17 April 2013

EFRAG's comment letter on the IASB's ED/2012/7 Acquisition of an Interest in a Joint Operation

The ED provides guidance on accounting for an acquisition of an interest in a joint operation whose activity is a business as defined in IFRS 3 'Business Combinations'. Neither IFRS 11 'Joint Arrangements' nor IAS 31 'Interests in Joint Ventures' provide guidance on this topic.

EFRAG supports the objective of the ED and the IASB’s efforts to address diversity in practice.  However, EFRAG has identified a number of significant concerns with the application of the principles in IFRS 3 to acquisitions of interests in joint operations.

In EFRAG’s view, the essence of IFRS 11 is to reflect the rights and obligations that a joint operator has in a joint arrangement that is classified as a joint operation which is different to proportionate consolidation permitted under IAS 31. It is therefore less obvious why a joint operator would apply the principles in IFRS 3 when acquiring an interest in a joint operation, regardless of whether the activity of the joint operation would constitute a business. In relation to a “business”, EFRAG notes that applying the definition of a business is not straightforward and often requires considerable judgement; this may lead to new diversity arising.

In addition, the ED focuses on a narrow set of circumstances and does not address accounting for acquisitions of an interest in a joint operation in a comprehensive manner. This raises a number of related unaddressed issues including cross-cutting issues regarding the requirements in IFRS 3, IFRS 10 and IFRS 11 which may also lead to new diversity in practice.

EFRAG believes that to achieve consistent accounting for acquisitions of interest in joint operations and related transactions, a more comprehensive analysis of accounting for acquisitions of an interest in a joint operation is required.

Press release

Comment letter

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