Need To Know IFRS 11 Joint Arrangements (Print)

NEED TO KNOW
IFRS11 Joint Arrangements

2 IFRS 11 Joint Arrangements
OVERVIEW
Headlines
IFRS11 Joint Arrangements:
Applies to annual periods beginning on or after 1January2013
Introduces the concept of joint arrangements which are classified as either jointoperations or jointventures
Very narrowly defines what can be classified as a jointoperation, in particular when the joint arrangement is structured
using a separate legal entity
Requires jointoperators to account for interests in jointoperations by accounting for their own (or share of) assets and
liabilities
Requires jointventurers to account for interests in jointventures using the equity method
Prohibits proportionate consolidation for jointventures
Is dependent upon the new definition of control introduced in IFRS10 Consolidated Financial Statements.
The creation of joint arrangements, incorporated jointventures, unincorporated jointventures is very common in projects
that typically:
Require significant funding
Involve significant project risk
Require collaboration among investors to share expertise and resources.
For this reason joint arrangements are very common in the following industries:
Extractives
Property
Technology
Pharmaceutical.
The exact nature of the joint arrangement can differ significantly dependent upon industry and geography. Incorporated
jointventures are common within the property sector, but unincorporated jointoperations are the most common structure
within the extractives sector.
For many preparers that have interests in joint arrangements the introduction of IFRS11 will not significantly change their
current accounting treatment, but the rationale for the treatment will be determined by significantly modified principles.
The firststep to applying the standard, is to identify the investees relevant activity (or activities) and then which parties have
jointcontrol over that relevant activity or activities. Relevant activities are the activities of the investee that significantly
affect the investees returns (that is, its reported profit or loss).
IFRS 11 Joint Arrangements 3
Potential impacts on transition to IFRS11

Introduction of the IFRS10 control test may mean that the investee is found to be controlled by a single party and is
therefore not a joint arrangement
Subtle changes to definitions may mean that twoor more parties are no longer considered to have jointcontrol and the
arrangement is therefore not within the scope of IFRS11
Previously proportionately consolidated jointventures that are structured using a separate legal entity now typically have
to be equity-accounted.
For periods beginning on or after 1January2013, IAS31 Interests in JointVentures has been superseded by IFRS11, which
prescribes the accounting for joint arrangements (classified as jointventures, and jointoperations).
The treatment of joint arrangements in an entitys separate financial statements are set out in IAS 27(2011) Separate
Financial Statements.
The consolidation principles previously included in IAS27(2008) Consolidated and Separate Financial Statements and
SIC-12Consolidation Special Purpose Entities have been combined and are now set out IFRS10. IFRS10 introduces a new
definition of control, an understanding of which is critical for the application ofIFRS11.
All applicable disclosure requirements relating to joint arrangements are now found within IFRS12 Disclosure of Interests in
Other Entities.
The introduction of IFRS11 and withdrawal of IAS31 came about as a result of the joint International Accounting Standards
Board(IASB) and USFinancial Accounting Standards Board(FASB) project to reduce diversity in practice in relation to the
accounting for joint arrangements, in particular:
Making the substance of arrangement the key driver in how to subsequently account for an interest in another entity
Removing optional alternatives for subsequent accounting of interests in joint arrangements.
Change in the definition of control

To understand the application of jointcontrol, it is firstessential to understand what control means as defined in IFRS10.
Under IFRS10, control is evidenced by the existence of:

An investors power over the investee
An investors exposure, or rights, to variable returns from its involvement
The ability to use its power to affect the amount of the investors returns.
To determine whether an investor has power over an investee it is essential that the investees relevant activity (or activities)
be determined. This is because relevant activities are the activities of the investee that significantly affect the investees
variable returns (that is, its reported profit or loss, or other variable returns). Consequently, for an investor to be able to affect
its own share of profit or loss, or other variable returns, from the investee, the investor must be able to direct the investees
relevant activities.
IFRS10 also specifically addresses several topics that were not dealt with under the now superseded IAS27(2008) and SIC-
12, or deals with them differently, such as potential voting rights, de-facto control, contractual agreements with other vote
holders, principal agent relationships, silos, structured entities, and franchises. A number of these topics (including potential
voting rights and de-facto control), and other definitions in IFRS10, apply to and are cross-referenced through to IFRS11.
Whether rights are substantive or merely protective in nature is a key consideration in determining whether control exists.
Protective rights, such as restrictive bank loan covenants, protect the interest of the party holding those rights (in this case
the bank in relation to its exposure arising from the loan) but do not give power over the entity to which the rights relate (in
this case the borrower).
Change in the definition of jointcontrol

IFRS11 applies to all entities that are party to a joint arrangement, being a contractual agreement that gives twoor more
parties jointcontrol over an arrangement.
IFRS11 introduces a new definition of jointcontrol which aligns with the new control model introduced by IFRS10.
Jointcontrol 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 (refer to section3.2 for further details).
Specific changes from IAS31

Under IAS31, joint arrangements were split into threecategories:
Jointly controlled assets No separate entity was established, and the parties shared ownership over one or more of
the assets of the arrangement. Each party subsequently accounted for its share of the assets, liabilities, expenses, and
revenues on a line-by-line basis, as stipulated in the arrangement agreement
Jointly controlled operations No separate entity was established, and the parties used their own assets, incurred their
own liabilities and expenses, and shared the output/revenue of the arrangement. Each party subsequently accounted for
its own assets, liabilities, and expenses, and its share of revenues on a line-by-line basis, as stipulated in the arrangement
agreement
Jointly controlled entities A separate entity was established. Each party had the choice subsequently to account for
the arrangement by one of twoallowed methods:
1. Equity method the interest in a jointly controlled entity was initially recorded at cost and adjusted thereafter for the
post-acquisition change in the partys share of net assets of the jointly controlled entity
2. Proportionate consolidation the partys share of assets, liabilities, income and expenses of a jointly controlled entity
was combined line-by-line with similar items in the partys financial statements, or reported as separate line items.
In moving from IAS31 to IFRS11, there are a number of high level changes:
The number of classifications has reduced from three totwo:
Jointly controlled assets and jointly controlled operations have been combined into a single classification;
jointoperation.
The names of the classifications have changed:
Jointly controlled assets and jointly controlled operations become jointoperations
Jointly controlled entities becomes joint ventures or, in some cases, joint operations.
The structure of the entity no longer determines its classification and subsequent measurement:
Under IAS31, if a separate entity had been established, the classification was as a jointly controlled entity and the
jointventure had a choice of applying either equity accounting or proportionate consolidation
However under IFRS11, other facts and circumstances must be considered before the classification is determined, thus
depending on the outcome of the IFRS11 analysis investees previously determined to be jointly controlled entities under
IAS31 will be required to be accounted for using either the equity method or the investors interests in assets and
obligations for liabilities, with no choice.
Specific disclosures are required in respect of joint arrangements. This publication includes a chapter on the disclosures
requirements relating to joint arrangements that are within IFRS12 (refer to section 7 for further details).
The requirements of IFRS12 are intended to provide users of financial statements with information that assists in
understanding the nature of, and risks associated with, an entitys interests in other entities (including joint arrangements).
IFRS11, together with the other consolidation standards, is effective for annual periods beginning on or after 1January2013,
with earlier application being permitted provided that all five of the new standards are applied at the same time.
The European Financial Reporting Advisory Group(EFRAG) endorsed IFRS11 in December2012, and it is effective in the
EuropeanUnion for reporting periods beginning on or after 1January2014, with early adoption permitted.
TABLE OF CONTENTS
Overview 2
1. Background the joint arrangement project 8
1.1. Rationale for change 9
1.2. Superseded standards and interpretations 9
1.3. Consolidation package of standards issued by theIASB 10
1.4. Effects analysis 11
1.5. Effective date 16
2. Scope 17
3. Content of the standard 18
3.1. Definition of a joint arrangement 19
3.2. Jointcontrol Introduction 20
3.3. Jointcontrol under IFRS11 (the Two-Step Model) 21
3.4. Jointde-factocontrol 25
3.5. Substantive rights in joint arrangements 29
3.6. Protective rights in joint arrangements 31
3.7. Joint arrangement classifications 36
4. Presentation, recognition, and measurement by jointcontrollers 49
4.1. Jointoperators 50
4.2. Jointventurers 53
5. Other parties to a joint arrangement (i.e. non-jointcontrolling parties) 56
5.1. Jointoperation 58
5.2. Jointventure 58
6. Changes to IAS28 59
6.1. Venture capital organisations (or similar entities) 59
6.2. Potential voting rights application to equity accounting 60
6.3. Potential voting rights determining significant influence 60
6.4. Treatment of changes in interest held 61
6.5. Treatment of an investment in a jointventure held-for-sale 61
6.6. Contributions of non-monetary assets to a jointventure 62
7. Disclosure requirements 63
7.1. Significant judgements and assumptions 63
7.2. Nature, extent and financial effects of interests in joint arrangements 64
7.3. Commitments for jointventures 65
8. Effective date and transition requirements 66
8.1. Application to consolidated/individual financial statements 68
8.2. Application to separate financial statements 71
9. Other points 73
9.1. Periods prior to those beginning on or after 1January2013 73
9.2. Requirements of IAS28(2011) 73
9.3. Firsttime adopters ofIFRSs 73
9.4. Presentation of thirdstatement of financial position 74
10. AppendixA Definitions 75
1. BACKGROUND
THE JOINT ARRANGEMENT PROJECT
The joint arrangements project began as a research project between the International Accounting Standards Board(IASB)
and the Australian Accounting Standards Board(AASB). The project was added to the IASBs active agenda in
November2004 with the aim of conducting a re-examination of the existing IAS31Interests in JointVentures. The AASBs
preliminary research was centred around twomajor issues:
The definitions of jointventures and jointly controlled entities
Accounting methods applied to such entities by investors.
Subsequently the project evolved into a convergence project between theIASB and the USFinancial Accounting Standards
Board(FASB) with one of the aims being to reduce differences between IFRS and USGAAP. The initial exposure draft was
eventually issued in September2007.
In May2011 the International Accounting Standard Board(IASB) issued IFRS11 Joint Arrangements, which superseded IAS31
and SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers.
IFRS11 establishes principles for financial reporting by parties to a joint arrangement. It addresses twoweaknesses of IAS31:
The structure of the arrangement was the only determinant of the subsequent accounting treatment of the arrangement
An entity had a choice of accounting treatment for interests in jointly controlled entities (equity accounting or
proportionate consolidation).
This meant that economically similar arrangements could be accounted for in different ways, while economically dissimilar
arrangements could be accounted for in the same way.
A binding contractual arrangement that results in twoor more of parties having jointcontrol over the investees
relevant activities (refersection3.2.) gives rise to a joint arrangement, and this is subsequently classified into one of
twoclassifications, being either:
A jointoperation
A jointventure.
A jointoperation is a joint arrangement whereby the jointcontrolling parties (jointoperators) have rights to the assets, and
obligations for the liabilities, relating to the arrangement.
A jointventure is a joint arrangement whereby jointcontrolling parties (jointventurers) have rights to the net assets of the
arrangement.
In terms of joint arrangements structured through a separate vehicle (e.g. an incorporated entity), under IFRS11 the legal
structure of the arrangement is not a deciding factor in determining the classification of the arrangement. Instead, the rights
and obligations specified in the joint arrangement agreement must be analysed to determine whether the parties with
jointcontrol have either:
Rights to the assets, and obligations for the liabilities, or
Rights to the net assets.
This is in contrast to IAS31 in which the default classification for all joint arrangements structured through a separate vehicle
was jointly controlled entities.
Therefore on transition to IFRS11, it is possible that some jointly controlled entities previously recognised under IAS31 may
not retain the corresponding classification under IFRS11 (i.e. jointventures).
This difference between IAS31 and IFRS11 is important as the classification of joint arrangements ultimately determines
their subsequent measurement.
The disclosure requirements for joint arrangements have been incorporated into a separate stand-alone standard,
IFRS12Disclosure of Interests in Other Entities.
1.1. Rationale for change

The project to replace the existing guidance in respect of joint arrangements was undertaken for the following reasons:
Under IAS31, the accounting treatment for joint arrangements was primarily dependent on the structure or legal form of
the arrangement, rather than the substance of the arrangement.
Because this treatment was rules-based, rather than principles-based, the treatment of joint arrangements under IAS31
was open to potential abuse through structuring arrangements.
Under IAS31, investors in jointly controlled entities were given a choice between twosubsequent accounting treatments:
Equity accounting
Proportionate consolidation.
This meant that financial statements for economically identical entities could be significantly different.
1.2. Superseded standards and interpretations

Guidance for reporting periods beginning before 1January2013 is found in IAS31 and SIC-13.
(i) IAS31 Interests in JointVentures

IAS31 requires that contractual arrangements between twoor more parties where the economic activity require the
unanimous consent of the parties sharing control, are to be accounted for as a jointventure.
Control had the same definition as in the now superseded version of IAS27(2008) Consolidated and Separate Financial
Statements, being power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
IAS31 establishes threeclassifications of a jointventure, which determines the subsequent accounting treatment. Under
IAS31, it is the legal form of the joint arrangement, rather than the substance of the arrangement, that determines the
classification and subsequent accounting treatment:
Any joint arrangement where a separate entity is established (i.e. a corporation, partnership, or other entity) is classified as
a jointly controlled entity.
Subsequently, each party then chooses to apply either:
Equity accounting
Proportionate consolidation.
Any other joint arrangement is classified as either a jointly controlled operation or a jointly controlled asset. Subsequently,
each party simply recognises its share of assets, liabilities, expenses and revenues on a line-by-line basis.
(ii) SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers

SIC-13 deals with a venturers accounting for non-monetary contributions to a jointly controlled entity in exchange for
an equity interest in the jointly controlled entity that is accounted for using either the equity method or proportionate
consolidation.
1.3. Consolidation package of standards issued by theIASB

In May2011 the International Accounting Standards Board(IASB) published a package of five new/amended standards
which set out new requirements for consolidation, joint arrangements and disclosure of interests in other entities.
The new standards released in this package were:

IFRS10Consolidated Financial Statements
IFRS11Joint Arrangements
IFRS12Disclosure of Interests in Other Entities.
In addition, the following standards were amended (and renamed):

IAS27(2011) Separate Financial Statements
IAS28(2011) Investments in Associates and JointVentures.
The consolidation principles previously included within IAS27(2008) and SIC-12 Consolidation Special Purpose Entities
have been removed and incorporated to some degree within IFRS10.
The amended IAS27(2011) now only includes guidance for separate financial statements.
Guidance for jointly controlled entities that was previously included in IAS31 is now provided in IFRS11.
In addition all disclosure requirements, that under the old guidance were included in the individual standards
(i.e. IAS27(2008), IAS28(2008) and IAS31), are now provided in IFRS12.
Because the jointventure classification of joint arrangements is only accounted for under the equity method, the title and
applicable paragraphs of IAS28(2011) have been amended to reflect and clarify this.
IAS31 IFRS11
Interests in JointVentures Joint Arrangements
SIC-13
IFRS12
Jointly Controlled Entities Non-
Disclosure Interests in Other Entities
Monetary Contributions by Venturers
IAS28(2011)
IAS28(2008)
Investments in Associates and
Investments in Associates
JointVentures
Figure1: Restructuring the standards applicable to interest in joint arrangements

1.4. Effects analysis

(a) Industries likely to be impacted
There are a wide variety of industries where joint arrangements are common, either through strategic alliances, or having
separate vehicles:
Business services
Software
Wholesale trade durable and non-durable goods
Investment and commodity firms
Electronics
Telecommunications
Extractives mining, oil & gas
Real estate.
(b) Key changes between IAS31 and IFRS11

