Details

  • Service: Audit, Advisory, Accounting Advisory Services (External Financial Reporting Services)
  • Type: Business and industry issue
  • Date: 5/1/2011

First Impressions: Joint arrangements 

No more proportionate consolidation

This new joint arrangements standard has, like the consolidated standard that it accompanies, been long in the making. The IASB started work in 2005. It did so for two reasons. First, there was the old standard's exclusive focus on the structure of the arrangement: under the joint ventures standard, IAS 31, the presence of a separate vehicle determined the classification as between 'jointly controlled entities' and other arrangements. This led, in the IASB's view, to what were economically similar arrangements being accounted for differently and vice versa.

Second, there was IAS 31's free choice, for jointly controlled entities, between proportionate consolidation and the equity method. The IASB's view is that proportionate consolidation is not appropriate in the absence of rights/obligations directly to/for the underlying assets/obligations of the arrangement.

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We trust that this publication will assist companies in understanding what needs to be done to apply the standard; and assist investors' understanding of what is driving the different information that they will begin to see, in 2013, as companies begin to report on this basis.