for Accounting Professionals

IFRS 11 Joint Arrangements

2011
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Robin Joyce
Professor of the Chair of
International Banking and Finance
Financial University
under the Government of the Russian Federation
Visiting Professor of the Siberian Academy of Finance and Banking

Moscow, Russia

2011

IFRS 11 Joint Arrangements

Effective date: 1 January 2013.

CONTENTS

Introduction..................................................................................................................................................................... 4
Definitions....................................................................................................................................................................... 5
General requirements.....................................................................................................................................................6
Joint arrangements.........................................................................................................................................................7
Joint control.....................................................................................................................................................................7
Types of joint arrangement..............................................................................................................................................8
Financial statements of parties to a joint arrangement....................................................................................................9
Self-Test Questions.......................................................................................................................................................12
Answers........................................................................................................................................................................ 13

Introduction
IFRS 11 Joint Arrangements establishes principles for financial reporting by parties to a joint arrangement. IFRS 11 shall be applied by all
undertakings that are a party to a joint arrangement.
IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13.
IFRS 11 establishes principles that are applicable to the accounting for all joint arrangements.
The disclosure requirements for parties with joint control of a joint arrangement are specified in
IFRS 12 Disclosure of Interests in Other Undertakings.
Proportional consolidation is no longer permitted.
EXAMPLES: JOINT OPERATION AND JOINT VENTURE
Joint operation: In some countries, a group of oil companies jointly own oil, or gas, pipelines. They account for their share of the pipeline
as an asset and their agreed share of the income (some of which may come from outsiders).
Joint venture: TNK/BP is a major oil exploration joint venture in Russia, in which the two eponymous owners own half each and have to
agree (unanimously) on major decisions.

Definitions

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 undertaking that participates in a joint arrangement, regardless

of whether that undertaking has joint control of the arrangement.

separate vehicle A separately identifiable financial structure, including separate legal

undertakings, or undertakings recognised by statute, regardless of
whether those undertakings have a legal personality.
The following terms are defined in IAS 27, IAS 28 or IFRS 10:
control of an investee
equity method
power
protective rights
relevant activities
separate financial statements

significant influence.

General requirements
IFRS 11 is to be applied by all undertakings that are a party to a joint arrangement. A joint arrangement is an arrangement of which two,
or more, parties have joint control.
IFRS 11 defines joint control as the contractually-agreed sharing of control of an arrangement, which exists only when decisions about
the activities that significantly affect the returns of the arrangement require the unanimous consent of the parties sharing control.
IFRS 11 classifies joint arrangements into two types - joint operations and joint ventures.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (joint operators) have rights to the
assets, and obligations for the liabilities, relating to the arrangement.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (joint venturers) have rights to the
net assets of the arrangement.
An undertaking determines the type of joint arrangement in which it is involved by considering its rights and obligations.
This involves considering:
-the structure and legal form of the arrangement,
-the contractual terms agreed to by the parties to the arrangement and, when relevant,
-other facts and circumstances.
IFRS 11 requires a joint operator to record and measure the assets and liabilities, related revenues and expenses in relation to its
interest in the arrangement in accordance with relevant IFRSs.

IFRS 11 requires a joint venturer to record an investment and to account for that investment using the equity method in accordance
with IAS 28, unless the undertaking is exempted.

Joint arrangements
A joint arrangement is an arrangement of which two or more parties have joint control.
A joint arrangement has the following characteristics:
(i) The parties are bound by a contractual arrangement.
(ii) The contractual arrangement gives two, or more, of those parties joint control of the arrangement.
A joint arrangement is either a joint operation or a joint venture.

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.
An undertaking that is a party to an arrangement shall assess whether the contractual arrangement gives all the parties, or a group of the
parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they
must act together to direct the activities that significantly affect the returns of the arrangement.
Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only
when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.
In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any
of the other parties, or a group of the parties, from controlling the arrangement.
An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement. IFRS 11 distinguishes
between parties that have joint control of a joint arrangement (joint operators or joint venturers) and parties that participate in, but do not
have joint control of, a joint arrangement.

EXAMPLE: JOINT VENTURE PARTICIPANTS

Tamara and Inna set up a joint venture to run a hotel. They have joint control by contract and are joint venturers. As they want to expand,
they find Elena and Sergey who are willing to invest in the hotel, but want no role in the hotel management. Elena and Sergey participate
in the joint venture, but do not have joint control, even though they have shares in the joint venture.
An undertaking will need to apply judgement when assessing whether all the parties, or a group of the parties, have joint control of an
arrangement. If facts and circumstances change, an undertaking shall reassess whether it still has joint control of the arrangement.

Types of joint arrangement

A joint operation is 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. Those parties are called joint operators.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the
arrangement. Those parties are called joint venturers.
An undertaking applies judgement when assessing whether a joint arrangement is a joint operation or a joint venture. An undertaking
shall determine the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement.
An undertaking assesses its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by
the parties in the contractual arrangement and, when relevant, other facts and circumstances.

