Consolidation package of Standards: IFRS 11 Joint Arrangements

The IASB issued an Exposure Draft on Joint Arrangements (ED9) in September 2007.

One of the IASB's objectives of the project was to amend IAS 31 Interests in Joint Ventures, by removing the option of proportionate consolidation for jointly controlled entities, the main difference between US GAAP and IAS 31, and requiring an entity to account for its interests in joint ventures using the equity method.

On February 2008 EFRAG issued its comment letter on the ED in which it was not supportive to eliminate the proportionate consolidation while it suggested that a better approach might have been to limit the choice available under IAS 31.

On May 2011 the IASB issued IFRS 11 Joint Arrangements. The amendments to IFRS 11 resulted mainly from the development of the 'consolidation package' of Standards including IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Seperate Financial Statements (2011) and IAS 28 Investments in Associates and Joint Ventures.

IFRS 11 supersedes IAS 31 and SIC-13 Jointly Controlled Entities-Non-Monetary Contributions by Venturers and it is effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted so long as IFRS 10, IFRS 12, IAS 27(2011) and IAS 28 (2011) are adopted at the same time.

IFRS 11 mainly addresses two aspects of IAS 31: a) the structure of the arrangement was the only determinant of the accounting and, b) that an entity had a choice of accounting treatment for interests in jointly controlled entities.

The key features of IFRS 11 are as follows:
• Changes in the definitions have reduced the 'types' of joint arrangements to two: joint operations and joint ventures. In a joint operation the parties that have joint control have rights to the assets and obligations for the liabilities. In a Joint venture the parties that have joint control have rights to the net assets of the arrangements;
• The policy choice in IAS 31 of proportionate consolidation for jointly controlled entities has been eliminated while equity accounting has been made mandatory for participants in joint ventures; and
• Entities that participate in joint operations are required to recognise their share of the assets,liabilities,revenues and expenses in accordance with applicable IFRS.

In autumn 2011, EFRAG in partnership with European National Standard Setters conducted a field-test of the new requirements introduced by IFRS 11 and IFRS 12 Disclosure of Interests in Other Entities in relation to interests in joint arrangements. The questionnaire used for field testing can be accessed below. The feedback report from the field-test will be published in the due course.

On 9 February 2012, EFRAG issued the Invitation to Comment on its Initial Assessments of: IFRS 10, IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011). Comments are requested by 11 March 2012.

On 30 March 2012, EFRAG issued its Endorsement Advice Letter and Effects Study Report relating to the endorsement of IFRS 11 and has concluded that it meets the requirements of endorsement.   EFRAG has also concluded that the benefits to be derived from implementing IFRS 11 are likely to outweigh the costs involved.

Notwithstanding the positive recommendation that IFRS 11 meets the endorsement criteria, EFRAG does not support the mandatory effective date of 1 January 2013, the field-tests it has conducted provided evidence that some financial institutions would need more time to implement IFRS 10, IFRS 11 and IFRS 12 in a manner that brings reliable financial reporting to capital markets. EFRAG recommends the mandatory effective date of the Standards to be 1 January 2014, with early adoption permitted. Given the interaction between the 5 Standards (consolidation package), EFRAG believes that the mandatory effective date should be the same for all the Standards.

On 29 December 2012 IFRS 11 (together with the related Standards) was published in the official journal.