IPSAS 8 is based on IAS 31 Interests in Joint Ventures (Revised 2003).
IPSAS 8 Interest in Joint Ventures prescribes the accounting treatment for an entity's interests in different forms of joint ventures: jointly controlled operations, jointly controlled assets and jointly controlled entities. The standard permits jointly controlled entities to be accounted for using proportionate consolidation and allows the equity method as an alternative.
IPSAS 8 was reissued in December 2006 and applies to annual periods beginning on or after 1 January 2008.
History of IPSAS 8
Annual periods beginning on or after 1 January 2008.
Refer to IFAC website here
Summary of IPSAS 8 Interests in Joint Ventures
This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 8.1]. IPSAS 8 applies to all public sector entities other than GBEs [IPSAS 8.4].
IPSAS 8 shall be applied by an investor for interest in joint ventures, except for joint controlled entities held by [IPSAS 8.1]:
• venture capital organizations
• mutual funds, unit trusts and similar entities including investment linked insurance funds
When such investments are measured at fair value with the changes in fair value through surplus or deficit in accordance with IPSAS 29.
Key definitions [IPSAS 8.6]
Equity method: a method of accounting whereby an interest in a jointly controlled entity is initially recorded at cost, and adjusted thereafter for the post-acquisition change in the venturer’s share of net assets/equity of the jointly controlled entity. The surplus or deficit of the venturer includes the venturer’s share of the surplus or deficit of the jointly controlled entity.
Joint control: the agreed sharing of control over an activity by a binding arrangement.
Joint venture: a binding arrangement whereby two or more parties are committed to undertake an activity that is subject to joint control.
Proportionate consolidation: a method of accounting whereby a venturer’s share of each of the assets, liabilities, revenue and expenses of a jointly controlled entity is combined line by line with similar items in the venturer’s financial statements or reported as separate line items in the venturer’s financial statements.
Significant influence: the power to participate in the financial and operating policy decisions of an activity but is not control or joint control over those policies.
Venturer: a party to a joint venture and has joint control over that joint venture.
Forms of joint ventures
IPSAS 8 indentifies following forms of joint ventures
• jointly controlled operations
• jointly controlled assets
• jointly controlled entities
Jointly controlled operations
Jointly controlled operations involve the use of assets and other resources of the venturers rather than the establishment of a separate structure. Each venturer uses its own assets, incurs its own expenses and liabilities, and raises its own finance [IPSAS 8.17].
The venturer should recognize in its financial statements [IPSAS 8.19]:
• the assets that it controls and the liabilities that it incurs
• the expenses that it incurs and its share of the revenue from the sale or provision of goods or services by the joint venture.
Jointly controlled assets
Jointly controlled assets involve the joint control, and often the joint ownership, of assets contributed to the joint venture. Each venturer may take a share of the output from the assets and each bears a share of the expenses incurred [IPSAS 8.22].
The venturer should recognize in its financial statements [IPSAS 8.25]:
• its share of the joint assets, classified according to the nature of the assets
• any liabilities that it has incurred
• its share of any liabilities incurred jointly with the other venturers
• revenue from the sale or use of its share of the output of the joint venture and, its share of expenses incurred by the joint venture
• expenses incurred in respect of its interest in the joint venture
Jointly controlled entities
A jointly controlled entity is a entity (corporation, partnership, or other) in which each venturer has an interest, under a binding arrangement that establishes joint control over the entity [IPSAS 8.29].
Usually, each venturer contributes cash or other resources to the jointly controlled entity. Such contributions are recognized in the venturer's accounting records and financial statements as an investment in the jointly controlled entity [IPSAS 8.34].
A jointly controlled entity should be accounted for using one of the following methods [IPSAS 8.35]
• proportionate consolidation
• equity method of accounting
In consolidated financial statements the proportionate consolidation method should be applied, while the equity method of accounting is an allowed alternative to be used for investments in joint controlled entities, except in the following three circumstances [IPSAS 8.3]:
• the interest is acquired and held exclusively with a view to sell within 12 months from acquisition and management is actively seeking a buyer. The investment in the jointly controlled entity should be classified as held for trading and accounted for under IPSAS 29 [IPSAS 8.47].
