The Committee received a request to clarify the application of IFRS 3 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 and it is therefore concerned that there will be diversity in practice under IFRS 11.
The Committee observed that uncertainty exists in accounting for 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 discussed, but did not arrive at a conclusion on, a view that IFRS 3 is not required to be applied to the particular assets and liabilities of a joint operation in circumstances where the joint operator acquires an interest in a joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. This is because IFRS 3 applies to business combinations and in the acquisition of an interest in a joint operation the acquirer does not obtain control of the business.
In order to avoid significant diversity in practice after the adoption of IFRS 11 and to address the concerns raised in the submission, the Committee directed the staff to analyse whether a premium paid for synergies can be recognised as a separate asset under another standard, eg IAS 38 Intangible Assets in circumstances when an entity acquires an interest in a joint operation that contains a business, or whether IFRS 3 could be applied by analogy, and whether further guidance should be developed on this issue.
The Committee also noted that the Board did not change the wording of the scope exclusion in paragraph 2(a) of IFRS 3 for ‘the formation of a joint venture’ when it decided to replace IAS 31 by IFRS 11, although the Committee understands that the Board did not want to change the scope of IFRS 3. Consequently, the Committee observes that paragraph 2(a) of IFRS 3 should have been amended to say ‘the formation of a joint arrangement’ because IFRS 11 redefined and renamed the different types of joint arrangements. Under IFRS 11 a ‘joint venture’ is one specific type of joint arrangement whereas under IAS 31 it included every type of joint arrangement. The Committee directed the staff to consider whether this issue can be addressed through the annual improvements process.
The staff will present the analysis and a draft annual improvement at a future meeting.