In summary, the introduction of IFRS11 brings in several key changes, which are outlined in the table below:
Key Change IAS31 IFRS11
Number and name of classification

Under IFRS11: 1. Jointly controlled entity 1. Jointventure
Classifications reduced from 2. Jointly controlled operation 2. Jointoperation.
threetotwo 3. Jointly controlled asset.
Jointly controlled entities are now
termed jointventures
Jointly controlled operations and
jointly controlled assets are now
termed jointoperations.
Classification determination
No longer determined solely by In all instances where a separate The establishment of a separate
structure or legal form. entity is established, these joint entity does not on its own
arrangements are classified as determine the classification of a joint
jointlycontrolled entities. arrangement.
Subsequent accounting
Equity accounting is now the only Jointly controlled entities can The equity method is the only
accounting method for entities subsequently be accounted for by method for the subsequent
classified as jointventures. either: accounting for jointventures.
Proportionate consolidation prohibited Equity method
for entities that meet the definition of Proportionate consolidation.
a jointventure.
Definition of jointcontrol
There is a new definition of control Control is the power to govern the An investor controls an investee
introduced under IFRS10, which financial and operating policies of when the investor is exposed, or has
directly impacts the definition of an economic activity so as to obtain rights, to variable returns from its
jointcontrol under IFRS11. benefits from it. involvement with the investee and
has the ability to affect those returns
It is essential that the relevant through its power over the investee.
activity (or activities) of the joint
arrangement are identified so that it
can be determined who controls the
relevantactivity.
Figure2: Key changes between IAS31 and IFRS11

(c) Impacts of a change in classification when applying IFRS11

The biggest impact will be for entities with investees previously accounted for in accordance with IAS31 that:
Fail the definition of jointcontrol as derived from the new definition of control in IFRS10
Must move from an equity-accounted jointly controlled entity under IAS31 to a jointoperation under IFRS11 (line-by-line
share of assets, liabilities, expenses, and revenues), or
Currently use proportionate consolidation for a jointly controlled entity under IAS31 that is required to be equity-
accounted for as it is classified as a jointventure under IFRS11.
Some investors may also find that they have some investees which were not previously accounted for in accordance with
IAS31 (because they were determined not to be jointventures) that do meet the definition of a joint arrangement in
accordance with IFRS11.
The table below summarises the likely recognition and measurement impact entities will face based on the classification of
their joint arrangements under IAS31 and subsequent classification under IFRS11:
IAS31 IFRS11
(Classification) (Classification)
JointOperation JointVenture
Jointly controlled asset Typically no change to the There should be no jointventure

accounting approach, as investors classification for these
Jointly controlled operation will previously have recognised arrangements as they do not
their (share of) assets, liabilities, involve a separate legal entity.
revenue, and expenses subject to
the arrangement.
Jointly controlled entity Equity accounting will need to be No change to the accounting
(Equity accounting) discontinued. approach.
Will require an adjustment as at
the beginning of the immediately
preceding period, and a change in
subsequent measurement from
that point on.
Refer to section8 for further
details.
Jointly controlled entity No change to the accounting Proportionate consolidation is

(Proportionate consolidation) approach. not available under IFRS11.
Entity will still be recognising Will require an adjustment as at
its share [proportion] of assets, the beginning of the immediately
liabilities, expenses, and revenue. preceding period, and a change
in subsequent measurement
from that point on.
Refer to section8 for further
details.
Figure3: Impact of moving from IAS31 to IFRS11

The key to applying IFRS11 is the correct application of the definition of control, particularly in understanding the concept of
relative rights and whether the rights attributable to an investor are substantive or protective.
Example 1
Twoinvestors, AandB, subscribe to invest in companyZ, a producing mine.
Each party owns50% of the issued share capital ofZ and appoint 2members each to the board of directors.
All mining operations are managed by the operator, partyA.
The terms of the operating agreement state that the operator can only be replaced by the unanimous consent of the
investors.
The operating agreement also states that unanimous approval is required for:
Cessation of mining
Any disposal of the mine
The acquisition of any capital equipment above CUXmillion.
The relevant activity of the arrangement is the rate at which mining activities are carried out, as the amount of ore
extracted in a given period will affect the amount of profit or loss generated by companyZ.
Assessment
From the above analysis, it would appear that the relevant activity is controlled solely byA in its capacity as the operator
(which Acannot be removed from unless it unanimously decides to do so withB).
As a result, Awould be required to consolidate CompanyZ under IFRS10.
Point to note: Blocking stakes, like those held byB, do not automatically give jointcontrol.
Example 2
Threeinvestors, A,BandC, invest in companyZ. Ownership interests are50%, 25%, and 25% respectively.
All operating decisions require a75%majority.
Assessment
In this example control can be achieved byA voting withBorA voting withC.
Due to its 50% voting interest Ahas a key blocking vote, however Aneither:
ControlsZ outright, nor
Jointly controlsZ unanimously with only oneother party (because decisions could be taken byA in conjunction with
either BorC).
Thus, this arrangement is outside the scope of IFRS11 as jointcontrol does not exist.
Instead, each investor would determine whether it has significant influence overZ, and if so would apply the
requirements of IAS28(2011).
Note: IAS28(2011) paragraph5 states that significant influence is presumed to exist if an entity directly or
indirectly holds20% or more of an entitys voting power, unless it can be clearly demonstrated this is not the
case.
Therefore, assuming the presumption of significant influence is not rebutted, all the investors in the above
example would account for their interest inZ as an associate (i.e. they would equity account their investments).
Example 3
Threeinvestors, A,B,andC farm-in to an oil field(Z), Ownership interests are 50%,25%, and 25%respectively.
The farm-in is achieved through contract alone, and no separate legal entity is formed.
All operating decisions require a 75% majority.
Assessment
In this example control can be achieved byA voting with BorAvoting withC.
Due to its 50%voting interest Ahas a key blocking vote, however Aneither:
ControlsZ outright, nor
Jointly controlsZ unanimously with only oneother party (because decisions could be taken by A in conjunction with
eitherBorC).
Thus, this arrangement is outside the scope of IFRS11 as jointcontrol does not exist.
Instead, each investor would record their investments in accordance with either IAS16 Property, Plant and Equipment
(for property, plant and equipment) or IFRS6 Exploration for and Evaluation of Mineral Resources (for exploration and
evaluation assets).
1.5. Effective date

IFRS11 is effective for reporting periods beginning on or after 1January2013, with earlier application being permitted
provided that allfive of the new consolidation standards are applied at the same time.
EU-EndorsedIFRS
In December2011 the European Financial Reporting Advisory Group(EFRAG) requested the effective date for the
consolidation standards to be deferred to 1January2014 to allow preparers sufficient time to implement the new standards
and to align it with the effective date for the proposals for Investment Entities. However at its January2012 meeting
theIASB decided not to postpone the effective date.
The consolidation package standards were endorsed for use in theEU at the endof2012, but have an effective date of
1January2014 with early adoption permitted. This provides entities that report in accordance with EU-EndorsedIFRS
additional time to prepare for the application of the new standards. However, the permission for early adoption allows
Europeanentities, that are Foreign Private Issuers(FPI) and prepare financial statements for their USfilings in accordance
with IFRS as issued by theIASB, to adopt the new standards with effect from 1January2013. This is necessary, as the
USauthorities require FPIs to prepare financial statements in accordance with IFRS as issued by theIASB.
Effective date of subsequent amendments

In June2012 the IASB published Consolidated Financial Statements, Joint Arrangements and Disclosures of Interests in Other
Entities: Transition Guidance Amendments to IFRS10, IFRS11 and IFRS12 which clarify certain aspects when an entity
transitions from the old consolidation standards to the new consolidation standards that had been previously issued in
May2011.
The amendments are effective for annual periods beginning on or after 1January2013 with early adoption being required if
the new consolidation standards are early adopted. The clarifications are included in section8.
The transition guidance amendments were endorsed for use in theEU on 4April2013 and are effective for annual periods
beginning on or after 1January2014.
The Transition Guidance amendments to IFRS11 are included in the detailed discussions regarding transition in section8.
2. SCOPE
IFRS11Joint Arrangements applies to all entities that are a party to a joint arrangement, and only those entities. Investors
with investees that do not meet the definition of a joint arrangement are not permitted to apply the recognition and
measurement principles of IFRS11.
IFRS11 contains specific criteria and definitions which are applied in determining whether an arrangement is or is not a
jointarrangement.
The definition of a joint arrangement is discussed in further detail in section3.1.
BDO comment
An arrangement requires twokeyfactors in order to meet the definition of a joint arrangement:
1. A binding contractual agreement
2. Each party must have jointcontrol over the relevant activities of the arrangement.
The requirements of jointcontrol have their own criteria, which are discussed in detail in this publication.
In practice, entities are more likely to fail the joint arrangement definition due to jointcontrol not being established. This
may be for a number of reasons, but broadly speaking this occurs where:
Unanimous agreement of specified investors regarding the investees relevant activities is not present. This may be due to a
number of factors, including (but not limited to):
More than onecombination of parties being capable of making decisions regarding the investees relevant activities
A dispute resolution process gives power to oneparty
The rightsofone or more parties are only protective in nature (refer to section3.6 for further detail discussion on this
point).
Decisions made by the parties (unanimous or otherwise) are not in respect of the investees relevant activities.
These and other scenarios are discussed in more detail in the relevant sections of this publication.
3. CONTENT OF THE STANDARD

Overall, the approach to the application of IFRS11Joint Arrangements is broken into twokeyassessments:
1. Does a joint arrangement exist? (refer to sections3.1.and3.2.)
2. If a joint arrangement does exist, how is the joint arrangement classified? (refer to section3.7)
This is summarised below:

Assessment 1
EXISTENCE OF A JOINT ARRANGEMENT Arrangement

Is there a contractual arrangement that is outside
No
gives twoor more of parties the scope
jointcontrol of the arrangement? of IFRS11
Yes
Assessment 2
CLASSIFICATION OF THE JOINT ARRANGEMENT

Determine the classification of the joint arrangement
based on analysis of the parties rights and obligations
arising from the arrangement (refer section3.3)
Figure4: IFRS11 Summary of overall approach

3.1. Definition of a joint arrangement

A joint arrangement has both the following characteristics (IFRS11.5):
The parties are bound by a contractual agreement
The contractual arrangement gives twoor more of those parties jointcontrol over the arrangement (refer section3.2.).
What is a contractual arrangement?

While most enforceable contractual arrangements are often in writing (usually in the form of a contract or documented
discussions between the parties) IFRS acknowledges that this may not always be the case (IFRS11.B2).
Therefore, determination of whether a contractual arrangement exists is based on the substance of the dealings between
the parties. Specifically, IFRS11 requires investors to consider other factors which, either on their own or in conjunction with
others, result in jointcontrol. These may include:
Statutory mechanisms
Terms incorporated into the investees articles of association
Other arrangements.
Contractual arrangements are usually easily identifiable, as they would generally deal with such items as (IFRS11.B4):
The purpose, activity and duration of the joint arrangement
How the members of the board of directors, or equivalent governing body, of the joint arrangement, are appointed
The decision-making process: the matters requiring decisions from the parties, the voting rights of the parties and the
required level of support for those matters. The decision-making process reflected in the contractual arrangement is key in
determining whether there is jointcontrol over the arrangement
The capital or other contributions required of the parties
How the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint arrangement.
3.2. Jointcontrol Introduction

Interaction with IFRS10
IFRS11 is based on the same control principle as IFRS10Consolidated Financial Statements. In comparison with previous
guidance, the definition of control has fundamentally changed with the introduction of IFRS10 (refer to section1.3. above).
The following terms are defined in AppendixA of IFRS11 by direct reference to AppendixA of IFRS10:
Control of an investee
Power
Protective rights
Relevant activities
Significant influence.
In summary the new control model requires threekeyelements to be present:
1. Power
2. Exposure to variable returns
3. Linkage between power & variable returns.
Each of the threeelements of the control model have separate components to consider in determining whether the element
is satisfied under the definition (these are detailed in the figurebelow).
Elements of Control
Exposure to Linkage between
Power variable returns power & variable returns
Components of Exposure to Components of Linkage between

Components of Power
variable returns power & variable returns
Existing rights Substance Principal vs. Agent
Potential to vary with

Current ability to direct
investees performance
Dividends, remuneration,
Relevant activities
economies of scale etc.
Substantive (not protective)
Figure5: New control model (IFRS10)
As a result, IFRS10 and IFRS11 cannot be viewed in isolation of each other. An understanding of the control principle and
terminology of IFRS10 is required when dealing with the requirements of IFRS11.
3.3. Jointcontrol under IFRS11 (the Two-Step Model)

Under IFRS11, jointcontrol:
Is the contractually agreed sharing of control of an arrangement
Exists only when decisions about the relevant activities of the arrangement require the unanimous consent of the
parties sharing the control of the arrangement.
Relevant activities are the activities of the arrangement that significantly affect returns to investors,
and may include (IFRS10.B11):
i. Selling and purchasing of goods or services
ii. Managing financial assets during their life (including upon default)
iii. Selecting, acquiring or disposing of assets
iv. Researching and developing new products or processes
v. Determining a funding structure or obtaining funding.
Unanimous consent means that any party with jointcontrol can prevent any of the other parties, or a group of the
parties, from making unilateral decisions (about the relevant activities) without its consent. Put simply, all parties with
jointcontrol have to agree in order for decisions relating to relevant activities to be made. This excludes protective
rights (see section3.6).
Therefore, an arrangement can be a joint arrangement even when not all of its investors (or parties) have jointcontrol of the
arrangement. IFRS11 distinguishes between parties that:
Have jointcontrol of a joint arrangement (i.e. jointoperators and jointventurers)
Participate in, but do not have jointcontrol of, a joint arrangement (those parties hold a simple investment).
In order to determine whether an arrangement contains parties with jointcontrol (and is therefore a joint arrangement
captured by IFRS11), and investor adopts a two-step approach.
Step 1: Firstly, an entity assesses whether all the parties, or a subset of the parties, control the arrangement (based on the
control definition in IFRS10).
When all the parties, or a subset of the parties, considered collectively, are able to direct the activities that
significantly affect the returns of the arrangement (i.e. the relevant activities), they control the arrangement
collectively.
Step 2: Secondly, an entity assesses whether it has jointcontrol of the arrangement.
Jointcontrol exists only when decisions about the relevant activities require the unanimous consent of the parties
that collectively control the arrangement.
The Two-Step JointControl Model is illustrated in the figurebelow:
Does the contractual arrangement give Arrangement is

Step 1 all the parties (or a group of parties) control No outside the scope
of the arrangement collectively? of IFRS11
Yes
Do the decisions about the relevant activities require Arrangement is

Step 2 the unanimous consent of all the parties (or group of parties) No outside the scope
that collectively control the arrangement? of IFRS11
Yes
The arrangement is a jointly controlled

arrangement within the scope of IFRS11
Figure6: Jointcontrol Two-Step Model
Joint de-facto control is covered in section 3.4 below.
Sometimes the decision-making process that is agreed upon by the parties in their contractual arrangement implicitly leads
to jointcontrol.
Example 4
Twoparties establish a separate legal entity in which each has50% of the voting rights (and equivalent power)
over the investees relevant activities. The separate legal entitys activities constitute a business (as defined in
IFRS3BusinessCombinations).
The contractual arrangement between the twoparties specifies that at least51% of the voting rights are required to
make decisions about the separate legal entitys relevant activities.
Assessment
In this case, the parties have implicitly agreed that they have jointcontrol of the separate legal entity because decisions
regarding its relevant activities cannot be made without both parties agreeing.
Application of the Two-Step Model shows that there is jointcontrol, meaning that the twoparties must apply the
requirements of IFRS11.
Summary Two-Step Model

Step 1: Yes, there is an (implicit) contractual arrangement to co-ordinate voting to achieve control.
Step 2: Yes, unanimous consent is required by only a single combination of parties for decisions over the investees
relevant activities.
In other circumstances, the contractual arrangement might require a minimum proportion of the voting rights to make
decisions.
When a minimum required proportion of the voting rights can be achieved by more than onecombination of shareholders,
that arrangement is not a joint arrangement (unless, a contractual arrangement exists that specifies which parties, or
combination of parties, must agree about decisions regarding the relevant activities of the investee).
Example 5
Threeparties establish a separate legal entity (entityZ) in which they have different shares of voting rights.
EntityZs activities constitute a business (as defined in IFRS3).
Entity A 50%
Entity B 30%
Entity C 20%
A contractual arrangement entered into by the three parties specifies that at least75% of the voting rights are required
to make decisions about the entityZs relevant activities.
Assessment
In this case, although EntityA can block any decision, it does not control entityZ alone because it always needs the
agreement ofB in order for decisions to be taken about entityZs relevant activities.
Under this structure, the contractual terms mean entitiesAandB have jointcontrol over the entityZ.
This is because the combination ofAandB voting together is the only single combination of parties that can control
decisions about the relevant activities of entityZ:
Combination ofAandB 80% Control
Combination ofAandC 70% No control
Combination ofBandC 50% No control
Application of the Two-Step Model shows that there is jointcontrol, meaning that entitiesAandB must apply the
requirements of IFRS11.

