Classification by rights and obligations

Learning objectives

• Explain that classification as a joint operation or a joint venture depends on the rights and obligations of the parties and not merely on the name of the arrangement.L1
• Distinguish a joint operation (rights to the assets, obligations for the liabilities) from a joint venture (rights to the net assets).L2

Normative references

• IFRS 11Appendix A definitions: a joint arrangement is an arrangement of which two or more parties have joint control; joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control; a joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement; a joint venture is a joint arrangement whereby those parties have rights to the net assets; the joint operator and the joint venturer are the parties that have joint control of the joint operation and of the joint venture respectively; a party to a joint arrangement is an entity that participates in it, regardless of whether it has joint control; a separate vehicle is a separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether they have a legal personality.
• IFRS 11 §14An entity determines the type of joint arrangement in which it is involved: classification as a joint operation or a joint venture depends on the rights and obligations of the parties arising from the arrangement.
• IFRS 11 §17An entity applies judgement when assessing whether a joint arrangement is a joint operation or a joint venture: it determines the type of joint arrangement by considering its rights and obligations, assessed in the light of the structure and legal form of the arrangement, the terms agreed in the contractual arrangement and, when relevant, other facts and circumstances (application guidance B12 to B33).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• The classification of a joint arrangement as a joint operation or a joint venture depends on the rights and obligations of the parties arising from the arrangement.L1
• Which statements about the classification of joint arrangements are correct? More than one answer is possible.L2
• Where a joint arrangement is housed in a separate company, it is classified as a joint venture, with no need to examine the rights and obligations of the parties.L2