IAS 31

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IAS 31, titled Interests in Joint Ventures, was an International Accounting Standard issued by the International Accounting Standards Committee (IASC) and adopted by the International Accounting Standards Board (IASB). It provided the accounting requirements for interests in joint ventures and the reporting of joint venture assets, liabilities, income, and expenses. [1] In May 2011, the IASB issued IFRS 11 Joint Arrangements, which effectively superseded IAS 31 for annual periods beginning on or after 1 January 2013. [2]

Contents

Forms of joint venture

IAS 31 identified three distinct types of joint ventures, based on their legal and operational structure: [3]

  1. Jointly controlled operations: Involves the use of the assets and other resources of the venturers rather than the establishment of a separate corporation or financial structure.
  2. Jointly controlled assets: Involves the joint control, and often the joint ownership, of one or more assets contributed to, or acquired for the purpose of, the joint venture.
  3. Jointly controlled entities: Involves the establishment of a corporation, partnership, or other entity in which each venturer has an interest.

Accounting Treatment

The most notable feature of IAS 31 was the accounting policy choice it offered for jointly controlled entities: [4]

Proportionate Consolidation

Under this method, a venturer's share of each of the assets, liabilities, income, and expenses of a jointly controlled entity was combined line-by-line with similar items in the venturer's financial statements, or reported as separate line items. [5]

Equity Method

As an alternative, venturers could use the equity method (as described in IAS 28), where the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the venturer's share of net assets. [6]

IAS 31 Accounting Options
Joint Venture TypeAccounting Method Required/Permitted
Jointly Controlled OperationsRecognize own assets, liabilities, and expenses.
Jointly Controlled AssetsRecognize share of joint assets and liabilities.
Jointly Controlled EntitiesChoice between Proportionate Consolidation or Equity Method.

Replacement by IFRS 11

The IASB replaced IAS 31 with IFRS 11 primarily to remove the accounting policy choice between proportionate consolidation and the equity method. The board concluded that the previous choice led to a lack of comparability between entities. [7]

Under the new framework, the accounting for a joint arrangement is determined by the rights and obligations of the parties, and the use of proportionate consolidation for joint ventures is no longer permitted. [8]

References

  1. ↑ IAS 31.1; IAS 31.BC1.
  2. ↑ IFRS 11.C1; IFRS 11.BC1.
  3. ↑ IAS 31.7; IAS 31.BC4.
  4. ↑ IAS 31.30; IAS 31.38.
  5. ↑ IAS 31.30; IAS 31.BC9.
  6. ↑ IAS 31.38; IAS 31.BC10.
  7. ↑ IFRS 11.BC2; IFRS 11.BC13.
  8. ↑ IFRS 11.24; IFRS 11.BC38.
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