Step 2: Yes, unanimous consent is required by only a single combination of parties (entities AandB) for decisions
over the relevant activities.
Example 6
Threeparties establish a separate legal entity (entityX) in which the threeentities have different shares of voting rights.
EntityXs activities constitute a business (as defined in IFRS3).
Entity A 50%
Entity B 25%
Entity C 25%
A contractual arrangement entered into by the threeparties specifies that at least75% of the voting rights are required
to make decisions about the relevant activities.
Assessment
In this case, although entityA can block any decision, it does not control the arrangement alone because it needs the
agreement of either entityBorC.
EntitiesA,B andC collectively control the arrangement; however, there is more than one combination of parties that can
agree in order to reach the75% threshold:
Combination ofAandB 75% Control
Combination ofAandC 75% Control
Combination ofBandC 50% No control
Consequently, because there is more than one combination of parties that could control entityX (i.e. either
entitiesAandB, or entitiesAandC), jointcontrol does not exist.
Therefore the combination of shareholder interests and the contractual arrangement does not give rise to a joint
arrangement, and the arrangement falls outside of the scope of IFRS11.

Step 2: No, there are multiple combinations of parties that can co-ordinate voting to achieve control.
Each of the three entities needs to consider whether it has significant influence over entityX. If so, it would account
for its investment as an associate in accordance with IAS28(2011) Investments in Associates and JointVentures and, if
not, account for its investment as a financial asset in accordance with IAS39 Financial Instruments: Recognition and
Measurement/IFRS9 Financial Instruments.
As a variation to the above fact pattern, assume that there is also a contractual arrangement among the parties that
specifies a single combination of parties which must agree in respect of decisions about entityXs relevant activities. In
this case, step2(above) would be met and there would be jointcontrol.
3.4. Jointde-factocontrol
One of the significant changes in moving from previous guidance that was set out in IAS27(2008) Consolidated and Separate
Financial Statements to IFRS10 is that IFRS10 explicitly covers the principle of de-facto control. This applies in circumstances
in which decisions about an investees relevant activities are determined through shareholder votes alone, with there being
no contractual or other arrangements in place that determine which party (or group of parties) has control.
This is relevant to IFRS11, because IFRS11 includes a cross-reference to a number of the defined terms in IFRS10, including
control. Consequently, because IFRS10 incorporates the concept of de-facto control, as well as an assessment of whether an
arrangement gives rise to jointcontrol, it is necessary to consider whether it gives rise to jointde-factocontrol.
Under IFRS10, de-facto control arises when an investor with less than a majority of the voting rights in another entity has
control over that entity. This is when the investor has the practical ability to direct the other entitys relevant activities
unilaterally (IFRS10.B41).
In determining whether an investor has de-facto control, the investor assesses the size of its own holding of voting rights
relative to the size and dispersion of holdings of the other vote holders.
The following key factors need to be considered:
The more voting rights an investor holds, the more likely the investor is to have existing rights that give it the current
ability to direct the relevant activities
The more voting rights an investor holds relative to other vote holders, the more likely the investor is to have existing
rights that give it the current ability to direct the relevant activities
The more parties that would need to act together to outvote the investor, the more likely the investor is to have existing
rights that give it the current ability to direct the relevant activities (IFRS10.B42).
Consequently, if the criteria set out below are met, it would be clear that that the investor has control and no further analysis
is needed:
Direction of relevant activities is determined by majority vote
Investor holds significantly more voting rights than any other vote holder or organised group of vote holders
Other shareholdings are widely dispersed (IFRS10.B43/B44).
IFRS10.7 notes that an investor controls an investee if it has all of the following:
Power over the investee (whether or not that power is used in practice)
Exposure, or rights, to variable returns from its involvement
The ability to use its power to affect the amount of the investors returns.
However, it is necessary to make a careful distinction between de-factojointcontrol and jointde-factocontrol, as only
jointde-facto control results in a joint arrangement within the scope of IFRS11. The following table illustrates the difference
between the twoconcepts:
De-facto type Description Within the scope of IFRS11?
De-factojointcontrol There is past history of the parties No.

voting together over the relevant
With no contractual agreement this
activities of the arrangement, even
situation automatically fails step1 of
though there is no contractual
the Two-Step Model.
agreement to do so.
IFRS11 requires a contractual or
Due to the remaining investors being
implicit agreement to be in place
numerous and dispersed the decisions
between or among parties before
of the parties in effect become the
there is jointcontrol.
final decisions.
Jointde-factocontrol Where there is a large block of voting Yes.

power held by a number of investors
Jointde-factocontrol is considered
that have a contractual agreement
under IFRS11.
to always vote together in relation to
the relevant activities of the investee.
The remaining shares are held by
many other small and dispersed
independent investors.
Figure7: De-factojointcontrol vs. jointde-factocontrol
Example 7
EntitiesAandB hold interests in a separate legal entity, together with other investors (dispersed in scenarios1and2, and
EntityC in scenario3).
Threescenarios are set out below, in which the contractual arrangement for each specifies that at least a majority (i.e.
more than50%) of the voting rights are required to make decisions about the relevant activities.
Scenario 1 Scenario 2 Scenario 3
EntityA 35% EntityA 24% EntityA 24%
EntityB 35% EntityB 24% EntityB 24%
Dispersed 30% Dispersed 52% Entity
C 52%
Additional information:
Scenario 1 There is no contractual agreement betweenAandB to vote together.
Scenario 2 There is a contractual agreement betweenAandB to vote together.
Scenario 3 There is a contractual agreement betweenAandB to vote together.
EntityAandB also have a substantive option to each acquire10% of entityCs shares.
Assessment
Scenario 1
In this case, as there is no contractual agreement or other implicit arrangement betweenAandB to vote together, there
is no jointcontrol.
EntitiesAandB would then need to consider whether each of them has significant influence If so, the investment would
be accounted for as an associate in accordance with IAS28(2011) and, if not, the investment would be accounted for as
a financial asset in accordance with IAS39/IFRS9.

Step 1: No, there is no (implicit) contractual arrangement to co-ordinate voting to achieve control.
Step 2: N/A (Step1 failed).
Scenario 2
In this case, there is jointde-factocontrol due to:
There being a contractual agreement betweenAandB to vote together
The interaction betweenAandBs combined voting share, the50% hurdle, and the remaining dispersed investors,
which results in the practical ability ofAandB to direct the relevant activities unilaterally.
Practical ability ofAandB to direct the relevant activities unilaterally
In practice, the decisions thatAandB take jointly will ultimately be the final decision in either of the following scenarios:
At least more than4% of the dispersed investors do not vote
More than2% of the dispersed investors vote the same way asAandB.
Both of these scenarios are sufficiently likely, and would therefore result the decisions ofAandB ultimately determining
the decisions over the relevant activities of the arrangement.
ThereforeAandB are deemed to have the practical ability to direct the relevant activities unilaterally and have
jointde-factocontrol.

Step 2: Yes, because the48% block holding is considered to result in control, unanimous consent is required only by
a single combination of parties who have a contractual agreement to vote the same way regarding decisions
in relation to relevant activities.
BDO comment
In this scenario, where entitiesAandB hold a significant minority block of shares(48%), it is relatively simple to determine
that jointde-factocontrol exists.
However, as IFRS11 (and IFRS10) are designed as principles-based standards, the question in practice will be at which
point a significant minority block of voting rights does not result in de-factojointcontrol. There are no brightlines,
meaning that this question does not depend on whether a specified threshold is met, such as a combined total
of45%,40%,or35%.
The assessment of jointde-factocontrol will therefore require careful judgement by investors, so as to ensure that
they determine appropriately whether arrangements are required to be accounted for in accordance with IFRS11. This
judgement will typically require disclosure in the investors financial statements in accordance with IAS1 Presentation of
Financial Statements paragraph122.
Assessment
Scenario 3
In this case, there is jointde-factocontrol, due to:
There being a contractual agreement betweenAandB to vote together
The options to acquire additional shareholdings fromC being substantive (refer to section3.5), resulting in a block of
voting rights that exceed the hurdle required for decisions to be taken about the investees relevant activities.
The arrangement is accounted for in accordance with IFRS11 byAandB.
EntityC would then need to consider whether it has significant influence, and if so, account for its investment as an
associate in accordance with IAS28(2011), and if not, as an investment in accordance with IAS39/IFRS9.

Step 2: Yes, unanimous consent is required only by a single combination of parties for decisions over relevant
activities.
BDO comment
This scenario is perhaps most significant from the perspective of EntityC.
Prima facieC holds52% of the voting shares, and may incorrectly determine (without considering the substantive options
held byAandB) that it needs to consolidate the entity as a subsidiary and recognise a non-controlling interest for the48%
it does not own.
3.5. Substantive rights in joint arrangements

Scenario3 in Example7 introduces the concept of substantive rights to be considered in determining control, in the form of
share options held by investors.
Substantive rights are considered within the Power component of the new control model see figure5 in section3.2.
A significant change from the previous IAS27(2008) control model is that only substantive rights are relevant when power
is assessed. IFRS10 considers a right is substantive, if the holder has the practical ability to exercise the right. The standard
requires an investor to consider and assess the effect of both substantive rights held by itself and those held by others.
IFRS10 acknowledges that the assessment of substantive rights requires judgment. It provides potential facts and
circumstances that should be considered, such as:
Barriers to exercise
Whether the agreement of other parties is required
Whether the exercise of the rights would benefit the holder.
Perhaps the most significant change introduced by IFRS10 is that an exercise or conversion price that creates a financial
barrier (e.g. a conversion price is deeply out of the money) is considered to be a barrier to exercise, and could result in that
right not being considered to be substantive.
Under IAS27(2008), such a barrier to exercise was irrelevant (unless the exercise price of potential voting rights was so
uneconomic that they could never rationally be exercised in any scenario), meaning that even options to acquire additional
voting rights which were priced at a level that made little economic sense to exercise were considered when determining
which party controlled an entity.
Another important factor is that in order to fulfil the substantive criteria, a right also needs to be exercisable when the
decisions relating to the relevant activities are made. This is in contrast, and is subtly different, to the previous IAS27(2008)
requirement that the rights were exercisable at the holders reporting date.
Rights will always be exercisable when decisions need to be made when those rights are currently exercisable. But a right can
also be substantive if it is not currently exercisable but exercisable when the relevant activities are made.
For example, consider the following scenario:
Decisions over relevant activities of entity X are made at the annual shareholder meeting
A shareholder meeting can be called at any time with 30 days notice
Investor A has an option (that is deeply in the money) to acquire a majority shareholding.
Question:
Is investor As option substantive, and if so, from what point?
Analysis:
As the options are deeply in the money there does not appear to be a barrier to exercise, so in that respect, the options are
not precluded from being substantive
However, careful consideration needs to be given to the timing of:
a) When the options are exercisable
b) When the next scheduled shareholder meeting is due to occur (as this is where decisions about relevant activities are
made)
c) Howa)andb) compare to when shareholder meeting could be called (in this example, with a 30day notice period).
Therefore, at any point in time, if:
Scheduled annual shareholder

Option Exercisable Rights substantive?
meeting due to occur
1 In more than 30 days time. After the option exercise date. No
A shareholder meeting to make
decisions on relevant activities could
be called before the option becomes
exercisable.
2 In less than 30 days time. After the option exercise date. Yes
decisions on relevant activities occurs
after the option becomes exercisable.
3 In more than 30 days time. Before the option exercise date. No

4 In less than 30 days time. Before the option exercise date.
decisions on relevant activities is
scheduled to, or could, occur before
the option becomes exercisable.
Figure8: Substantive rights of options timing

3.6. Protective rights in joint arrangements

A key aspect of determining whether an arrangement is a joint arrangement and is therefore within the scope of IFRS11
is determining who controls the arrangements relevant activity (or activities). From a practical perspective, for many
arrangements it is unlikely that relevant activities are operationally undertaken by twoor more entities, with one of the
parties instead being appointed as operator. In these circumstances it is important to determine whether the operator is
acting as principal and therefore controls the relevant activities, or is acting as agent for the joint arrangement.
This determination rests largely on whether the rights of the non-operating party are substantive in nature meaning that
they jointly control the arrangements relevant activities, or are merely protective rights typically given to a non-controlling
investor.
Protective rights are defined in IFRS10 as rights designed to protect the interest of the party holding those rights without
giving that party power over the entity to which those rights relate (IFRS10AppendixA).
An investor that only holds protective rights has no substantive power over an investee and consequently does not control
the investee. The standard follows the logic that protective rights are designed to protect interests of the holder without
giving it power over the investee, and cannot prevent another party from having power over an investee (IFRS10.B27).
Protective rights relate to fundamental changes to the activities of an investee or apply in exceptional circumstances.
However, the fact that a right only arises in exceptional circumstances however is not in itself conclusive that it is a protective
right (IFRS10.B26).
Examples of protective rights include (IFRS10.B28):
A lenders right to restrict borrowers activities if these could change credit risk
Capital expenditure greater than that required in the ordinary course of business requiring approval by non-controlling
interest holders
Issue of debt or equity instruments requiring approval by non-controlling interest holders
A lenders right to seize assets of a borrower in the event of default.
BDO comment
The firststep in determining whether an arrangement is within the scope of IFRS11 is to determine what the arrangements
relevant activities are and then to determine which parties control those relevant activities.
In circumstances in which an operator is appointed to run the arrangement, this typically involves determining the power
given to the arrangements operator, consideration as to whether the non-operators rights are only protective and
consideration of dispute resolution procedures which apply should the parties to the arrangement disagree and fail to agree
on the direction of the arrangements relevant activity.
Step 1 Determine the arrangements relevant activity or activities
Step 2 Determine which entity controls the relevant activity or (if there is more than one relevant activity) which entity
controls the most significant relevant activities.
The appointment of an operator is very common in the creation of joint arrangements, regardless as to whether the
arrangement is structured through an incorporated entity or through a contractual arrangement.
Operators are typically appointed in the following roles:
Developer in a real estate project
Head contractor in a construction project
Real estate manager, managing a portfolio of investment properties
Researcher developing biotech or pharmaceuticals
Operator in exploration and evaluation activities
Operator of a mine, or operating oil and gas field.
It is very common that the operator is one of the investors to the joint arrangement, and by the nature of the power granted
to the operator, that party will have day-to-day control of all the activities of the arrangement. It is essential then to
determine whether the entity is undertaking the role as an agent or as principal.
Determination of the principal/agent relationship under IFRS10 often arises in the context of fund managers/investment
managers who are exposed to variable returns arising from the entity they manage. Under the IFRS10 analysis, much store
is placed on considering whether the fund manager can be easily replaced, and is paid a market rate for its services, together
with the degree to which the fund manager is exposed to variable returns.
Restrictions over the ability of investors to remove the fund manager, a non-market rate of return for management services,
and exposure to large variable returns, are all indicators that the manager is acting as principal and hence controls (and is
required to consolidate) the fund.
In practice, some arrangements that are described as being joint arrangements, but include the appointment of one of the
investors as operator, are not joint arrangements at all. This is because the IFRS10 control test can identify the operator as
being a principal and therefore the sole controlling party. Careful review and consideration of all facts and circumstances
is needed; features that require particular consideration include where the operator cannot be changed (other than for
circumstances such as inadequate performance), and where the operators remuneration approximates the recovery of costs
associated with being operator with the operators principal return being derived from exposure to a significant variable
return from an investment in the arrangement.
Consequently, it is very important to determine how the contractual arrangements affect the operator and other investors,
and whether the effect is that the operator has complete power over the arrangements relevant activity/activities.
Decision requiring
unanimous consent of Substantive Protective Comment/examples
joint arrangement investors
Major capital expenditure X
Decision to divest of material assets X
Approval of transactions with X

