IASB Proposal on Joint Arrangements
CPA Letter | November 1, 2007
The International Accounting Standards Board (IASB) has published for public comment a proposal to improve the accounting for joint arrangements. ED 9, Joint Arrangements, proposes a replacement to the existing standard IAS 31, Interests in Joint Ventures, and represents the first major revision to the standard since it was first issued in 1990.
The review also forms part of the IASB’s short-term project with the Financial Accounting Standards Board to reduce differences between International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles.
The main focus of the proposals is on the two aspects of the current accounting for joint arrangements that the IASB considers to be an impediment to high-quality reporting:
- The current accounting for joint arrangements follows the legal form in which the activities take place. This does not always reflect the contractual rights and obligations agreed to by the parties, according to the IASB. Shifting the focus to these rights and obligations will provide a more realistic reflection of the joint arrangement in the financial reports of the parties involved, the board believes.
- The existing standard gives preparers a choice when accounting for interests in jointly controlled entities, making it difficult to compare financial reports. ED 9 proposes to remove that choice by requiring parties to recognize both the individual assets to which they have rights and the liabilities for which they are responsible, even if the joint arrangement operates in a separate legal entity. If the parties only have a right to a share of the outcome of the activities, their net interest in the arrangement will be recognized using the equity method.
The IASB says that the proposals are designed to provide users with more information about the operations an entity conducts through joint arrangements—including a description of the nature of joint arrangements and summarized financial information relating to its interests in joint ventures.
The comment deadline was Jan. 11, 2008. For more information, go to www.iasb.org.
