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IFRS 11Joint Arrangements: Major changes and anticipated impact
After long deliberations, the standard on joint arrangements has been finally released on 12 May 2011. The standard amends both the definition and accounting for joint arrangements. Only two different types of joint arrangements are now possible: joint operations and joint ventures with the classification in either category driven by a careful analysis of the contractual arrangements between the parties, rather than the actual form of the agreement. Accounting for joint operations is consistent with the requirements of the former IAS 31 for ‘joint assets’, whereas joint ventures need to be equity accounted with the choice of proportionate consolidation no longer being available.
A number of impacts are expected, with the most obvious being on both the balance sheet and income statement for investment in joint ventures previously proportionately consolidated. Other, less obvious impacts are also expected such as a company’s ability to meet loan covenants, required changes to business systems and increased disclosure requirements. It is also expected that some industries will be more affected than others given their extensive use of such structures.
1. Brief history
The revision of th...