EXAMPLE: JOINT OPERATION AND JOINT VENTURE WORKING TOGETHER

Parties may be bound by a framework agreement that sets up the general contractual terms for undertaking one, or more, activities. The
framework agreement might set out that the parties establish different joint arrangements to deal with specific activities that form part of

the agreement. Even though those joint arrangements are related to the same framework agreement, their type might be different if the
parties' rights and obligations differ when undertaking the different activities dealt with in the framework agreement.
Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same
framework agreement.

Financial statements of parties to a joint arrangement

(1) Joint operations
A joint operator shall record in relation to its interest in a joint operation:
(i)

its assets, including its share of any assets held jointly;

(ii)

its liabilities, including its share of any liabilities incurred jointly;

(iii)

its revenue from the sale of its share of the output arising from the joint operation;

(iv)

its share of the revenue from the sale of the output by the joint operation; and

(v)

its expenses, including its share of any expenses incurred jointly.

A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance
with the applicable IFRSs.
The accounting for transactions such as the sale, contribution or purchase of assets between an undertaking and a joint
operation in which it is a joint operator.
When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is
conducting the transaction with the other parties to the joint operation and, as such, the joint operator shall record gains and losses

resulting from such a transaction only to the extent of the other parties' interests in the joint operation. (It will not record unrealized
profits.)
EXAMPLE: SALE TO A JOINT OPERATION
Maria is a joint operator, with 60% ownership of the joint operation. She sells a property to the operation, making a profit of 1,000
compared to its carrying value. She records only 400 (40%) as profit. The other 600 will not be recorded until the property is sold by the
joint operation.
When such transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed to the joint
operation, or of an impairment loss of those assets, those losses shall be recognised fully by the joint operator.
Accounting for purchases of assets from a joint operation
When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it shall not
record its share of the gains, and losses, until it resells those assets to a third party.
When such transactions provide evidence of a reduction in the net realisable value of the assets to be purchased, or of an impairment
loss of those assets, a joint operator shall recognise its share of those losses.
A party that participates in, but does not have joint control of, a joint operation shall also account for its interest, if that party has rights to
the assets, and obligations for the liabilities, relating to the joint operation.
If a party that participates in, but does not have joint control of, a joint operation does not have rights to the assets, and obligations for the
liabilities, relating to that joint operation, it shall account for its interest in the joint operation in accordance with IFRSs applicable to that
interest.
(2) Joint ventures
A joint venturer shall recognise its interest in a joint venture as an investment and shall account for that investment using the equity
method in accordance with IAS 28 unless the undertaking is exempted.

A party that participates in, but does not have joint control of, a joint venture shall account for its interest in the arrangement in
accordance with IFRS 9, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with
IAS 28.
Separate financial statements
In its separate financial statements, a joint operator or joint venturer shall account for its interest in:
(i)

a joint operation as above;

(ii)

a joint venture in accordance with IAS 27. (This standard covers separate financial statements since IFRS 10 superseded its
role in consolidated financial statements.)

In its separate financial statements, a party that participates in, but does not have joint control of, a joint arrangement shall account for its
interest in:
(i)

a joint operation as above;

(ii)

a joint venture in accordance with IFRS 9, unless the undertaking has significant influence over the joint venture, in which case it
shall apply IAS 27.

(i)
(ii)
(iii)

Self-Test Questions
1. Joint arrangements require:

Contractually- agreed shared control

Unanimity in decision making
Both i + ii

2. Disclosure requirements are:

(i)
Unchanged from IAS 31
(ii)
Detailed in IFRS 12.

3. Joint operations are accounted for using:

(i)
The relevant IFRSs
(ii)
The equity method
(iii)
Proportional consolidation
4. Joint ventures are accounted for using:
(i)
(ii)
(iii)

The relevant IFRSs

The equity method
Proportional consolidation

5. An undertaking determines the type of joint arrangement

in which it is involved by considering its rights and
obligations.
This involves considering:
(i)
(ii)
(iii)
(iv)

the structure and legal form of the arrangement

the contractual terms agreed to by the parties to
the arrangement
other facts and circumstances
i+ii+iii

6. Joint arrangements can have:

(i)
Only two controllers
(ii)
Only parties that that control the arrangement
(iii)
Unlimited controllers and parties that have no
control function.
7. A party to a joint operation sells an asset to the
operation. The profit it can realise is:
(i)
None

(ii)
(iii)

100%
100% - the partys share, until the asset is sold by
the operation

8. Can a joint arrangement include both a joint operation and

a joint venture
(i)
Yes
(ii)
No
9. Does a joint operator have to share in impairment
losses of the joint operation
(i)
Yes
(ii)
No
10. Can a participant in a joint venture have significant
influence, but not joint control
(i)
Yes
(ii)
No

Answers
1
2
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5
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7
8
9
10

iii
ii
i
ii
iv
iii
iii
i
i
i