13 September 2007

IASB proposes improvements to accounting for joint arrangements

The IASB published 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 US Financial Accounting Standards Board (FASB) to reduce differences between International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (US GAAP).

The main focus of the proposals is on the two aspects of the current accounting for joint arrangements that the IASB considers are 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. 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 existing standard gives preparers a choice when accounting for interests in jointly controlled entities, making it difficult to compare financial reports. ED 9 Joint Arrangements proposes to remove that choice by requiring parties to recognise 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 recognised using the equity method.

ED 9 Joint Arrangements is freely available on the Website from 27 September.
Deadline for comments is 11 January 2008.

Press release

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