement:

  • When the entity has an interest in the individual assets and obligations of a joint arrangement, gains and losses should be recognized to the extent of the interests of the other non-related parties to the joint arrangement. For contributions to a joint arrangement, this differs from current Section 3055, Interests in Joint Ventures, which only permits immediate recognition of a gain to the extent of cash received or the fair value of other assets received.
  • When the entity has an interest in the net assets of a jointly controlled enterprise and chooses to account for its interest using the equity method, the accounting for contributions and transactions should be consistent with the accounting for investments subject to significant influence that are also accounted for using the equity method, in accordance with Section 3051, Investments.

The AcSB discussed the equity method of accounting in Section 3051 as it relates to transactions between the investor and investee. The AcSB agreed with the Committee’s recommendation that Section 3051 should require unrealized gains and losses to be recognized to the extent of the interests of the other non-related investors. This change would produce a different result from consolidation accounting.  The change would apply to all investments — those subject to control, joint control or significant influence — when an entity chooses to apply the equity method or is required to do so.  The AcSB expects to issue an exposure draft on joint arrangements, including limited modifications to equity accounting, later this year.

Private Enterprise Advisory Committee Notes – March 22, 2012
The Committee discussed the accounting for contributions to, and transactions with, a joint arrangement. The Committee recommended that when an investor accounts for an interest in a joint arrangement using the equity method, contributions to and transactions with the joint arrangement should be accounted for on a basis consistent with that applied to other equity accounted investments.

AcSB Decision Summary – March 20-21, 2012
The AcSB continued its discussion of recommendations from its Private Enterprise Advisory Committee and agreed that an entity should account for its interest in a joint venture in accordance with its rights and obligations arising from the joint arrangement, consistent with the principle in IFRS 11 Joint Arrangements.

An entity with an interest in jointly controlled assets, or jointly controlled operations, should recognize its interests in the individual assets and obligations of the joint venture. (This accounting is similar to proportionate consolidation.) An entity with an interest in a jointly controlled enterprise generally has an interest in the net assets of the jointly controlled enterprise, and should account for that interest using either the equity or the cost method. However, in some cases, the entity may have rights to the assets and obligations for the liabilities of the joint venture, rather than rights to the net assets. In those circumstances the entity should account for its interest in the individual assets and liabilities of the joint venture.

Private Enterprise Advisory Committee Notes – February 3, 2012
The Committee continued its discussion of incorporating key elements of IFRS 11 Joint Arrangements into Part II of the Handbook. It reviewed draft wording in respect of jointly controlled enterprises, as well as several other issues, and suggested several amendments. The Committee will continue discussions at a future meeting.

AcSB Decision Summary – January 11, 2012
The AcSB began discussion of recommendations by the Private Enterprise Advisory Committee. The recommendations will be discussed further at a future AcSB meeting.

Private Enterprise Advisory Committee Notes – December 13, 2011
The Committee agreed that Section 3055, Interests in Joint Ventures, should be modified to incorporate the key elements of IFRS 11 Joint Arrangements. The Committee agreed to recommend a simplification to the accounting in IFRS 11. This would permit a private enterprise to use equity method accounting for all interests in a joint arrangement structured in a separate vehicle. Requiring private enterprises to consider the various factors that might result in the interest not qualifying for equity method accounting was considered to fail a cost/benefit test. Further discussions will be held at a future meeting.

AcSB Decision Summary – November 8, 2011
The AcSB tentatively decided that an entity should account for its interest in a joint arrangement according to the nature of its interest in the assets and liabilities of that joint arrangement. If the joint arrangement consists of jointly controlled assets or jointly controlled operations, the entity should account separately for its interest in each of the assets and liabilities of the joint arrangement. An interest in a jointly controlled enterprise should be accounted for as a single asset using either the cost or the equity method. The AcSB requested the staff to seek the input of the Private Enterprise Advisory Committee on how this tentative decision can be implemented in the standards for private enterprises.

Private Enterprise Advisory Committee Notes – September 15, 2011
The Committee discussed possible simplifications in incorporating IFRS 11 Joint Arrangements into Part II of the Handbook, specifically when a joint arrangement is structured through a separate vehicle. Staff was directed to further consider several of these alternatives and prepare material for discussion at a future meeting.

AcSB Decision Summary – July 13, 2011
The AcSB decided to include changes to the standard on joint ventures in the first major improvements to accounting standards for private enterprises. Following exposure for comment, these improvements will be issued in late 2012 and be effective no earlier than fiscal years beginning on January 1, 2014. The changes would require an entity with an interest in the net assets of a joint venture to account for this interest using either the cost or equity method. An entity with an interest in the individual assets and liabilities of a joint venture (such as jointly controlled assets and jointly controlled operations) would account for its interest in each individual asset and liability separately, in accordance with the applicable standards in Part II.

Private Enterprise Advisory Committee Notes – June 21, 2011
The Committee discussed whether changes to joint venture accounting, introduced by IFRS 11 Joint Arrangements, should be incorporated into accounting standards for private enterprises. The main issues are whether certain joint arrangements should be prohibited from using proportionate consolidation and other joint arrangements should be required to use joint consolidation.

Several members noted that the current standard seems to be working well and there may not be a significant benefit to adopting the new international material.

Other members noted that proportionate consolidation of a jointly controlled enterprise implies control over its assets and an obligation for its liabilities. They also noted that accounting for jointly controlled assets and operations using the cost or equity method results in assets and liabilities not being reflected on the balance sheet. The effect of proportionate consolidation on the statement of cash flows can be an issue; the statement of cash flows reflects a pro rata share of a proportionately consolidated joint enterprise’s gross cash flows although the venturer may only have access to its share of the net cash flows (through dividends or other distributions).

The Committee was split in terms of whether IFRS 11 should be incorporated into Part II of the Handbook. The AcSB will be informed of the Committee discussions and the split vote on this issue.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.