operator
Decisions are raising financing, X Examples include:

including selling a stake in Changing development from
the joint arrangement residential to wholesale
Changing business model from
developer to holder of investment
property.
Significant changes to project X
Acquiring additional assets projects X
Approval of annual budget X Determination will depend upon the

level of detail contained in the annual
budget, and what the requirement to
approve actually means.
Speed of development X Examples include speed of

developing a land bank and speed of
depleting a mineral resource.
Key pricing decisions X
Hiring of key management X

personnel
Hiring of major sub-contractors X
Figure9: Substantive vs. protective decisions requiring unanimous consent of joint arrangement investors
As discussed below another key element to determining whether the relevant activity/activities is/are jointly controlled is to
determine what happens in the event that the investors fail to agree.
BDO comment
A number of current jointoperating agreements(JOA) will have been in place for a number of years, and will have been put in
place well before the new requirements of IFRS11 were contemplated.
Therefore it is essential for entities to carefully review the key terms of theirJOAs so as to determine whether the rights of any
non-operating investors are protective or substantive, and to carefully review any dispute resolution mechanisms that are in
place.
(i) Clauses on the resolution of disputes

Most arrangements involving twoormoreparties will contain dispute resolution clauses, which may or may not confer
power to one of the investors (for example, in the event of dispute one of the parties may have a casting vote). Because the
effect of certain of these clauses is to give ultimate decision-making powers to one of the investors, they can mean that the
arrangement is outside of the scope of IFRS11 as there is not jointcontrol.
Examples of dispute resolution clauses which can result in arrangements being outside the scope of IFRS11 include:
Scenario 1
CompanyA and CompanyB enter into arrangementZ which is structured through a separate legal entity. CompanyA
owns70% of the voting rights, and CompanyB owns30%. Decisions over relevant activities are governed by majority vote,
other than those that are dealt with by a separate agreement.
CompanyA is the operator, with the arrangement being governed by an operations committee(OC), made up of
fourappointed committee members (twofrom CompanyA, and twofrom CompanyB).
TheOC is responsible for approving the annual budget and any variances to the approved project plan and must agree
unanimously on these decisions.
Should there be deadlock, all resolutions are resolved by reference to the parties ultimate holdings in the arrangement.
As a result, the dispute resolution process givesAcontrol over the relevant activities of the arrangement. Consequently,
Awill consolidateZ in accordance with IFRS10.
Scenario 2
CompanyA and CompanyB enter into arrangementZ which is structured through a separate legal entity. CompanyA
owns70% of the voting rights, and CompanyB owns30%. Decisions over relevant activities are governed by majority vote,
other than those that are dealt with by a separate agreement.
CompanyA is the operator, with the arrangement being governed by an operations committee(OC), made up of
fourappointed committee members (twofrom CompanyA, and twofrom CompanyB).
TheOC is responsible for approving the annual budget and any variances to the approved project plan and must agree
unanimously on these decisions.
Should there be deadlock, CompanyA has the option to acquire all of CompanyBs interest, and CompanyB has the option
to put all of its interest to CompanyA. The option exercise price is market value on the date of exercise.
As a result, the dispute resolution process gives CompanyA control over the relevant activities of the arrangement.
Consequently, CompanyA will consolidateZ in accordance with IFRS10.
Scenario 3
CompanyA and CompanyB enter into an incorporated entityZ.
CompanyA is the operator, with the arrangement being governed by the board of entityZ.
The board of entityZ is made up of fourappointed board members (twofrom CompanyA and twofrom CompanyB).
The Board is responsible for approving the annual budget and any variances to the approved project plan and must agree
unanimously on these decisions. CompanyAs representative is given the position of chairman.
Should there be deadlock the chairman has the casting vote.
As a result, the dispute resolution process gives CompanyA control over the relevant activities of the arrangement.
Consequently, CompanyA will consolidateZ in accordance with IFRS10.
(ii) Arbitration
A contractual agreement may include clauses on the resolution of disputes such as arbitration (arbitration is where, in the
event of a dispute, the issue is referred to a thirdparty who will determine the outcome which will be binding on all parties).
These arbitration provisions may allow for decisions to be made in the absence of unanimous consent among the parties
that have jointcontrol. The existence of such provisions does not automatically prevent the arrangement from being jointly
controlled. This is because such provisions do not give one of the parties a casting vote over relevant activities, instead they
provide a mechanism under which deadlock among the parties can be resolved.
BDO comment
At its May2013 meeting the IFRSInterpretations Committee(IFRSIC) received a request regarding the effect of protective
rights on an assessment of control.
The submitter asked whether the control assessment should be reassessed when facts and circumstances change such
that rights, previously determined to be protective, change (for example upon the breach of a covenant in a borrowing
arrangement that causes the borrower to be in default) or whether, instead, such rights are never included in the reassessment
of control upon a change in facts and circumstances.
TheIFRSIC decided not to add this issue to its agenda since it concluded that it did not expect significant diversity in practice.
The Committee observed that IFRS10.8 requires an investor to reassess all rights to establish whether it controls an investee
whenever facts and circumstances change.
TheIFRSIC also observed that if the breach of a covenant resulted in the rights becoming exercisable, that did constitute such
a change, and noted that IFRS10 does not include an exemption for any rights from this need for reassessment.
TheIFRSIC noted that theIASB had re-deliberated this topic during the development of IFRS10 and concluded that the
intention was that protective rights should be included in a reassessment of control when facts and circumstances change.
Accordingly, theIFRSIC considered that the conclusion about who controlled the investee would need to be reassessed after
the breach occurred.
3.7. Joint arrangement classifications

The new model under IFRS11
IFRS11 has only twoclassifications of joint arrangements:
Jointoperation
Jointventure.
IAS31 Interests in JointVentures had threeclassifications of jointventures:

Jointly controlled assets
Jointly controlled operations
Jointly controlled entities.
The changes between the IFRS11 and IAS31 classifications can be summarised as follows:
Jointly controlled assets Jointly controlled operations Jointly controlled entities
JointOperations JointVentures
Figure10: Changes in classifications from IAS31 to IFRS11
The smaller arrow between jointly controlled entities and jointoperations represents a potential change in classification as a
result of assessing the substance rather than the form of a joint arrangement (refer below).
There is a subtle, but important, change to the terminology which is used under IFRS11 in comparison with IAS31. The
reference in the title of IAS31 to jointventures is reflected in many arrangements being described as jointventures in
contractual agreements. However, IFRS11 is more precise, with the term jointventure applying to only a subset of the
overall population which is now referred to as joint arrangements.
This may give rise to some confusion (and potential errors) on the initial application of IFRS11, because common business
practice is to use the term jointventure widely. However, simply because an arrangement is referred to as a jointventure
does not mean that it will be accounted for under that heading in accordance with IFRS11. This is a critical distinction,
because the new categories set out in IFRS11 give rise to very different accounting.
If a jointly controlled entity under IAS31 is determined to be a jointventure under IFRS11, the venturer is required to apply
equity accounting.
If a jointly controlled entity under IAS31 is determined to be a jointoperation under IFRS11, the jointoperator accounts
for its share of assets, liabilities income and expenses. Equity accounting is prohibited. In addition, even if a jointoperator
previously applied proportionate consolidation to an IAS31 jointly controlled entity which becomes an incorporated IFRS11
jointoperation, the IFRS11 accounting may still be different from the previous IAS31 approach.
IFRS11.15and16 describe jointoperations and jointventures as:

Jointoperation
A joint arrangement whereby the parties that have jointcontrol of the arrangement (termed jointoperators) have rights
to the assets, and obligations for the liabilities, relating to the arrangement.
Jointventure
A joint arrangement whereby the parties that have jointcontrol of the arrangement (termed jointventurers) have rights to
the net assets of the arrangement.
It is the substance (i.e. the contractual and other rights) of the arrangement that determine the classification in accordance
with IFRS11. Under IAS31, a jointly controlled entity arose whenever a separate entity had been established.
In contrast, under IFRS11 if a joint arrangement is not structured through a separate legal entity, it is always accounted for as
a jointoperation. However, if a joint arrangement is structured through a separate legal entity, then depending on the rights
and obligations of the parties to the joint arrangement, each party will either:
Apply equity accounting, or
Recognise their share of assets, liabilities, income and expenses.
Consequently, when assessing the IFRS11 classification of a joint arrangement structured through a separate legal entity, the
assessment of the rights and obligations of the parties in the joint arrangement is key.
Classification assessing each partys rights

To determine the correct classification of a joint arrangement structured through a separate legal entity (and therefore the
correct initial and subsequent accounting) an entity needs to assess the rights and the obligations of the parties arising from
the arrangement in the normal course of business, specifically considering (IFRS11.17):
The structure
The legal form
The contractual arrangement
Other facts and circumstances.
This assessment must be performed on a continuous basis (i.e. an entity must reassess the joint arrangements classification
as facts and circumstances change) (IFRS11.19).
Ultimately, the assessment needs to consider and conclude whether:
A right to specific assets and obligations for specific liabilities exists (in which case the joint arrangement is classified as a
jointoperation)
A right or exposure to only the net assets exists (in which case the joint arrangement is classified as a jointventure).
Structure
Is the joint arrangement structured through a

No
(i)
vehicle that is separate from the parties?
Yes
Legal form
Does the legal form of the joint arrangement give parties

rights to specific assets and obligations for specific liabilities Yes
(ii)
of the arrangement (as opposed to a share of the net assets)?
No
Joint
Operation
Contractual
agreement
Does the contractual agreement of the joint arrangement

(iii)
give parties rights to assets and obligations Yes

for liabilities of the joint arrangement?
No
Other facts and
Are there other facts and circumstances? Such as

circumstances
do the parties have rights to substantially all the

(iv)
economic benefits of the assets in the vehicle, and Yes

does it depend on the parties on a
continuous basis to settle its liabilities?
No
JointVenture
Figure11: Flowchart Joint arrangement classification assessment

(i) Structure
(a) Joint arrangement not structured through a separate vehicle
A joint arrangement that is not structured through a separate vehicle is a jointoperation.
In such cases, it is the arrangements contractual terms that will establish the parties rights to the assets, and obligations
for the liabilities, relating to the arrangement, and their rights to the corresponding revenues and obligations for the
corresponding expenses.
Therefore for unincorporated joint arrangements (previously classified as jointly controlled assets or jointly controlled
operations under IAS31) there is no change and investors in these types of arrangements must continue to account for their
share of assets, liabilities, income and expenses.
(b) Joint arrangement structured through a separate legal entity

A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate legal entity can be
either a jointventure or a jointoperation. That is, a separate legal entity is a necessary (but not a sufficient) condition for a
jointventure. If there is a separate legal entity, then the remaining tests are applied.
This is in contrast to IAS31, where the establishment of a separate legal entity resulted in automatic classification as a jointly
controlled entity.
When the arrangement is structured through a separate legal entity, the structure itself is not determinative, although in
many cases the contractual arrangements are consistent with the legal form. However, it is still a significant factor as, in
order for an arrangement structured through a separate legal entity to be classified as a jointoperation, the effect of other
arrangements must be to strip away the (often protective) effect of the legal structure.
(ii) Legal form

The legal form of the separate vehicle can be relevant when assessing the type of joint arrangement. For example, the
parties might conduct the joint arrangement through a separate vehicle, whose legal form causes the separate vehicle to
be considered in its own right (i.e. the assets and liabilities held in the separate vehicle are the assets and liabilities of the
separate vehicle and not the assets and liabilities of each of the parties to the joint arrangement).
In such a case, the assessment of the rights and obligations conferred upon the parties by the legal form of the separate
vehicle indicates that the arrangement is a jointventure.
However, the terms agreed by the parties in their contractual arrangements and, when relevant, other facts and
circumstances can override the legal form of the separate vehicle and result in it being accounted for as a jointoperation.
This is particularly the case when parties have obligations to purchase part or all of the output from a joint arrangement.
Careful assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle is
therefore required. In order for it to be concluded that the arrangement is a jointoperation, there must not be separation
of rights and obligations between the parties and the separate vehicle (that is, as noted above, the effect of the overall
arrangements must be to strip away the legal structure). However, this might also be achieved through the terms of a
contractual arrangement.
Partnerships
Under IAS31, partnerships were classified by default as a jointly controlled entities as they were separate legal entities. These
were then subsequently accounted for by using either proportional consolidation or equity accounting.
This was the case even where the partnership arrangement conferred no separation between the parties and the vehicle
itself (i.e. it was the individual parties and not the partnership in its own right that had the benefit and obligation for the
partnerships assets and liabilities).
In various jurisdictions around the world, the establishment of a partnership resulted in exactly this outcome, where it was
the individual parties that had the benefit and obligation for the partnerships assets and liabilities, not the partnership in its
own right.
Under IFRS11, such partnerships would be classified as a jointoperation. This is because the parties have rights to specific
assets, and obligations for specific liabilities, rather than rights solely to the net assets of the arrangement.
BDO comment
This change in respect of partnership vehicles that do not confer separation between the vehicle itself and the parties may
have a significant effect on the presentation and measurement within each partners separate and consolidated accounts.
For parties to a partnership that previously applied proportionate consolidation to their interests in the partnership, the
accounting will often be the same as previously recognised in their consolidated/individual financial statements. However,
a significant change is that the accounting for assets, liabilities, income and expenses will now be required in their separate
financial statements.
For parties to a partnership that previously applied equity accounting to their interests in the partnership, the accounting
will be significantly different, and will affect their consolidated/individual and separate financial statements on a line-by-line
basis (the extent of this will depend on the nature of each jointoperations activities).
Unlimited liability vehicles

