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Acquisition of an Interest in a Joint Operation

Meeting summaries and observer notes


 IFRS IC January 2012


 

The Committee received a request to clarify the application of IFRS 3 Business Combinations by:

  • joint operators for the acquisition of interests in joint operations as defined in IFRS 11; and
  • venturers for the acquisition of interests in jointly controlled operations or assets as specified in IAS 31 Interests in Joint Ventures.

in circumstances where the activity of the joint operation or the activity of the jointly controlled operations or assets constitutes a business, as defined in IFRS 3.

The Committee observed that uncertainty exists in accounting for the acquisition of interests in joint operations and jointly controlled operations or assets in circumstances where the activity of the joint operation or the jointly controlled operations or assets constitutes a business as defined in IFRS 3, because of the lack of explicit guidance. Neither IFRS 11 nor IAS 31 explicitly addresses this issue, ie the lack of explicit accounting guidance does not result from the replacement of IAS 31 by IFRS 11. As a result of the lack of explicit guidance in IAS 31, significant diversity has arisen in practice and the Committee was concerned that diversity in practice will continue after the adoption of IFRS 11.

In order to reduce the observed diversity in practice, the Committee directed the staff to draft a recommendation of the Committee to the Board to add new guidance to IFRS 11 on the acquisition of an interest in a joint operation in circumstances where the activity of the joint operation constitutes a business as defined in IFRS 3. The Committee does not think that it is appropriate to add new guidance to IAS 31, because IFRS 11 will supersede IAS 31 from 2013. Notwithstanding the fact that the acquirer of an interest in a joint operation does not acquire control over the activity of the joint operation, the Committee noted that the most appropriate approach to account for such transactions is to apply the relevant principles of business combination accounting in IFRS 3 and other IFRSs. These principles include:

  • measuring identifiable assets and liabilities at fair value with few exceptions;
  • recognising deferred tax assets and deferred tax liabilities arising from the initial recognition of assets or liabilities, except for deferred tax liabilities arising from the initial recognition of goodwill; and
  • recognising the residual as goodwill.

The Committee directed the staff to analyse how detailed the guidance should be. The staff will bring this analysis and a draft recommendation to a future Committee meeting.

The Committee decided that the accounting for the acquisition of additional interests in a joint operation that leads to the joint operator obtaining control of the joint operation should not be addressed. /p>

Date: 1/17/2012