The IASB published a report that assesses the likely effect of new requirements, although the actual effects will not be known until after the new requirements have been applied.
This report presents a comprehensive analysis of the effects of IFRS 11. This effect analysis includes IASB's expectations of how the IFRS will affect the accounting for current and new arrangements according to their structure and legal forms. It also analyses the effects upon the financial statements of those preparers that are affected by the changes and the costs and benefits that the most significant changes introduced by the IFRS will introduce for those with the closest interest in the IFRS: preparers and users.
On the basis of the data gathered, IASB´s assessment is that IFRS 11 will not lead to a change for a large number of the arrangements within the scope of the IFRS. This is because most joint arrangement activity is dealt with through arrangements that do not involve the establishment of an entity and, as a result, parties will continue recognising assets, liabilities, revenues and expenses arising from those arrangements as they did when applying IAS 31. The IASB expects that most of the arrangements structured through separate vehicles will be ‘joint ventures’. This is because, in most cases, the separate vehicles will confer separation between the parties and the vehicles and, as a result, the assets, liabilities, revenues and expenses held in those separate vehicles will be the separate vehicles’ assets, liabilities, revenues and expenses, with the parties having only an investment in the net assets of those arrangements. Parties to those arrangements will have an interest in a ‘joint venture’ and will account for it using the equity method.
As a result, IFRS 11 will lead to changes for those entities currently using proportionate consolidation when accounting for those arrangements, which the IASB has estimated as being half of the entities with interests in jointly controlled entities. To a lesser extent, IFRS 11 will also lead to changes for entities with interests in those jointly controlled entities that will be classified as ‘joint operations’ in accordance with IFRS 11 and that are currently being accounted for using the equity method.
The IASB's assessment is that IFRS 11 will bring significant and sustained improvements to the reporting of joint arrangements. The principles for classifying joint arrangements in IFRS 11 reflect the underlying economics of the arrangements, and the disclosure requirements in IFRS 12 'Disclosure of Interests in Other Entities' will help to provide users with better information about an entity’s involvement with joint arrangements.
The most significant costs for preparers will occur at transition, when they will be required to assess the classification of their joint arrangements. They will also incur costs in explaining the changes to their reports to those who use their financial statements. However, the IASB's assessment is that the significant improvements in terms of comparability and transparency outweigh those costs.
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© IASB - International Accounting Standards Board
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