It is possible for a vehicle to have a separate legal personality, but for the parties to have ultimate unlimited liability for any
amounts owing that the vehicle cannot cover on its own. These are termed unlimited companies in some jurisdictions.
Such vehicles do not automatically result in a jointoperation, even though at firstglance it appears that the parties have
obligations for the vehicles liabilities.
The rationale for this is as follows:
1. The primary responsibility for the unlimited liability vehicles liabilities in the first instance is the unlimited liability vehicle
itself. The parties would only cover the liabilities of the unlimited liability vehicle if it was not capable of settling its
liabilities on its own. In essence and from an economical perspective this amounts to a guarantee, rather than a direct
contractual obligation to settle the obligations, which on its own does not result in classification as a jointoperation.
2. The unlimited liability vehicle does not give the parties rights to assets which is a requirement to qualify as a
jointoperation (IFRS11.15).
Example 8
PartiesAandB provide many types of construction services, and jointly enter into a contractual arrangement to design/
build a road. The parties set up a separate vehicle (entityZ) to facilitate this arrangement.
EntityZ enters into a contract with the government for the road, and holds the assets and liabilities relating to the road
contract, as well as invoicing the government for the construction services.
The main feature of entityZs legal form is that the parties (not entityZ in its own right) have rights to the assets, and
obligations for the liabilities, of the entity.
EntitiesAandB appoint an operator, who will be an employee of one of the parties.
Assessment
EntityZ is a separate vehicle with its own legal form.
However, the legal form does not confer separation between the parties and the separate vehicle, as consequently it is
entitiesAandB that have the rights to entityZs assets and obligations for entityZs liabilities.
Therefore, the arrangement is classified as a jointoperation.
EntitiesAandB subsequently recognise their share of revenue, expenses, assets and liabilities (i.e. line-by-line
accounting).
Note: Under IAS31, because EntityZ is a separate entity, the arrangement would have been classified by default as a
jointly controlled entity, and would have been accounted for by proportionate consolidation or equity accounting.
Example 9
PartiesAandB are real estate companies, and set up a separate vehicle (entityX) for the purpose of acquiring and
operating a shopping centre.
According to entityXs legal form it has rights to its own assets, and obligations for its own liabilities, relating to the
arrangement. EntityX also owns the shopping centre.
PartiesAandB are not liable in respect of the individual debts, liabilities or obligations of entityX.
PartiesAandB each receive a share of the income from operating the shopping centre.
Assessment
EntityX is a separate vehicle with its own legal form, and also holds the rights and obligations of its own assets and
liabilities. This confers separation between partiesAandB, and entityX.
In the absence of any other relevant facts and circumstances, the arrangement is classified as a jointventure.
EntitiesAandB apply equity accounting.
Note: Under IAS31, because EntityX is a separate entity, the arrangement would have been classified by default as a
jointly controlled entity, and would have been accounted for by proportional consolidation or equity accounting.
(iii) Contractual arrangement

The contractual arrangement often describes the nature of the activities that are the subject of the arrangement and how
the parties intend to undertake those activities together.
For example, the parties to a joint arrangement could agree to manufacture a product together, with each party being
responsible for a specific task and each using its own assets and incurring its own liabilities. The contractual arrangement
could also specify how the revenues and expenses that are common to the parties are to be shared among them. In such
a case, each jointoperator recognises in its financial statements the assets and liabilities used for the specific task, and
recognises its share of the revenues and expenses in accordance with the contractual arrangement.
In other cases, the parties to a joint arrangement might agree to share and operate an asset together. In such a case, the
contractual arrangement establishes the partys rights to the asset that is operated jointly, and how output or revenue from
the asset and operating costs are shared among the parties. Each of the parties accounts for its share of the joint asset
and its agreed share of any liabilities, and recognises its share of the output, revenues and expenses in accordance with the
contractual arrangement.
In many cases, the rights and obligations agreed in the contractual arrangements are consistent, or do not conflict, with
the rights and obligations conferred on the parties by the legal form of the separate vehicle in which the arrangement has
been structured. However, parties might use the contractual arrangement to reverse or modify the rights and obligations
conferred by the legal form of the separate vehicle in which the arrangement has been structured.
It should be noted that the following contractual arrangements, on their own, do not result in the arrangement being
classified as a jointoperation:
Guarantees provided to thirdparties provided (e.g. for service, financing etc.). Guarantees do not provide the parties with
primaryrights to assets and obligations for liabilities
Obligations for unpaid or additional capital.
Example 10
Scenario 1
Twoparties enter into a joint arrangement which is structured through an incorporated entity in which each party has a
50%ownership interest.
There are no other contractual arrangements in place between the parties.
Scenario 2
The parties have also modified the features of the corporation through a separate contractual arrangement so that each
has an interest in the assets of the incorporated entity and each is responsible for settling its liabilities in a specified
proportion.
Assessment
Scenario 1
The incorporation of a separate entity results in the legal separation of the entity from its owners and, in consequence,
the assets and liabilities held in the incorporated entity are that separate entitys own assets and liabilities.
The assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle
indicates that the parties have rights to the net assets of the arrangement.
Therefore, in the absence of any other contractual arrangement between the parties, the joint arrangement would be
classified as a jointventure.
Scenario 2
The incorporation of a separate entity results in the legal separation of the entity from its owners and, in consequence,
the assets and liabilities held in the incorporated entity are the separate entitys own assets and liabilities.
However, the parties have also modified the features of the corporation through a separate contractual arrangement
so that each has an interest in the assets of the incorporated entity and each is liable for its liabilities in a specified
proportion. Consequently, the parties do not have rights to the net assets of the arrangement, and instead have rights to
assets and obligations for liabilities.
Therefore the joint arrangement would be classified as a jointoperation.
When a contractual arrangement specifies that the parties have rights to the assets and obligations for the liabilities relating
to the arrangement, they are considered to be parties to a jointoperation and do not need to consider other facts and
circumstances for the purposes of classifying the joint arrangement.
Example 11
EntitiesAandB (theparties) set up a separate vehicle (entityX) together with a JointOperating Agreement(JOA).
Shareholders agreement andJOA establish rights and obligations and expressly specify that:
Each party has a 50%interest in entityX and appoints onedirector
Unanimous consent is required for all resolutions to be passed
The rights and obligations arising from the activities of entityX are to be allocated directly to partiesAandB in
specified proportions.
Assessment
The joint arrangement is structured through a separate vehicle. However, the terms of theJOA result in the parties
having direct rights to entityXs assets and direct obligations for its liabilities.
Therefore the contractual arrangement between the parties results in each party classifying the arrangement as a
jointoperation.
(iv) Other facts and circumstances

When the terms of the contractual arrangement do not specify that the parties have rights to the assets and obligations for
the liabilities relating to the arrangement, it is still necessary to consider other facts and circumstances in order to determine
the appropriate classification of the joint arrangement, such as those that:
Give the parties rights to substantially all of the economic benefits relating to the arrangement
Cause the arrangement to depend on the parties on a continuous basis for settling its liabilities.
It is particularly important to analyse all terms and conditions to an arrangement that is designed primarily to provide its
output to the parties to a joint arrangement. The effect of these may indicate that:
The parties have substantially all the benefits of the joint arrangements assets
The liabilities of the joint arrangement are only satisfied by the cash flows received from the parties for the purchase of
the output, and therefore the parties in-turn are considered to have an obligation for these liabilities.
The analysis of these other facts and circumstances may result in a jointoperation classification. However, the legal form of
contractual arrangements can be critical to the analysis, as illustrated by the examples below.
Example 12
The purpose of the arrangement is to manufacture materials required by the parties for their own, individual
manufacturing processes. The arrangement ensures that the parties operate the facility that produces the materials to
their quantity and quality specifications.
The contractual arrangement between the parties specifies the following aspects of the arrangement:
Under the terms of the arrangement, the parties have agreed to purchase all the output produced by the entity in a
ratio of50:50
The entity is not permitted to sell any of the output to thirdparties, unless this is approved by the twoparties to the
arrangement. Because the purpose of the arrangement is to provide the parties with output they require, such sales to
thirdparties are expected to be uncommon and insignificant in volume and value.
The price of the output sold to the parties is set by bothparties at a level that is designed to cover the costs of
production and administrative expenses incurred by the entity. On the basis of this operating model, the arrangement is
intended to operate at a break-even level.
Example 12
Assessment
From the fact pattern above, it can be concluded that:
The obligation of the parties to purchase all the output produced by the entity reflects the exclusive dependence
of the entity upon the parties for the generation of cash flows and, thus, the parties have an obligation to fund the
settlement of the liabilities of the entity
The fact that the parties have rights to all the output produced by the entity means that the parties have rights to all
the economic benefits of the assets of the entity.
These facts and circumstances indicate that the arrangement is a jointoperation.
The conclusion about the classification of the arrangement in these circumstances would not change if, instead of the
parties (the jointoperators) using their share of the output themselves in a subsequent manufacturing process, they sold
their share of the output to third parties.
If the parties changed the terms of the contractual arrangement so that the joint arrangement incorporated entity was
able to sell more than an insignificant amount of its output to thirdparties, this would result in the entity assuming
demand, inventory and credit risks. In that scenario, such a change in the facts and circumstances would require
reassessment of the classification of the joint arrangement. Such facts and circumstances would indicate that the joint
arrangement should be classified as a jointventure.
Alternative scenario 1 (Options to purchase output)

Same details as above, except that:
Each party has the option to purchase the output from the joint arrangement
If the option is not exercised then the joint arrangement is free to sell the output to the market.
Assessment
The option to purchase the output from the joint arrangement does not create a contractual obligation for the parties to
fund the liabilities of the joint arrangement, irrespective of how likely the parties are to exercise the option. The question
of whether the parties might be economically compelled to purchase the output (for example, because it could be sold
immediately to thirdparties for a substantial profit) is irrelevant and is not considered in the IFRS11 analysis.
Therefore the joint arrangement cannot be a jointoperation, and is instead classified as a jointventure.
Alternative scenario 2 (Jointoperator is the only customer)

Same details as above, except that:
Each party has no contractual right or option to purchase all of the output from the joint arrangement
However one of the partys (i.e. party A) is the joint arrangements only customer.
Assessment
There is no contractual obligation for the parties to purchase the output of the joint arrangement and then in-turn fund
the liabilities of the joint arrangement. The fact that partyA is the joint arrangements only customer does not alter this.
Therefore the joint arrangement cannot be a jointoperation.
Instead the joint arrangement is therefore classified as a jointventure.
Example 13 Use of jointoperator assets

Scenario 1
PartiesAandB establish an incorporated joint arrangement (entityZ) to operate a gold mine, in which each party has a
EntityZ utilises a nearby processing plant, owned by partyA, to extract the gold as part of a Toll Manufacturing
Arrangement1(TMA).
After processing, entityZ sells the gold on the open market.
EntityZ subsequently pays dividends to partiesAandB based on their ownership interest.
Assessment
The TMA does not result in either party having specific rights to assets of the joint arrangement (i.e. the specialised
assets of entity A remain under the control of entityA).
The joint arrangement is therefore classified as a jointventure.
Scenario 2
PartiesAandB establish an incorporated joint arrangement (entityZ) to operate a gold mine, in which each party has a
The terms of the joint arrangement state that all of entityZs output is sold to each party at a price reflective of the
costs of production. EntityZ is prohibited from selling any of its output to any other party.
The parties then utilise a nearby processing plant, owned by partyA, to process the gold as part of a Toll Manufacturing
Arrangement1 (TMA).
After processing entitiesAandB sell the gold on the open market.
EntityZ subsequently pays dividends to partiesAandB based on their ownership interest.
Assessment
The key difference between scenario1 and scenario2 is that in scenario2 the parties are required to purchase all of the
output of entityZ, and (as noted above) the effect is that the parties have a direct obligation to settle the liabilities of
entityZ.
Therefore the arrangement is classified as a jointoperation.
A TMA is an arrangement in which a company, with specialised equipment, processes raw materials or semi-finished goods for
1
another company.
Example 14 Separate phases

Twoparties enter into a joint arrangement in which is structured through a separate incorporated entity. The legal form
of the incorporated entity confers separation between the jointly controlling entities and the incorporated entitys assets
and liabilities.
The terms of the arrangement between the parties do not specify the twoparties rights to the assets or their
obligations to the liabilities.
The purpose of the arrangement is to develop and sell luxury apartments in a single building. The project is financed by
the twoparties until the sale of the apartments commences.
Any cash received from the sale of apartments is usedfirst to fund the additional development of the building with any
excess remaining being allocated to the twoparties.
Following the finalisation of the development of the building and the sale of the apartments any remaining cash is
allocated to the parties and the arrangement will be terminated.
Assessment
The arrangement might be seen has having twophases:
1. A development stage in which the incorporated entity depends on the parties to settle its obligations
2. The commercial sale phase in which the incorporated entity generates independent cash inflows that are used to settle
its liabilities.
This may lead to the determination that the arrangement is a jointoperation since the parties are considered to have the
obligation to settle the arrangements liabilities in the development phase.
In our view this analysis is incorrect.
In this scenario, the incorporated entity ultimately funds its own operations through sales of the properties to
thirdparties. The funding that is initially made available by the parties is similar in nature to funding that an entity might
require to fund its capital expenditure, rather than being dependent on the parties on an on-going basis throughout
the life of the project. The fact that the parties will be the source of cash flows in the early stages of the project is not
conclusive in the determination of whether the parties have rights to assets, or obligations for liabilities. In this case,
it would appear that, ultimately, the twoparties will not have obligations for the arrangements liabilities and that
their ultimate interest is in the residual net assets. Consequently, the arrangement would be likely to be classified as a
jointventure.
4. PRESENTATION, RECOGNITION, AND

MEASUREMENT BY JOINTCONTROLLERS
The general requirements of IFRS11 Joint Arrangements are summarised in the table below:
Consolidated/Individual2 Separate3
Joint Arrangement Classification
financial statements financial statements
Jointoperations Recognise share of assets, liabilities, income and expenses on a line-by-line basis.
Jointventures Equity accounting4 Choice between:

(as prescribed by IAS28(2011) Cost
Investments in Associates and Financial instrument in accordance
JointVentures). with IFRS9 Financial Instruments
(IAS39 Financial Instruments:
Recognition and Measurement).
Figure12: Accounting requirements prescribed by IFRS11
When an investor has no subsidiaries (i.e. is not a parent), the term used for the financial statements in which an investment is
2
equity-accounted (i.e. associates and jointventures) is Individual Financial Statements. An entity that is not a parent, but has
interests in associates and/or jointventures, is required to prepare individual financial statements.
Consolidated Financial Statements are prepared by an entity that is a parent, which has at least one subsidiary.
The accounting for joint arrangements is the same in an entitys Consolidated or Individual Financial Statements.
IFRSdoes not require the preparation of separate financial statements, although they are often prepared in accordance with an
3
entitys local legal requirements.

