IASB Releases 'Effect Analysis' on Joint Arrangements
The IASB has published a report which presents an analysis of the effects of IFRS 11 Joint Arrangements (and related disclosures included in IFRS 12 Disclosure of Interests in Other Entities), including the IASB's expectations of how the IFRS will affect the accounting for current and new joint arrangements according to their structure and legal forms.
The report provides an overview of joint venture activity in various jurisdictions and industry sectors, outlines the effects of IFRS 11 on financial statements, provides a cost benefit analysis and compares IFRS 11 with US GAAP requirements.
The summary section of the report notes:
- On the basis of the data gathered by the IASB, the IASB believes IFRS 11 will not lead to a change for a large number of the arrangements within the scope of the IFRS. This is because most joint arrangement activity is dealt with through arrangements that do not involve the establishment of an entity and, as a result, parties will continue recognising assets, liabilities, revenues and expenses arising from those arrangements as they did when applying IAS 31
- The IASB expects that most of the arrangements structured through 'separate vehicles' will be 'joint ventures'
- IFRS 11 will lead to changes for those entities currently using proportionate consolidation when accounting for joint ventures (the IASB estimates this is approximately half of the entities with interests in jointly controlled entities). To a lesser extent, IFRS 11 will also lead to changes for entities with interests in those jointly controlled entities that will be classified as 'joint operations' in accordance with IFRS 11 and that are currently being accounted for using the equity method
- The IASB's assessment is that IFRS 11 will bring significant and sustained improvements to the reporting of joint arrangements, by reflecting the underlying economics of the arrangements and requiring disclosure of better information about an entity's involvement with joint arrangements
- The IASB believes the improvements in terms of comparability and transparency outweigh the costs involved in applying IFRS 11. The most significant costs for preparers will occur at transition, due to the assessment of existing joint arrangements and explaining changes to users.
The IASB expects the report will useful to jurisdictions which prepare regulatory impact assessments as part of their process of adopting IFRS.