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The Interpretations Committee decided to discuss how it can best document its work so that it will be helpful for stakeholders

 16 July 2014


Feedback from informal consultations with IASB members (Agenda Paper 2A)

The Interpretations Committee discussed feedback from the informal consultations with IASB members on the issue of how to prepare the (separate) financial statements of a joint operation that is a separate vehicle. The Interpretations Committee noted that the feedback is consistent with its view that:

  1. IFRS 11 applies only to the accounting by the joint operators and not to the accounting by a separate vehicle that is a joint operation;
  2. the financial statements of the separate vehicle would therefore be prepared in accordance with applicable Standards;
  3. reporting the same financial statement items in the (separate) financial statements of both the joint operators and the joint operation could be appropriate and would not be in conflict with the Standards; however
  4. it will be important to reflect the effect of the joint operators’ rights and obligations in the accounting for the joint operation’s assets and liabilities.

Consideration of a specific type of joint arrangement structure (Agenda Paper 2B)

The Interpretations Committee discussed the classification of a specific type of joint arrangement structure, established for a bespoke construction project for delivery of a construction service to a single customer. The Interpretations Committee noted that the features in the example included in this paper:

  1. would not indicate that the parties to the joint arrangement have, in substance, direct rights to the assets of the joint arrangement; but
  2. could indicate that the parties to the joint arrangement have, in substance, direct obligations for the liabilities of the joint arrangement, depending on the nature of the parties’ obligations.

Consequently, the Interpretations Committee noted that the joint arrangement having the features in the example would not be classified as a joint operation. This is because in order to classify a joint arrangement as a joint operation, IFRS 11 requires that the parties to the joint arrangement have, in substance, both direct rights to the assets and direct obligations for the liabilities relating to the joint arrangement.

The Interpretations Committee also noted that two joint arrangements with similar features can be classified differently depending on whether or not the joint arrangement is structured through a separate vehicle (in circumstances in which the legal form confers separation between the parties and the separate vehicle). This is because:

  1. in the case of a joint arrangement that is structured through a separate vehicle, the legal form of the vehicle must be overcome by other contractual arrangements or specific ‘other facts and circumstances’ in order for the joint arrangement to be classified as a joint operation; but
  2. in the case of a joint arrangement that is not structured through a separate vehicle, it is automatically classified as a joint operation.

The Interpretations Committee noted that this reflects the approach adopted in IFRS 11, which places importance on:

  1. reflecting the rights and obligations of the parties to the joint arrangement; and
  2. the presence of a separate vehicle affecting those rights and obligations.

The Interpretations Committee noted that the assessment of the classification of a joint arrangement depends on specific contractual terms and conditions and requires a full analysis of the features of the joint arrangement structure.

Accounting treatment when the joint operators’ share of output purchased differs from their share of ownership interest in the joint operation (Agenda Paper 2C)

The Interpretations Committee discussed how the joint operators should recognise assets, liabilities, revenues and expenses in relation to their interests in the joint operation. The Interpretations Committee discussed the issue by considering a circumstance in which the joint arrangement is classified as a joint operation because the assessment of ‘other facts and circumstances’ shows that:

  1. the parties to the joint arrangement purchase all output from the joint arrangement; and
  2. this fact, in addition to other facts, indicates that the parties have rights to the assets and obligations for the liabilities relating to the joint arrangement.

In this circumstance, the joint operators would not recognise any amount in relation to ‘share of the revenue from the sale of the output by the joint operation’ (paragraph 20(d) of IFRS 11). This is because the share of the revenue from the sale of the output to the joint operators by the joint operation would be eliminated against the share of the output purchased by the joint operators.

The Interpretations Committee discussed the accounting by the joint operators when the joint operators’ share of the output purchased differs from their ownership interests in the joint operation. The Interpretations Committee noted that it is important to understand why the share of the output purchased differs from the ownership interests in the joint operation. The Interpretations Committee also noted that the accounting for the difference arising between the share of the output purchased and the ownership interest can vary depending on the details of the contractual agreement. Judgement will therefore be needed to determine the appropriate accounting.

Consideration of next steps (Agenda Paper 2D)

The Interpretations Committee considered the next steps with regard to various issues that it had identified at its November 2013 meeting. The Interpretations Committee noted that its discussion on joint arrangements in its meetings from November 2013 would help stakeholders to address implementation issues relating to IFRS 11. The Interpretations Committee therefore decided to discuss, at its next meeting, how it can best document its conclusions and observations from this work so that it will be helpful for stakeholders.

 

 

 

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