Question

Does the required accounting treatment for an interest in a joint operation differ from the requirements for an interest in a joint venture and, if so, how do these requirements differ?

Answer 1

Answer :

Disclosures providing information about interests held in joint arrangements IFRS 12 deals with information requirements relating to the differing interests that an entity might hold in another entity. In this respect, there is specific guidance relative to the information requirements for interests in joint arrangements and associates. This information is comprised of both qualitative and quantitative information designed to communicate relevant matters pertaining to the interests held which is not otherwise available in the primary financial statements. There is an additional layer of information disclosure requirements for joint ventures designed to convey information that is no longer available to the users following the move away from proportionate consolidation as a policy choice. A summary of the disclosures required is in the table below.

Nature of disclosure	Disclosures for joint operations AND joint ventures	Additional disclosures required for joint ventures only
Nature, extent and financial effects of an entity’s interests in joint arrangements	Name Nature of relationship with the joint arrangement (e.g. how the activities of the JA relate to those of the reporting entity) Principal place of business and country of incorporation Percentage ownership interest (or participating share rights) and percentage of voting rights held	Measurement basis: equity method or fair value. If equity method, fair value must also be disclosed if a quoted market price exists. Summarized financial information
Risks associated with an entity’s interests in joint ventures	No additional disclosures for joint operations (since the entity accounts for its share of the assets and liabilities in accordance with the applicable IFRSs, information of this nature will already be addressed).	Separate disclosure of commitments related to joint ventures. Separate disclosure of contingent liabilities related to joint ventures.

There is an additional layer of information disclosure requirements for joint ventures designed to convey information that is no longer available to the users following the move away from proportionate consolidation as a policy choice.

Some more details :

Under IFRS 11, joint arrangements are required to be classified as either a joint operation or a joint venture. The attributes of each type of joint arrangement are summarized below.

Joint operation :

Each party to the joint operation (or each “joint operator”) recognizes its share of the assets, liabilities, revenues and expenses of the joint arrangement. The share is determined based on the rights and obligations of each party as set out in the contractual terms. The joint operator is required to apply the corresponding IFRS to each financial statement element recognized.

Includes all joint arrangements which are not structured through a separate vehicle. Certain joint arrangements which are structured through a separate vehicle depending on the contractual rights and, if relevant, other facts and circumstances.

Joint venture :

Each party to the joint venture (or each “joint venturer”) recognizes an investment. The investment is accounted for using the equity method in accordance with IAS 28 (2011). The general requirements of IAS 28 (2011) remain essentially unchanged from the existing guidance on equity-method accounting.

Joint ventures are joint arrangements which are structured through a separate vehicle that confers legal separation between the joint venturer and the assets and liabilities in the vehicle. It is anticipated that many arrangements structured through a separate vehicle will be joint ventures.