• a controlling entity that is exempted from preparing consolidated financial statements by paragraph 16 of IPSAS 6 may prepare separate financial statements as its primary financial statements. In those separate statements, the investment in the associate may be accounted for by the cost method or as a financial instrument under IPSAS 29. [IPSAS 8.52]
• all of the four following conditions are met [IPSAS 8.3(c)]
1) the venturer is
• itself a wholly-owned controlled entity and users of such financial statements are unlikely to exist or their information needs are met by its controlling entity’s consolidated financial statements;
• a partially-owned controlled entity of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the controlling entity not presenting consolidated financial statements
2) The venturer’s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets)
3) the venturer did not file, nor is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market
4) the ultimate or any intermediate controlling entity of the venturer produces consolidated financial statements available for public use that comply with IPSASs.
When proportionate consolidation is applied, the statement of financial position of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The statement of financial performance of the venturer includes its share of the revenue and expenses of the jointly controlled entity [IPSAS 8.38].
Two different reporting formats for presenting proportionate consolidation are included in IPSAS 8 [IPSAS 8.39]:
1) The venturer may combine its share of each of the assets, liabilities, revenue and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements
2) The venturer may include separate line items for its share of the assets, liabilities, revenue and expenses of the jointly controlled entity in its financial statements.
The proportionate consolidation will be discontinued from the date the venturer ceases to have joint control [IPSAS 8.41].
The equity method is an allowed alternative for the proportional consolidation, procedures for application are the same as those described in IPSAS 7 Investments in Associates [IPSAS 8.43-45].
Separate financial statements of the venturer
In the separate financial statements of the venturer, its interests in a joint venture should be accounted for [IPSAS 8.52]
• using the equity method
• at cost
• under IPSAS 29 Financial Instruments: Recognition and Measurement
Transactions between a venturer and a joint venture
If a venturer contributes or sells assets to a joint venture, the venturer should recognize only that portion of the gain or loss that is attributable to the interests of the other venturers, provided that the risks and rewards where transferred to joint venture and the joint venture retains the assets. The venturer shall recognize the full amount of any loss when the contribution or sale provides evidence of a reduction in the net realizable value of current assets or an impairment loss [IPSAS 8.54].
When assets are purchased from a joint venture, the venturer shall not recognize its share of the gains of the joint venture from the transaction until it resells the assets to an third party. A venturer shall recognize its share of the losses resulting from these transactions in the same way as gains, except that losses shall be recognized immediately when they represent a reduction in the net realizable value of current assets or an impairment loss [IPSAS 8.55].
Interest in Joint Ventures in the Financial statements of an investor
An investor in a joint venture who does not have joint control should report its interest in a joint venture in its consolidated financial statements in accordance with: [IPSAS 8.57]
• IPSAS 7 Investments in Associates when the investor has significant influence in the joint venture; or
• IPSAS 29 Financial Instruments: Recognition and Measurement
Required Disclosures on contingent liabilities and assets relating to joint ventures and to be separately disclosed:
• aggregate amount of the following contingent liabilities relating to joint ventures, unless the possibility of any outflow in settlement is remote [IPSAS 8.61]:
o contingent liabilities incurred in relation to its interests in joint ventures, and its share in each of the contingent liabilities that have been incurred jointly;
o share of the contingent liabilities of the joint ventures themselves for which it is contingently liable; and
o contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other venturers of a joint venture.
• brief description of the following contingent assets and, where practicable, an estimate of their financial effect, where an inflow of economic benefits or service potential is probable [IPSAS 8.61]:
o Any contingent assets of the venturer arising in relation to its interests in joint ventures and its share in each of the contingent assets that have arisen jointly with other venturers; and
o Its share of the contingent assets of the joint ventures themselves.
• Information about commitments relating to its interests in joint ventures separately from other commitments [IPSAS 8.62].
• listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities. A venturer that recognizes its interests in jointly controlled entities using the line-by-line reporting format for proportionate consolidation or the equity method shall disclose the aggregate amounts of each of current assets, non-current assets, current liabilities, non-current liabilities, revenue and expenses related to its interests in joint ventures [IPSAS 8.63]
• the method it applies to recognize its interests in jointly controlled entities [IPSAS 8.64]
IPSAS 8: Interests in Joint Ventures was issued
IPSAS 8 was revised
1 January 2008
Effective date of IPSAS 8
1 January 2011
Effective date of Improvements to IPSASs (issued in January 2010)