IFRS 11 - Joint arrangements

16 June 2014

It seems there are lots of people talking about IFRS 11. Last month, the IFRS Interpretations Committee (IC) devoted a couple of hours of its May meeting to the subject. Indeed IFRS 11 has been a regular item on the IC’s agenda over the past year. The IC has issued agenda decisions and approved limited scope amendments. The IASB has published limited scope amendments. It’s going to be on the IC’s agenda again in July. And all this for a standard on which the ink is hardly dry.

The IC addressed a couple of issues in May. Firstly, it finalised the agenda decision confirming that other facts and circumstances give rise to a joint operation only when they create rights to the assets and obligations for the liabilities and that rights and obligations are by nature enforceable. I don’t have any problem with this – the agenda decision simply confirms what is self-evident.

The IC also received feedback from the staff that members of the IASB believe that there is only a narrow range of circumstances where other facts and circumstances create a joint operation. The Committee decided to do three things in July: talk again about applying substance over form and whether ‘implied’ or ‘indirect’ rights and obligations can create direct rights and obligations; talk about a specific type of vehicle (a ‘project entity’) and whether it is a joint venture or a joint operation; and talk about recognition and measurement.

This all might be a lot more dangerous.

There is a danger that the Committee is going to add to the confusion. It runs the risk of interpreting through agenda decision or example. It runs the risk of inconsistent conclusions and creating diversity. It runs the risk of making ‘indirect’ rights and obligations next year’s ‘other facts and circumstances’. And it runs the risk of having a different structure on the agenda at every meeting for the next two years.

So should IC members just put their pens down? Due process demands that the IC addresses every issue that is submitted, but why not suggest that they are picked up in the post implementation review or that it’s too early to determine whether there is diversity in practice? I know there are some issues in Europe, but the rest of the world seemed to work it all out last year. Why not wait to see what happens in 2014 and 2015 and then think about whether action is needed?

What do you think? 

John Hitchins:
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