Comparison between U.S. GAAP and International ... - Grant Thornton

Comparison between U.S. GAAP and International Financial Reporting Standards 124
9.2 Joint ventures
Note 1: Certain sections of IAS 31 have been amended as a result of amendments to IAS 27. The amendments are
effective for annual periods beginning on or after July 1, 2010. If an entity applies IAS 27 for an earlier period, the
amendments shall be applied for that earlier period. If an entity applies the amendments before July 1, 2010 it shall
disclose that fact. Refer to paragraphs 58A and 58D of IAS 31 for information on effective dates for the amended
sections of IAS 31.
Note 2: In September 2007, the IASB issued Exposure Draft 9, Joint Arrangements, to replace IAS 31. The objective
of the joint venture project is to improve the accounting for, and the quality of the information being reported. The
proposed changes include what is defined as joint arrangements – which include joint ventures, joint assets, and joint
operations. The most significant change proposed is the requirement to use the equity method of accounting for joint
ventures, thus eliminating the choice to use the equity method or proportionate consolidation. A final IFRS is expected
to be issued in the first quarter of 2011.
IFRS
U.S. GAAP
Relevant guidance: IAS 31; SIC-13 Relevant guidance: ASC 323, 360, 605, 808, 810-10,
and 825
Introduction
A joint venture is defined as “a contractual arrangement
whereby two or more parties undertake an economic
activity that is subject to joint control” (IAS 31.3). The
existence of a contractual arrangement distinguishes
interests that have joint control from investments in
associates in which the investor has significant influence
(IAS 31.9).
IAS 31 does not apply to venturer’s interests in jointly
controlled entities held by venture capital organisations,
mutual funds, unit trusts, and similar entities that on initial
recognition are designated as at fair value through profit
or loss or are classified as held for trading and accounted
for in accordance with IAS 39, Financial instruments:
Recognition and Measurement (IAS 31.1).
There are three types of joint ventures (IAS 31.7):
• Jointly controlled operations – the use of assets and
other resources of the venturers rather than the
establishment of a corporation, partnership or other
entity, or a financial structure separate from the
venturers themselves. Each venturer uses its own
assets and incurs its own expenses and liabilities.
The contractual arrangement normally establishes
how the revenue from the sale of joint products and
any common expenses will be shared among the
venturers (IAS 31.13).
• Jointly controlled assets – joint control, and often joint
ownership, of assets contributed to, or acquired for
the purpose of, the joint venture. The assets are used
to obtain benefits for the venturers. These ventures
do not involve the establishment of a corporation,
A joint venture is generally defined as “An entity owned
and operated by a small group of businesses (the “joint
venturers”) as a separate and specific business or
project for the mutual benefit of the members of the
group. The purpose usually is to share risks and
rewards in developing a new market, product or
technology; to combine complementary technological
knowledge; or to pool resources in developing
production or other facilities. It also usually provides an
arrangement under which each joint venturer may
participate, directly or indirectly, in the overall
management of the joint venture” (ASC Master
Glossary, “Corporate Joint Venture” and “Joint
Venture”).
A collaborative arrangement is defined in the ASC
Master Glossary as “A contractual arrangement that
involves a joint operating activity. These arrangements
involve two (or more) parties that meet both of the
following requirements:
• They are active participants in the activity
• They are exposed to significant risks and rewards
dependent on the commercial success of the joint
operating activity.”
A collaborative arrangement in the scope of ASC 808-
10 is not primarily conducted through a separate legal
entity. The part of an arrangement conducted in a legal
entity should be accounted for under ASC 810-10,
ASC 323-10, or other related accounting literature
(ASC 808-10-15-4).
An investor must first determine whether the joint
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