FRSC Issues for Comment IASB ED 9 on Joint Arrangements

The Financial Reporting Standards Council (FRSC) has issued an Invitation to Comment on Exposure Draft (ED) 9, Joint Arrangements, issued by the  International Accounting Standards Board (IASB). The IASB proposes to improve the accounting for joint arrangements and to replace the existing standard IAS 31, Interests in Joint Ventures, the basis for PAS 31, Interests in Joint Ventures.

The proposed standard is part of the IASB’s short-term project with the U.S. Financial Accounting Standards Board (FASB) to reduce differences between International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (U.S. GAAP).

The proposed standard focuses on the two aspects of the current accounting for joint arrangements.

The focus is shifted to the rights and obligations that arise from a joint arrangement to provide a more realistic reflection of the joint arrangement in the financial reports of the parties involved. The form of arrangement is no longer the most significant factor in determining the accounting.

The current accounting for joint arrangements follows the legal form in which the activities take place. The existing standard gives preparers a choice when accounting for interests in jointly controlled entities, making it difficult to compare financial reports. ED 9 proposes to remove that choice by requiring parties to recognize both the individual assets to which they have rights and the liabilities for which they are responsible, even if the joint arrangement operates in a separate legal entity. If the parties only have a right to a share of the outcome of the activities their net interest in the arrangement will be recognized using the equity method.

The proposals are designed to provide users with more information about the operations an entity conducts through joint arrangements – including a  description of the nature of joint arrangements and summarized financial information relating to its interests in joint ventures.

The FRSC Invitation to Comment and IFRS ED 9 may be downloaded from the Philippine Financial Reporting Standards (PFRS) website, within the PICPA website (www.picpa.com.ph). IFRS ED 9 may also be downloaded from the IASB website (www.iasb.org).

The FRSC invites comments on IFRS ED 9 by December 27, 2007, to enable the Council to consider and include comments from Philippine respondents in its response to the IASB.