4
IAS28(2011).18 provides that when the interest is held (directly or indirectly) by an entity that is a venture capital organisation,
or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity has the option to
measure its interest at fair value through profit or loss in accordance with IAS39/IFRS9, rather than in accordance with the
equity method.
4.1. Jointoperators
(a) Consolidated/Individual financial statements
Each jointoperator accounts for its share of assets, liabilities, income and expenses on a line-by-line basis, as governed by
other applicable IFRSs (e.g. IAS2 Inventories).
In practice, jointoperation agreements vary on an individual basis. Consequently, the share of assets, liabilities, income
and expenses to be accounted for by each party to a jointoperation will be dependent on the specific terms within each
jointoperation agreement. This is illustrated below:
JointOperation Arrangement
Description Treatment
(Type)
Shared rights to assets and The arrangement establishes: Each partys share of assets, liabilities,
obligations for liabilities, and Parties share and operate assets income and expenses in accordance
for income and expenses. together, and how this is to be done with the terms of the agreement.
How income/output is to be shared.
Shared rights and obligations The arrangement establishes: Each party recognises its own
for income and expenses only. Each party is responsible for a assets and liabilities utilised in the
separate role jointoperation.
No specified rights and
obligations for assets and Each party uses its own assets and Common income and expenses are
liabilities. Each party contributes incurs its own liabilities shared in accordance with the terms of
specified assets and liabilities to The common (e.g. corporate the agreement.
the jointoperation, or uses its and administrative) income and
own assets and incurs its own expenses are shared based on a
liabilities that relate to the joint ratio/rate.
operation.
Figure13: Illustrative treatments different types of jointoperations
(b) Separate financial statements

The treatment is the same as consolidated/individual financial statements (see4.1(a)above).
(c) Accounting for transactions with a jointoperation as a jointoperator

(i) Accounting for sales or contributions of assets to a jointoperation
These transactions (e.g. a sale or contribution of assets) are regarded as being transactions with the other parties to the
jointoperation (IFRS11.B34andB35). Therefore the jointoperator recognises any resulting gains and losses to the extent of
the other parties interests in the jointoperation.
Note: If the transaction with the jointoperation provides evidence of an impairment loss in respect of the assets sold or
contributed, those losses should be recognised in full by the jointoperator.
(ii) Accounting for purchases of assets from a jointoperation

A jointoperators share of gains and losses resulting from these transactions are not recognised until the jointoperator
resells those assets to a thirdparty (IFRS11.B36andB37).
Note: If the transaction with the jointoperation provides evidence of an impairment loss in respect of the assets
purchased, the jointoperator is required to recognise its share of those losses.
Example 15
EntityAandB (theparties) establish an arrangement separate legal entityX in which each has60%and40%share of
the voting rights over the relevant activities of the arrangement respectively.
EntityX is required to sell its entire produced inventory to only the twojointoperators. Sales to any other parties are
prohibited.
During the period:
Total revenues of entityX from sales to partiesAandB areCU18,000andCU12,000 respectively
Cost of sales of entityX areCU16,000.
As at reporting date:
EntityA has sold the produced inventory acquired from the jointoperation entity to a thirdparty forCU21,600
There are no outstanding trade payable/receivable balances between entityX and the parties as at reporting date
EntityXs only asset is cash ofCU30,000, and liabilities are nil.
Assessment
IFRS11 requires jointoperators to recognise their share of rights to and obligations for assets, liabilities, income, and
expenses of joint arrangements classified as jointoperations.
IFRS11 does not provide any further guidance in respect of jointoperations that are structured through a separate
vehicle.
Therefore, in recognising its share of income and expenses, entity A would account for:
Cash ofCU18,000
Revenues ofCU18,000
Cost of sales ofCU9,600 (16,000x60%).
Example 15
Assessment
EntityAs income statement before eliminating its transaction with the jointoperation entity:
EntityA Share in jointoperation entity results Total

Revenue 21,600 18,000 39,600
Cost of sales (18,000) (9,600) (27,600)
Gross profit 3,600 8,400 12,000
In accordance with IFRS11.20, entityA should recognise its share of the revenues and expenses in relation to its interest
in the jointoperation entity.
EntityAs interest in the revenues and expenses of the jointoperation entity are the revenues ofCU18,000 directly
generated from the sale of the output to entityA and the corresponding cost of sales ofCU9,600.
However, since these revenues are revenues generated with itself through an intercompany transaction, entityA must
eliminate these revenues in full as part of its consolidation procedures. Not eliminating the revenues in full would result
in double counting of revenues.
Therefore entityA eliminates the results as follows:
Dr Revenue 18,000
Cr Cost of sales 18,000
The result is a full elimination of all intercompany revenue.

Therefore, EntityA would recognise in its financial statements the revenues with third party ofCU21,600 and cost of
sales ofCU9,600.
Share in Elimination of Consolidated

EntityA jointoperation Total intercompany financial
entity results transaction statements
Revenue 21,600 18,000 39,600 (18,000) 21,600
Cost of sales (18,000) (9,600) (27,600) 18,000 (9,600)
Gross profit 3,600 8,400 12,000 12,000
If however entityA had not sold the inventory purchased from entityX to a thirdparty by reporting date, entityA would
have an inventory item in its statement of financial position ofCU18,000 (representing the amount paid for the purchase
of the item from entityX i.e. cost from the perspective of entityA).
However, from a group perspective, this results in inventory being overstated, as the inventory that was previous carried
atCU9,600 in entityXs accounts is now carried atCU18,000 in entityAs accounts. This is eliminated as follows:
Dr Revenue 18,000
Cr Cost of sales 9,600
Cr Inventory 8,400
This results in:

A full elimination of all intercompany revenue and cost of sales, and
Elimination of the overstatement of inventory i.e. inventory is now carried atCU9,600 (CU18,000CU 8,400).
4.2. Joint venturers

(a) Consolidated/individual financial statements
Each jointventurer accounts for its interest in the jointventure by applying the equity method as set out in
IAS28(2011)(IFRS11.24).
The option to apply proportionate consolidation that was available under IAS31 Interests in JointVentures has been removed.
Under the equity method, the jointventurers interest in a jointventure is measured as:
Investment in Post-acquisition
jointventure
(Equity Method) = Initial cost
+ changes in
jointventurers share
of net assets5
Figure14: Equity method illustration
(i) Removal of proportionate consolidation likely effect on jointventurers

The application of the proportionate consolidation method under IAS31 was on a line-by-line basis. The effect of equity
accounting, which results in the recording of a jointventurers interest in a jointventure on a single line in the statement of
financial position and statement of comprehensive income, includes the following:
Note: the jointventurers share of profit or loss and other comprehensive income of the jointventure is included in its profit or
5
loss and other comprehensive income, respectively.

Effect on the statement of financial position
Line item Potential impact Reason
Current assets Decrease The jointventures financial position is no longer recorded on a

Current liabilities line-by-line basis.
Non-current liabilities
Non-current assets Increase or decrease The line item Investment in jointventures is included within
non-current assets, therefore the impact will be:
Increase: If non-current assets (excl. Investment in
jointventures) are less than Investment in jointventures.
Decrease: If non-current assets (excl. Investment in
jointventures) are more than Investment in jointventures.
Equity Potential increase Under the equity method, there are only certain conditions
(if the jointventure where losses in the jointventure that result in it recording net
has net liabilities) liabilities are (continued to be) recognised.
I.e. a share of losses is not recorded after a jointventurers
investment carrying amount is reduced to zero, unless the
jointventure has an obligation to fund those losses.
Effect on the statement of comprehensive income
Line item Potential impact Reason
Revenue Decrease The jointventures financial performance is no longer recorded

Operating expenses on a line-by-line basis.
Operating results Increase or decrease The impact depends on the results/profitability of the
Operating margin jointventure.
Finance income Decrease The jointventures financial performance is no longer recorded

Finance expense on a line-by-line basis.
Share of profit from equity- Increase or decrease The impact depends on the results/profitability of the
accounted investees6 jointventure.
Profit before tax Increase or decrease Decrease/(increase) if the jointventure has a tax expense/
(revenue). This is because the share of post-tax profit or loss is
included within in the venturers pre-tax results.
Profit or loss Potential increase Refer to Equity section in statement of financial position
(if the jointventure above.
has net liabilities)
Figure15: Effect of moving from proportionate consolidation to equity accounting
Note, an entity that previously held no associates nor any jointly controlled entities accounted for in accordance with the equity
6
method, would not have such a line item in its previous consolidated/individual financial statements.
(ii) Exemption from the requirement to apply the equity method

IAS28(2011).17 sets out a number of exemptions from applying the equity method. A jointventurer is not required to apply
the equity method to its investment in an associate or jointventure provided that that it is either:
1. A parent that exempt from preparing consolidated financial statements in accordance with IFRS10.4(a), or
2. All of the following apply:
The jointventurers debt or equity instruments are not traded on a public market. A public market would be a domestic
or foreign stock exchange or an over-the-counter market, including local and regional markets
The jointventurers owners (including non-controlling interest holders of the jointventurer is not a wholly owned
subsidiary) have been informed about, and do not object to, the jointventure not applying the equity method
The jointventurers ultimate or any intermediate parent produces IFRScompliant consolidated financial statements
that are available for public use.
(iii) Exemption from applying the equity method (venture capital organisations)
IAS28(2011).18 permits a jointventurer that holds its interest in a jointventure (directly or indirectly) through a venture
capital organisation (or unit trust, mutual fund, or certain similar entities) not to apply equity accounting. Instead, the
jointventurer would recognise its investment as a financial asset that is measured at fair value though profit or loss (in
accordance with IAS39/IFRS9).
A venture capital organisation (or unit trust, mutual fund, or similar entity) is described as an entity whose business is
investing in financial assets with a view to profiting from their total return in the form of interest or dividends and changes in
fair value (IAS39.AG4I(a)).

Each jointventurer accounts for its interest in the jointventure in accordance with paragraph10 of
IAS27(2011)Separate Financial Statements, which is either:
At cost (less any subsequent impairment)
As a financial asset in accordance with IFRS9 or IAS39 as applicable.
Note: If the jointventurer is a venture capital organisation (refer above) then the same accounting must be applied in the
separate financial statements as was applied in the consolidated/individual financial statements (IAS27(2011).11).
5. OTHER PARTIES TO A JOINT ARRANGEMENT

(I.E. NON-JOINTCONTROLLING PARTIES)
IFRS11.23and25 provide guidance for the accounting treatment of a joint arrangement by those parties which do not have
jointcontrol over the joint arrangement (non-jointcontrolling parties).
The accounting treatment by non-jointcontrolling parties is dependent on:
The classification of the joint arrangement
Whether non-jointcontrolling parties have rights and obligations for assets, liabilities, expenses, and revenues
(jointoperations only)
Whether the non-jointcontrolling parties have significant influence7 (i.e. the interest is accounted for as an associate).
In summary:
Non-jointcontrolling parties to a jointoperation that have (contractual) rights to and obligations for assets, liabilities,
income and expenses, recognise their share of any assets, liabilities, income and expenses in accordance with the terms of
the agreement, in both their consolidated/individual and separate financial statements
Non-jointcontrolling parties to a jointoperation that do not have (contractual) rights to and obligations for assets,
liabilities, income and expenses determine whether they have significant influence (in accordance with IAS28(2011)) and
account for their interest in their consolidated/individual and separate financial statements accordingly.
Non-jointcontrolling parties to a jointventure determine whether they have significant influence (in accordance with
IAS28(2011)) and account for their interest in their consolidated/individual and separate financial statements accordingly.
7
Significant influence
Significant influence is defined by IAS28(2011) Investments in Associates and JointVentures paragraph3 as:
the power to participate in the financial and operating policy decisions of the investee but is not control or jointcontrol
of those policies.
IAS28(2011).5 includes a rebuttable presumption that significant influence:
Exists when an entity holds more that 20%of the voting power
Does not exist when an entity holds less that 20%of the voting power.
Further guidance surrounding determining and assessing significant influence is provided in IAS28.6-9.
The following table summarises the treatment to be adopted by non-jointcontrolling parties in their consolidated/individual
and separate financial statements.
Jointoperations (refer5.1 below)
Consolidated/Individual Separate
Classification
Jointoperations Recognises share of any assets, liabilities, income and expenses

in accordance with the terms of the agreement.
(contractual rights
and obligations to
assets, liabilities,
income and expenses)
Jointoperations Assess for significant influence Assess for significant influence
(No contractual rights If present If not present If present choose either If not present
and obligations to (IAS27(2011).10)
assets, liabilities,
income and expenses) Equity method8 Financial Cost Financial Financial
instrument (Less impairment) instrument instrument
(IAS28(2011)) (IFRS9/IAS39) (IFRS9/IAS39) (IFRS9/IAS39)
Figure16: Summary: Non-jointcontrolling party treatment of interests in an arrangement which is jointly controlled by other parties
Jointventures (refer5.2 below)
Consolidated/Individual Separate
Classification
Jointventures Assess for significant influence Assess for significant influence
If present If not present If present choose either If not present

(IAS27(2011).10)
Equity method8 Financial Cost Financial Financial

instrument (Less impairment) instrument instrument
(IAS28(2011)) (IFRS9/IAS39) (IFRS9/IAS39) (IFRS9/IAS39)
Figure17: Summary: Non-jointcontrolling party treatment of interest in an arrangement which is jointly controlled by other parties
IAS28(2011).18 provides that when the interest is held (directly or indirectly) by an entity that is a venture capital organisation,
8
or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity has the option to
measure its interest at fair value through profit or loss in accordance with IAS39/IFRS9, rather than in accordance with the
equity method.
5.1. Jointoperation
A party to a jointoperation that does not have jointcontrol will need to analyse the facts and circumstances around the
arrangement it has entered into to determine what (if any) rights and obligations it holds. This will then determine the
accounting treatment of the interest in the arrangement to be applied in its consolidated/individual and separate financial
statements.
If the party does have (contractual) rights and obligations to assets, liabilities, expenses, and revenues, that party recognises
its share of any joint assets, liabilities, expenses, and revenue in accordance with the terms of the agreement.
If the party does not have (contractual) rights and obligations to assets, liabilities, expenses, and revenues, the party applies
theIFRSs that are applicable to that interest.

The treatment is the same as consolidated/individual financial statements (seeabove).
5.2. Jointventure
The non-jointcontrolling party assesses whether it has significant influence:
If it does have significant influence:
Equity account in accordance with IAS28(2011).
If it does not have significant influence:

Financial instrument in accordance with IFRS9 or IAS39 as applicable.

The non-jointcontrolling party assesses whether it has significant influence:
If it does have significant influence, there is a choice of measurement between:
At cost, less any impairment
If it does not have significant influence:

6. CHANGES TO IAS28
A number of amendments were made to IAS28(2008) Investments in Associates as a consequence of the release on the
consolidation package (seesection1.3).
The most obvious change included in the revised IAS28(2011) Investments in Associates and JointVentures is the extension of
scope to include jointventures as well as associates, as the method of subsequent accounting is now the same for each (the
option for proportionate consolidation has been eliminated).
The mechanics of equity accounting have not changed.
However, changes have also been made and guidance added for the following issues:
Venture capital organisations (or similar entities)
Potential voting rights application to equity accounting
Potential voting rights determining significant influence
Treatment of changes in interest held
Treatment of an investment in a jointventure held-for-sale
Contributions of non-monetary assets by a jointventure.
Each of these is discussed below.
6.1. Venture capital organisations (or similar entities)

Venture capital organisations (or similar entities) are discussed in sections4.2.
IAS28(2011) includes an option for venture capital (or similar) entities to measure their investments in a jointventure
(or associate) as a financial asset at fair value through profit loss in accordance with IFRS9 Financial Instruments or
IAS39Financial Instruments: Recognition and Measurement as applicable (IAS28(2011).18).
However, IAS28(2011).19 permits a further measurement exception for associates (but not jointventures) where, if (in a
group) a portion of an overall investment in associate is held by a venture capital (or similar) entity, there is again the option
to measure that portion of the investment in the associate as a financial asset at fair value through profit loss in accordance
with IFRS9 or IAS39 as applicable.
The remaining portion (not held by a venture capital organisation (or similar entity)) would be accounted for under the
equitymethod.
IAS28(2011) deals with the exception as a measurement exception, whereas IAS28(2008) treated it as a scope exception.
However, the effect of the twoaccounting standards is the same.
6.2. Potential voting rights application to equity accounting

IAS28(2011) carries over the requirement that potential voting rights (and other derivatives) are not considered in
determining the jointventurers interest in the jointventure in applying the equity method (IAS28(2011).12).
As an exception, if the potential voting rights (and other derivatives) give the jointventurer returns that are associated with
an ownership interest, then they are included in determining the jointventurers interest in the jointventure for the purposes
of applying the equity method (IAS28(2011).13).
Consequently, any potential voting rights (and other derivatives) that give a jointventurer returns that are associated with
an ownership interest are not accounted for as financial instruments under IFRS9/IAS39. This is because the accounting
effectively anticipates the exercise of those potential voting rights. All other potential voting rights (and other derivatives) are
accounted for as financial instruments under IFRS9/IAS39.
Summary of what has changed

The term returns has replaced the term economic benefits.
Returns are defined in IFRS10 Consolidated Financial Statements, and have a broader application than economic benefits.
This may result in a change in outcome from the analysis in which potential voting rights (and other derivatives) are
included in determining the jointventurers interest in the jointventure for the purposes of applying the equity method.
6.3. Potential voting rights determining significant influence

IAS28(2011).7and8 require that potential voting rights are considered when assessing significant influence provided that, at
the reporting date, they are currently exercisable and convertible (and excluding for example, whether the jointventurer has
the financial ability to exercise).

