Accounting for firms in the mining and metals sector, who are in a joint arrangements, could undergo considerable changes once IFRS 11 amendments are implemented, a report published by an EY expert stated recently.
Superseding IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers, the IFRS 11 Joint arrangements were issued by the International Accounting Standards Board (IASB) on May 12, 2011. Later in 2014, the IASB introduced a few amendments to IFRS 11 and set January 1, 2016 as the date for IFRS 11 Amendments to be implemented.
The EY report titled - Potential implications of the amendments to IFRS 11 Joint Arrangements - which was released in August this year, noted that IFRS 11 provides guidance on most of the accounting for joint operations, but there are certain issues it was not able to address.
The EY report says, "The amendment applies to the acquisition of an interest in an existing joint operation that is a business or on the formation of a joint operation when an existing business is contributed by one of the parties that participates in the joint operation."
Detailing his point, the expert has further said that it is common for at least one party, while acquiring an interest in a joint operation or on formation of a joint operation, to contribute a previously existing business.
However, the amendment to IFRS 11 makes it pretty clear how an entity should account for its acquisition in the joint operation, while not emphasizing that clearly on how the party losing control over the business should account for its contribution.
While underscoring that greater clarity is required on the contribution of a business to a joint operation, the EY experts suggested that the IASB should in a better and improvised way provide additional guidance through another set of amendment to reduce such diversity of views.
In the report it was explained that the two primary changes announced in IFRS 11 are that there are now only two types of joint arrangements: joint ventures and joint operations and the second one is that equity accounting has to be applied in place of proportionate consolidation for arrangements classified as joint ventures.
The EY report concluded that, while keeping in mind the frequency of transactions involving joint operations in the mining and metals sector, all the companies involved should take ample time to fully understand the implications of the amendment and assess the potential impact on their businesses.
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