The requirements of IAS28(2011) are the same as those which were previously included in IAS28(2008).
However, this means that there is now a difference between the treatment of potential voting rights in respect of
significant influence, and in respect of control (and therefore jointcontrol) due to changes that have been introduced by
IFRS10. This was noted in scenario3 of example4 and discussed in section3.2 above.
In terms of aligning the treatment of potential voting rights in determining significant influence with that of the new
control model under IFRS10, the basis for conclusions to IAS28(2011) states that this will be as part as a wider review of
the accounting for associates (IAS28(2011).BC 15and16).
6.4. Treatment of changes in interest held

If a jointventure subsequently becomes an associate (i.e. jointcontrol is lost but the entity retains significant influence),
or vice versa, then the retained investment is not re-measured and the equity method continues to be applied
(IAS28(2011).24).

Under IAS28(2008), if a jointventure subsequently became an associate, or vice versa, then the retained investment was
re-measured to fair value.
Note: Equity-accounted gain or loss previously recognised in other comprehensive income

If an entitys ownership interest in a jointventure or associate is reduced, any equity-accounted gain or loss previously
recognised in other comprehensive income (for example, the gain on a financial asset classified as available for sale in
accordance with IAS39) is reclassified to profit or loss in proportion to the reduction in the ownership interest, to the
extent that reclassification would be required on eventual disposal of the related asset or liability (IAS28(2011).25).
6.5. Treatment of an investment in a jointventure held-for-sale

IAS28(2011).20 deals with investments in jointventures (and associates) that are classified as held-for-sale:
An investor which holds an investment, or a portion of an investment in a jointventure (or associate) that is held-for-sale
applies IFRS5 Non-current Assets Held-for-Sale and Discontinued Operations
Any retained investment in in a jointventure (or associate) continues to be accounted for under the equity method up
until eventual disposal
Upon disposal, the investor assesses any retained investment to determine whether it continues to meet the definition of
a jointventure or associate:
If so, the investor accounts for its retained interest as a jointventure or associate in accordance with
IFRS11JointArrangements or IAS28
If not, the investor accounts for its retained interest as a financial instrument in accordance with
IFRS9/IAS39 as applicable.

IAS28(2011) contains more specific reference to the requirements of IFRS5.
Under the previous version of IAS28 no such guidance existed, and in consequence entities were unable to classify a
portion of an investment in a jointventure (equity-accounted jointly controlled entity under IAS31) or associate as
held-for-sale in accordance with IFRS5.
6.6. Contributions of non-monetary assets to a jointventure

IAS28(2011).28,30,and31 deal with scenarios which involve contributions of non-monetary assets by a jointventurer (or
investor) to a jointventure. A summary of the requirements is as follows:
If exchanged for an equity interest in the jointventure (or associate), the resulting profit or loss is recognised in the
jointventurers (or investors) financial statements only to the extent of the unrelated investors and other jointventurers
interests in the jointventure. However, if the transaction lacks commercial substance, and no other monetary or non-
monetary assets have been received, then no gain or loss is recognised, with the unrealised gain or loss being eliminated
against the equity-accounted investment
If, in addition to receiving the equity interest, the venturer receives monetary or non-monetary assets that are dissimilar
to the assets contributed, it recognises in full in profit or loss the portion of the gain or loss on the non-monetary
contribution related to those assets received.

The guidance set out above brings forward similar guidance that was previously included in SIC-13 Jointly Controlled
Entities-Non-Monetary Contributions by Venturers, which has been substantially incorporated into IAS28(2011).
However, not all of the requirements in SIC-13 for profit or loss recognition are included, in particular:
The transfer of significant risks and rewards
The reliable measurement of the gain or loss.
These conditions have been deleted as the International Accounting Standards Board(IASB) considered that they are
either:
Not aligned withIFRS
Relate to a criterion for the recognition of gains or losses included in the Conceptual Framework for Financial Reporting.
(See IAS28(2011).BC35).
The same requirements apply to similar transactions with associates.

7. DISCLOSURE REQUIREMENTS
The disclosure requirements for joint arrangements are now incorporated within IFRS12 Disclosure of Interests in Other
Entities.
IFRS12 is a comprehensive disclosure standard that sets out disclosure requirements for interests an entity holds in:
Joint arrangements (accounted in accordance with IFRS11 Joint Arrangements)
Subsidiaries (consolidated in accordance with IFRS10 Consolidated Financial Statements)
Associates (accounted in accordance with IAS28(2011) Investments in Associates and JointVentures)
Unconsolidated structured entities (IFRS12.5).
The more significant disclosure requirements for entities with interests in joint arrangements are:
Significant judgements and assumptions
Nature, extent and financial effects of an entitys interests in joint arrangements
Commitments in respect of jointventures.
7.1. Significant judgements and assumptions

Disclosure requirements in respect of significant judgements and assumptions are set out in IFRS12.7-9.
An entity with a joint arrangement is required to provide information about significant judgements and assumptions it has
made (and changes to those judgements and assumptions) in determining:
That it has jointcontrol of an arrangement
The classification of joint arrangement (i.e. jointoperation or jointventure) when the arrangement has been structured
through a separate vehicle.
These disclosures essentially incorporate the disclosures that were previously required by IAS1.122 (disclosure within the
accounting policies of judgements (other than estimation) that have been made in applying those accounting policies
and that have the most significant effect on amounts reported in the financial statements), but with more prescriptive
requirements.
7.2. Nature, extent and financial effects of interests in joint arrangements

Disclosure requirements in respect of the nature, extent and financial effects of an entitys interests in joint arrangements
are set out in IFRS12.21-22.
(i) Qualitative disclosures

For each (material) joint arrangement an entity is required to disclose the following qualitative information:
Name of the joint arrangement
Nature of the investors relationship with the joint arrangement
Place of business
The proportion owned and, if different, the proportion of voting rights held.
(ii) Quantitative disclosures

For each material joint arrangement that is a jointventure, an entity is required to disclose the following quantitative
information:
Whether the investment in the jointventure is accounted for under the equity method or at fair value (seesection4.2)
Summarised financial information (seebelow)
If the jointventure is accounted for using the equity method, the fair value of the jointventure if there is a quoted market
price for the investment.
IFRS12.B12andB13 set out requirements for the summarised financial information that is to be disclosed for all material
jointventures. These are:
Statement of financial position

Cash and cash equivalents
Current assets
Current financial liabilities (excluding trade and other payables and provisions)
Current liabilities
Non-current assets
Non-current financial liabilities (excluding trade and other payables and provisions)
Non-current liabilities.
Statement of comprehensive income

Revenue
Depreciation and amortisation
Interest income
Interest expense
Profit or loss from continuing operations
Income tax expense or income
Post-tax profit or loss from discontinued operations
Other comprehensive income
Total comprehensive income.
(iii) Aggregation of summarised financial information

IFRS12.B2-B6 permit the aggregation of disclosures where:
The information is for interests in similar entities (for example, separately for jointventures, jointoperations and
associates)
The aggregation is consistent with the disclosure objective in IFRS12, including the need to strike a balance between a
large amount of information that may be too detailed and a level of aggregation that obscures information that should be
provided.
(iv) Source of summarised financial information

The summarised financial information is sourced directly from the jointventures IFRS compliant financial statements
(IFRS12.B14).
The summarised financial information is not adjusted to reflect the entitys share of the amounts, except where adjustments
were made in applying the equity method, including:
Fair value adjustments made at the time of acquisition
Adjustments for differences in accounting policies.
If the summarised financial information is adjusted in accordance with the above, a reconciliation needs to be provided
between the amounts included in the jointventures IFRScompliant financial statements and the adjusted summarised
financial information that is being disclosed.
Ultimately, the entity must present a full reconciliation of the summarised financial information presented to the carrying
amount of the equity-accounted interest in the statement of financial position.
(v) Disclosure requirements for individually immaterial jointventures

IFRS12.B16 sets out requirements for reduced summarised financial information disclosures for individually immaterial
jointventures. These are only in respect of the statement of comprehensive income:
Profit or loss from continuing operations
Post-tax profit or loss from discontinued operations
Other comprehensive income
Total comprehensive income.
7.3. Commitments for jointventures

Total commitments that may give rise to an outflow of cash (or other resources) are required to be disclosed, which includes
commitments to contribute funding and commitments to acquire other parties ownership interests.
8. EFFECTIVE DATE AND

TRANSITION REQUIREMENTS
All new and amended standards released as part of the consolidation package (including IFRS11Joint Arrangements) are
effective for annual periods beginning on or after 1January2013, with the effective date for EU-endorsedIFRS being for
annual periods beginning on or after 1January2014.
Early adoption of IFRS11 is permitted, although in doing so the entity must also early adopt all of the other new and
amended standards released as part of the consolidation package, and disclose that fact.
The general principle of retrospective application applies to the adoption of IFRS11. However, Appendix C of IFRS11 contains
a number of simplified transition requirements and relief from certain disclosures usually required with retrospective
application. These were further clarified by Consolidated Financial Statements, Joint Arrangements and Disclosures of Interests
in Other Entities: Transition Guidance Amendments to IFRS10,IFRS11andIFRS12 that was released by the International
Accounting Standards Board(IASB) in May2012.
The transition to IFRS11 will result in a change in accounting policy relating to how an entity accounts for its joint
arrangements.
In normal circumstances an entity would be required to restate all prior period comparatives presented under
IAS8Accounting Policies, Changes in Accounting Estimates and Errors. However the transitional guidance of IFRS11 provides
entities with an option to limit retrospective restatement only to immediately preceding period.
In addition, IAS8 would normally require an entity to make a number of specific disclosures for both the current and
comparative period(s) presented, for example, the effect of the change in accounting policy (IAS8.28(f)).
In the current period, such disclosures for the adoption of IFRS11 could be onerous, as an entity would need to apply both
its old and new accounting policies concurrently in order to derive the information required for disclosure. However the
transitional guidance of IFRS11 provides entities with relief, by only requiring the disclosure of the effect of the change in
accounting policy for the immediately preceding period (i.e. not for the current period or any other comparative periods
presented).
If an entity chooses to present adjusted comparative information for a period earlier than the immediately preceding
period, all references to the immediately preceding period in the transition guidance shall be read as the earliest adjusted
comparative period presented.
An entity is also required clearly to identify any unadjusted comparative information for earlier periods presented, to state
that it has been prepared under a different basis and to explain that basis (e.g. IAS31 Interests in JointVentures).
Therefore, for an entity with a reporting date of 31December that adopts IFRS11 in the20X3 calendar year and presents
twocomparativeperiods (i.e.20X2and20X1) the transitional effect would be:
Retrospective application of IFRS11
20X3 N/A
20X2 Entity is required to retrospectively apply IFRS11 from 1Jan20X2.

The20X2 comparatives will therefore include the effect of IFRS11.
20X1 The entity has the option to voluntarily apply IFRS11 retrospectively from 1Jan20X1.
Assuming the option is not exercised, the20X1 comparatives will therefore not include the effect of IFRS11.
Disclosure of effects of the change in accounting policy (IAS8.28(f))
20X3 Not required
20X2 Required
20X1 Not required
(i) Transition requirements: equity method

There is no specific transitional relief provided for entities moving to the equity method. As a result, IAS8 would require
retrospective application.
(ii) Transition requirements: joint arrangement disposed of during the period immediately preceding the period of
adoption
As noted above, IFRS11 is retrospectively applied from the beginning of the period immediately preceding the year of
adoption.
Consequently, an entity must still apply IFRS11 (including transitional requirements) to any joint arrangement that it
disposes of during the period immediately preceding the year of adoption.
This is of particular concern to entities that in the period immediately preceding the period of adoption disposed of a joint
arrangement that was previously classified as a jointly controlled entity, and accounted for by proportionate consolidation,
under IAS31. This is because the proportionate consolidation option is no longer available under IFRS11 and therefore the
activity of the jointly controlled entity during the period immediately preceding the period of adoption must be recalculated
up until the date of disposal:
In accordance with the equity method, if the joint arrangement is classified as a jointventure under IFRS11
Based on the rights and obligations to assets, liabilities, expenses, and revenue, if the joint arrangement is classified as a
jointoperation under IFRS11.
This recalculation must be carried out even though the joint arrangement no longer exists in the year of adoption.
For example, an entity with a reporting date of 31December adopts IFRS11 in the20X3year, and therefore retrospectively
applies IFRS from the beginning of the period immediately preceding the year of adoption, i.e.1Jan20X2.
During the20X2(30June20X2) the entity disposes of a joint arrangement that was previously classified as a jointly
controlled entity and accounted for by proportionate consolidation under IAS31. The jointly controlled entity has been
determined to be a classified as a jointventure under IFRS11.
The entity is therefore required to:
Transition from measuring the interest in the investment as at 1Jan20X2 from proportionate consolidation to the equity
method (refer to section8.1(a) for details of this process)
Apply the equity method up until the period of disposal (i.e. up until 30June20X2)
Recalculate the gain/loss on disposal based on the carrying value calculated in accordance with the equity method above.
8.1. Application to consolidated/individual financial statements

Figure18 below summarises the potential changes in moving from IAS31 to IFRS11 (seeabove for a more detailed
discussion):
Jointly controlled asset

Jointly controlled entity
Jointly controlled operation
IAS31
Accounting for share of the Proportionate Equity
underlying assets/liabilities consolidation Method
IFRS11
Accounting for the share of Equity
underlying assets/liabilities Method
Figure18: Summary: Changes in moving from IAS31 to IFRS11 (consolidated financial statements)
The twoscenarios which will give rise to significant changes are:

a) Transition from proportionate consolidation to equity accounting
b) Transition from equity accounting to accounting for the share of underlying assets/liabilities.
(a) Transition from proportionate consolidation to equity method

This will arise when a previously proportionately consolidated jointly controlled entity is classified as a jointventure under
IFRS11 (i.e. the jointventurer has rights to net assets) for which equity accounting is required.
Steps to transition
At the beginning of immediately preceding period:
1. Calculate the investments deemed cost at transition, being the aggregate of all previously proportionately consolidated
assets and liabilities (including any goodwill)
2. Determine if there is any impairment to be recognised in accordance with IAS36 Impairment of Assets, and if so, take as an
adjustment to opening retained earnings
3. In aggregate, disclose a breakdown of the assets and liabilities that comprise the investment in the jointventures affected.
Other points to note
Point Detail
Goodwill If goodwill was previously allocated to a larger cash-generating unit (or a group of
cash-generating units), it is allocated to the investment in proportion to the relative
carrying amounts of the jointventure and relevant cash-generating unit(s).
Negative aggregated net If aggregation in step1 above results in a negative net asset position, a corresponding
assets liability is only recognised if the entity has a legal or constructive obligation in respect
of the negative net assets.
If no liability is recognised, then an adjustment is made to retained earnings at the
beginning of the earliest period presented, and the entity discloses that fact and the
unrecognised share of losses.
IAS12 Income taxes The initial recognition exemption does not apply to the recognition of the investment
Initial recognition exemption previously proportionately consolidated.
Deferred taxes will therefore be recognised for any movements in temporary
differences, subject to the exemption for investments in joint arrangements, if
applicable.
As the recognition of the tax effects follows the transaction or event itself, on
transition the effect of such deferred taxes should be recognised directly in equity.
Figure19: Other points to note: Transition from proportionate consolidation to equity accounting
(Consolidated Financial Statements)
(b) Transition from equity method to accounting for assets and liabilities
This will arise when a previously equity-accounted jointly controlled entity does not meet the jointventure classification
under IFRS11 (i.e. the party to the joint arrangement does not simply have rights to net assets, but instead has rights to
assets and obligations for liabilities of the joint arrangement).
Steps to transition
At the beginning of the earliest period presented, the investor:
Derecognises the equity-accounted investment, including any amounts forming part of the net investment(X)
Determines the initial carrying amount of the assets and liabilities of the jointoperation (based on their carrying amounts
used in previously applying the equity method)
Recognises its share of each of the assets and the liabilities in the jointoperation, (including any goodwill that formed
part of the investment) based on its rights and obligations in a specified proportion in accordance with the contractual
arrangement(Y)
Accounts for any difference between the net investment accounted for using the equity method(X) and the net assets
recognised(Y):
If Y > X: Difference first goes against goodwill, then any residual to opening retained earnings
If X > Y: Difference taken against opening retained earnings.
Disclose the reconciliation between the investment accounted for using the equity method and the net assets recognised.
Point Detail
IAS12 Income taxes The initial recognition exemption does not apply to the recognition of the investment
Initial recognition exemption previously equity-accounted.
Deferred taxes will therefore be recognised for temporary differences, subject to the
exemption for investments in joint arrangements, if applicable.
Figure20: Other points to note: Transition from equity method to accounting for assets and liabilities
(consolidated financial statements)
8.2. Application to separate financial statements

The figurebelow summarises the possible changes in moving from IAS31 to IFRS11 (see above for a more detailed
discussion):
Jointly controlled asset/operation Jointly controlled entity

IAS31
Accounting for the share of (i) Cost (less impairment)
underlying assets/liabilities (ii) Financial instrument (IFRS9/IAS39)
IFRS11
Accounting for the share of (i) Cost (less impairment)
underlying assets/liabilities (ii) Financial instrument (IFRS9/IAS39)
Figure21: Summary: Changes in moving from IAS31 to IFRS11 (separate financial statements)
The scenario which will give rise to significant change is transition from jointly controlled entity where the interest is
measured either as a financial instrument or at cost (less impairment), to accounting for the underlying assets/liabilities (the
dashed line above).
(a) Transition from financial instrument or cost, to accounting for the share of underlying assets/liabilities
Such a scenario arises where:
There is a separate entity (which would previously have been accounted for as, for example, an equity investment)
The assessment of the arrangement in accordance with IFRS11 concludes that the investor has rights to assets and
obligations for liabilities, rather than rights to the net assets (i.e. the classification under IFRS11 is as a jointoperation).
Steps to transition
At the beginning of immediately preceding period, the investor:
Derecognises the previous investment held as a financial instrument or at cost (less impairment)(X)
Determines the initial carrying amount of the assets and liabilities (based on their carrying amounts used in previously
applying the equity method in the investors individual or consolidated financial statements)
Recognises its share of each of the assets and the liabilities in the jointoperation, (including any goodwill that formed
part of the investment) based on its rights and obligations in a specified proportion in accordance with the contractual
arrangement(Y)
Accounts for any difference between the previous investment(X) and the net assets recognised(Y) in retained earnings
Discloses the reconciliation between the previous investment held and the net assets recognised.
Point Detail
IAS12 Income taxes The initial recognition exemption does not apply to the recognition of the share of
Initial recognition exemption underlying assets/liabilities.
Deferred taxes will therefore be recognised for any temporary differences, subject to
the exemption for investments in joint arrangements, if applicable.
Figure22: Other points to note: Transition from financial instrument or cost, to accounting for the underlying assets/liabilities
(separate financial statements).
9. OTHER POINTS
9.1. Periods prior to those beginning on or after 1January2013
IAS8 Accounting Policies, Changes in Accounting Estimates and Errors paragraphs30and31 require specific qualitative and
quantitative disclosures in relation to standards and amendments released but not yet effective (which the entity has not
already early adopted).
For those entities that have not early adoptedIFRS11 Joint Arrangements, the following disclosures are required:
The title of the new/amendedIFRS
The nature of the future change or changes in accounting policy
The date by which application of theIFRS is required
The date as at which the entity plans to apply theIFRS initially
Either:
A discussion of the impact that initial application of theIFRS is expected to have on the entitys financial statements
If that impact is not known or reasonably estimable, then a statement to that effect.
9.2. Requirements of IAS28(2011)

Under the requirements of IAS28(2011) Investments in Associates and JointVentures, jointventurers and jointoperators need
to ensure that the jointoperations and jointventures they hold interests in:
Have a reporting date no more than 3months different, and adjusted for any significant transactions (IAS28(2011).35
Have the same accounting policies (IAS28(2011).35).
These are unchanged from the guidance previously included in IAS28(2008) Investments in Associates.
9.3. FirsttimeadoptersofIFRSs
First time adopters will be able to utilise the transitional requirements discussed in the previous section.
Note: When a first time adopter moves from proportionate consolidation to equity accounting for its jointventure, it
mustalways test the opening balance of the investment for impairment (IFRS1.D31).
9.4. Presentation of third statement of financial position

The application of IFRS11 may result in either:
Changes in the classification of existing joint arrangements
Recognition of new joint arrangements that previously were not recognised under IAS31 Interests in JointVentures (e.g. as
a result of a change in the definition of control).
Entities will need to consider whether in such circumstances IAS1 Presentation of Financial Statements paragraph10 applies,
which requires a third statement of financial position to be presented at the beginning of the preceding period if the effect on
that statement is material.
Instances where this applies include when an entity:
Applies a new accounting policy retrospectively
Makes a retrospective restatement of items in its financial statements
Reclassifies items in its financial statements.
10. APPENDIXA DEFINITIONS

Definitions of various terms within IFRS10Consolidated Financial Statements, IFRS11Joint Arrangements,
IFRS12Disclosureof Interests in Other Entities, IAS24Related Party Disclosures, IAS27(2011)Separate Financial Statements,
and IAS28(2011)Investments in Associates and JointVentures.
Associate An associate is an entity over which the investor has significant influence.
(IAS28)
Consolidated financial statements The financial statements of a group in which the assets, liabilities, equity,
(IFRS10) income, expenses and cash flows of the parent and its subsidiaries are presented
as those of a single economic entity.
Control of an investee An investor controls an investee when the investor is exposed, or has rights, to
(IFRS10) variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee.
Decision maker An entity with decision-making rights that is either a principal or an agent for
(IFRS10) other parties.
Equity method The equity method is a method of accounting whereby the investment is initially
(IAS28) recognised at cost and adjusted thereafter for the post-acquisition change in the
investors share of the investees net assets. The investors profit or loss includes
its share of the investees profit or loss and the investors other comprehensive
income includes its share of the investees other comprehensive income.
Group A parent and its subsidiaries.
(IFRS10)
Income from a structured entity For the purpose of this IFRS, income from a structured entity includes, but is not
(IFRS12) limited to, recurring and non-recurring fees, interest, dividends, gains or losses on
the remeasurement or derecognition of interests in structured entities and gains
or losses from the transfer of assets and liabilities to the structured entity.
Interest in another entity For the purpose of this IFRS, an interest in another entity refers to contractual
(IFRS12) and non-contractual involvement that exposes an entity to variability of returns
from the performance of the other entity. An interest in another entity can be
evidenced by, but is not limited to, the holding of equity or debt instruments
as well as other forms of involvement such as the provision of funding, liquidity
support, credit enhancement and guarantees. It includes the means by which an
entity has control or joint control of, or significant influence over, another entity.
An entity does not necessarily have an interest in another entity solely because
of a typical customer supplier relationship.
Joint arrangement An arrangement of which twoor more parties have jointcontrol.
(IFRS11)
Jointcontrol The contractually agreed sharing of control of an arrangement, which exists only
(IFRS11) when decisions about the relevant activities require the unanimous consent of
the parties sharing control.
Jointoperation A joint arrangement whereby the parties that have jointcontrol of the
(IFRS11) arrangement have rights to the assets, and obligations for the liabilities, relating
to the arrangement.
Jointoperator A party to a jointoperation that has jointcontrol of that jointoperation.

(IFRS11)
Jointventure A joint arrangement whereby the parties that have jointcontrol of the
(IFRS11) arrangement have rights to the net assets of the arrangement.
Jointventurer A party to a jointventure that has jointcontrol of that jointventure.
(IFRS11)
Key management personnel Key management personnel are those persons having authority and
(IAS24) responsibility for planning, directing and controlling the activities of the entity,
directly or indirectly, including any director (whether executive or otherwise) of
that entity.
Non-controlling interest Equity in a subsidiary not attributable, directly or indirectly, to a parent.
(IFRS10)
Parent An entity that controls one or more entities.
(IFRS10)
Party to a joint arrangement An entity that participates in a joint arrangement, regardless of whether that
(IFRS11) entity has jointcontrol of the arrangement.
Power Existing rights that give the current ability to direct the relevant activities.
(IFRS10)
Protective rights Rights designed to protect the interest of the party holding those rights without
(IFRS10) giving that party power over the entity to which those rights relate.
Related party A related party is a person or entity that is related to the entity that is preparing
(IAS24) its financial statements (in this Standard referred to as the reporting entity):
(a) A person or a close member of that persons family is related to a reporting
entity if that person:
(i) Has control or jointcontrol of the reporting entity
(ii) Has significant influence over the reporting entity; or
(iii) Is a member of the key management personnel of the reporting entity
or of a parent of the reporting entity.
(b) An entity is related to a reporting entity if any of the following conditions
applies:
(i) The entity and the reporting entity are members of the same group
(which means that each parent, subsidiary and fellow subsidiary is
related to the others)
(ii) One entity is an associate or jointventure of the other entity (or an
associate or jointventure of a member of a group of which the other
entity is a member)
(iii) Both entities are jointventures of the same third party
(iv) One entity is a jointventure of a third entity and the other entity is an
associate of the third entity
(v) The entity is a post-employment benefit plan for the benefit of
employees of either the reporting entity or an entity related to
the reporting entity. If the reporting entity is itself such a plan, the
sponsoring employers are also related to the reporting entity
(vi) The entity is controlled or jointly controlled by a person identified in(a)
(vii) A person identified in (a)(i) has significant influence over the entity or
is a member of the key management personnel of the entity (or of a
parent of the entity).
Relevant activities For the purpose of this IFRS, relevant activities are activities of the investee that
(IFRS10) significantly affect the investees returns.
Removal rights Rights to deprive the decision maker of its decision-making authority.
(IFRS10)
Separate financial statements Separate financial statements are those presented by a parent (i.e. an investor
(IAS27) with control of a subsidiary) or an investor with jointcontrol of, or significant
influence over, an investee, in which the investments are accounted for at cost or
in accordance with IFRS9 Financial Instruments.
Separate vehicle A separately identifiable financial structure, including separate legal entities or
(IFRS11) entities recognised by statute, regardless of whether those entities have a legal
personality.
Significant influence Significant influence is the power to participate in the financial and operating
(IAS28) policy decisions of the investee but is not control or jointcontrol of those
policies.
Structured entity An entity that has been designed so that voting or similar rights are not the
(IFRS12) dominant factor in deciding who controls the entity, such as when any voting
rights relate to administrative tasks only and the relevant activities are directed
by means of contractual arrangements.
Subsidiary An entity that is controlled by another entity.
(IFRS10)
CONTACT
For further information about how BDO can assist you and your organisation,
please get in touch with one of our key contacts listed below. Alternatively, please visit
www.bdointernational.com/Services/Audit/IFRS/IFRSCountry Leaders where you can find
full lists of regional and country contacts.
EUROPE
Alain Frydlender France alain.frydlender@bdo.fr
Jens Freiberg Germany jens.freiberg@bdo.de
Teresa Morahan Ireland tmorahan@bdo.ie
Ehud Greenberg Israel ehudg@bdo.co.il
Ruud Vergoossen Netherlands ruud.vergoossen@bdo.nl
Reidar Jensen Norway reidar.jensen@bdo.no
Denis Taradov Russia d.taradov@bdo.ru
Ren Krgel Switzerland rene.kruegel@bdo.ch
Brian Creighton United Kingdom brian.creighton@bdo.co.uk
ASIA PACIFIC
Wayne Basford Australia wayne.basford@bdo.com.au
Zheng Xian Hong China zheng.xianhong@bdo.com.cn
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LATIN AMERICA
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NORTH AMERICA & CARIBBEAN
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MIDDLE EAST
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SUB SAHARAN AFRICA
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Need To Know IFRS 11 Joint Arrangements (Print)

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NEED TO KNOW

IFRS11 Joint Arrangements

Potential impacts on transition to IFRS11

Change in the definition of control

Under IFRS10, control is evidenced by the existence of:

Change in the definition of jointcontrol

Specific changes from IAS31

1.1. Rationale for change

1.2. Superseded standards and interpretations

(i) IAS31 Interests in JointVentures

(ii) SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers

1.3. Consolidation package of standards issued by theIASB

The new standards released in this package were:

In addition, the following standards were amended (and renamed):

Figure1: Restructuring the standards applicable to interest in joint arrangements

1.4. Effects analysis

(b) Key changes between IAS31 and IFRS11

Key Change IAS31 IFRS11

Number and name of classification

Figure2: Key changes between IAS31 and IFRS11

(c) Impacts of a change in classification when applying IFRS11

Jointly controlled asset Typically no change to the There should be no jointventure

Jointly controlled entity No change to the accounting Proportionate consolidation is

Figure3: Impact of moving from IAS31 to IFRS11

1.5. Effective date

Effective date of subsequent amendments

3. CONTENT OF THE STANDARD

This is summarised below:

EXISTENCE OF A JOINT ARRANGEMENT Arrangement

CLASSIFICATION OF THE JOINT ARRANGEMENT

Figure4: IFRS11 Summary of overall approach

3.1. Definition of a joint arrangement

What is a contractual arrangement?

3.2. Jointcontrol Introduction

Components of Exposure to Components of Linkage between

Existing rights Substance Principal vs. Agent

Potential to vary with

Substantive (not protective)

Figure5: New control model (IFRS10)

3.3. Jointcontrol under IFRS11 (the Two-Step Model)

The Two-Step JointControl Model is illustrated in the figurebelow:

Does the contractual arrangement give Arrangement is

Do the decisions about the relevant activities require Arrangement is

The arrangement is a jointly controlled

Figure6: Jointcontrol Two-Step Model

Joint de-facto control is covered in section 3.4 below.

Summary Two-Step Model

Summary Two-Step Model

Summary Two-Step Model

De-facto type Description Within the scope of IFRS11?

De-factojointcontrol There is past history of the parties No.

Jointde-factocontrol Where there is a large block of voting Yes.

Figure7: De-factojointcontrol vs. jointde-factocontrol

Summary Two-Step Model

Summary Two-Step Model

Summary Two-Step Model

3.5. Substantive rights in joint arrangements

Therefore, at any point in time, if:

Scheduled annual shareholder

3 In more than 30 days time. Before the option exercise date. No

Figure8: Substantive rights of options timing

3.6. Protective rights in joint arrangements

Major capital expenditure X