Untuk presentasi di PPT

Assalamualaikum wr wb,Good Afternoon, Hello every one,my name is vinia cindy putri, For
Presentation My topik today is IFRS 11 (joint arrangement).
Guys, have you heard about IFRS 11? It’s okay if you haven’t listened yet.

I will tell to What is the explanation about ifrs 11?

IFRS 11 describes the accounting for a joint arrangement. The investor will be required to either
apply the equity method of accounting or recognize, on a line-by-line basis, its share of the
underlying assets, liabilities, revenues and expenses. The accounting treatment required will depend
on the substance of the arrangement and the nature of the investor’s interest in it. The option to
apply proportionate consolidation has been removed. IFRS 11 supersedes the requirements relating
to joint ventures in IAS 31 and SIC 13.

Tody discuss more about ifrs 11, beforehand I will tell what our discussion is for today's
presentation:
- Overview
- Scope
- Characteristics
- Contractual Arrangement
- Joint control under IFRS 11 (the ‘Two-Step Model’)
- Substantive rights in joint arrangements
- Protective rights in joint arrangements
- Joint arrangement classifications
- Classification – assessing each party’s rights
- Financial statements of parties to a joint arrangement
Okay, we start the discussion the first is an overview IFRS 11.
– Applies to annual periods beginning on or after 1 January 2013

– Introduces the concept of joint arrangements which are classified as either joint operations or joint
ventures

– Very narrowly defines what can be classified as a joint operation, in particular when the joint
arrangement is structured using a separate legal entity

– Requires joint operators to account for interests in joint operations by accounting for their own (or
share of) assets and liabilities

– Requires joint venturers to account for interests in joint ventures using the equity method

– Prohibits proportionate consolidation for joint ventures

– Is dependent upon the new definition of control introduced in IFRS 10 Consolidated Financial
Statements.

If I could now turn to What about the scope of IFRS 11 ?

IFRS 11 Joint Arrangements applies to all entities that are a party to a joint arrangement, and only
those entities. Investors with investees that do not meet the definition of a joint arrangement are
not permitted to apply the recognition and measurement principles of IFRS 11. IFRS 11 contains
specific criteria and definitions which are applied in determining whether an arrangement is or is not
a joint arrangement.

From the above overview and scope, A joint arrangement is an arrangement of which two or
more parties have joint control and the following characteristics are present:

 The parties are bound by a contractual arrangement; and

 The contractual arrangement gives two or more of the parties joint control of the arrangement.

Fundamentally, What is a contractual arrangement?

While most enforceable contractual arrangements are often in writing (usually in the form of a
contract or documented discussions between the parties) IFRS acknowledges that this may not
always be the case (IFRS 11.B2). Therefore, determination of whether a contractual arrangement
exists is based on the substance of the dealings between the parties. Specifically, IFRS 11 requires
investors to consider other factors which, either on their own or in conjunction with others, result in
joint control.

These may include:

– Statutory mechanisms

– Terms incorporated into the investee’s articles of association

– Other arrangements.

Contractual arrangements are usually easily identifiable, as they would generally deal with such
items as (IFRS 11.B4):

– The purpose, activity and duration of the joint arrangement

– How the members of the board of directors, or equivalent governing body, of the joint
arrangement, are appointed

– The decision-making process: the matters requiring decisions from the parties, the voting rights of
the parties and the required level of support for those matters. The decision-making process
reflected in the contractual arrangement is key in determining whether there is joint control over
the arrangement

– The capital or other contributions required of the parties

– How the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint
arrangement

My next point is Joint control under IFRS 11 (the ‘Two-Step Model’).

Under IFRS 11, joint control:

– Is the contractually agreed sharing of control of an arrangement

– Exists only when decisions about the relevant activities of the arrangement require the unanimous
consent of the parties sharing the control of the arrangement.
 - Relevant activities are the activities of the arrangement that significantly affect returns to
investors, and may include (IFRS 10.B11):
i. Selling and purchasing of goods or services
ii. Managing financial assets during their life (including upon default)
iii. Selecting, acquiring or disposing of assets
iv. Researching and developing new products or processes
v. Determining a funding structure or obtaining funding.

- Unanimous consent means that any party with joint control can prevent any of the other
parties, or a group of the parties, from making unilateral decisions (about the relevant
activities) without its consent. Put simply, all parties with joint control have to agree in order
for decisions relating to relevant activities to be made. This excludes protective rights.

In order to determine whether an arrangement contains parties with joint control (and is therefore a
joint arrangement captured by IFRS 11), and investor adopts a two-step approach.

Step 1: Firstly, an entity assesses whether all the parties, or a subset of the parties, control the
arrangement (based on the control definition in IFRS 10). When all the parties, or a subset of the
parties, considered collectively, are able to direct the activities that significantly affect the returns of
the arrangement (i.e. the relevant activities), they control the arrangement collectively.

Step 2: Secondly, an entity assesses whether it has joint control of the arrangement. Joint control
exists only when decisions about the relevant activities require the unanimous consent of the parties
that collectively control the arrangement.

Let’s me move on to Substantive rights in joint arrangements.

Substantive rights are considered within the Power component of the new control mode. A
significant change from the previous IAS 27 (2008) control model is that only substantive rights are
relevant when power is assessed.The standard requires an investor to consider and assess the effect
of both substantive rights held by itself and those held by others.

Another important factor is that in order to fulfil the substantive criteria, a right also needs to be
exercisable when the decisions relating to the relevant activities are made. This is in contrast, and is
subtly different, to the previous IAS 27 (2008) requirement that the rights were exercisable at the
holder’s reporting date.

Rights will always be exercisable when decisions need to be made when those rights are currently
exercisable. But a right can also be substantive if it is not currently exercisable but exercisable when
the relevant activities are made.

Now,turning to Protective rights in joint arrangements.

A key aspect of determining whether an arrangement is a joint arrangement and is therefore within
the scope of IFRS 11 is determining who controls the arrangement’s relevant activity (or activities).
From a practical perspective, for many arrangements it is unlikely that relevant activities are
operationally undertaken by two or more entities, with one of the parties instead being appointed as
operator. In these circumstances it is important to determine whether the operator is acting as
principal and therefore controls the relevant activities, or is acting as agent for the joint
arrangement.
An investor that only holds protective rights has no substantive power over an investee and
consequently does not control the investee. The standard follows the logic that protective rights are
designed to protect interests of the holder without giving it power over the investee, and cannot
prevent another party from having power over an investee.

The first step in determining whether an arrangement is within the scope of IFRS 11 is to determine
what the arrangement’s relevant activities are and then to determine which parties control those
relevant activities. In circumstances in which an operator is appointed to run the arrangement, this
typically involves determining the power given to the arrangement’s operator, consideration as to
whether the non-operator’s rights are only protective and consideration of dispute resolution
procedures which apply should the parties to the arrangement disagree and fail to agree on the
direction of the arrangement’s relevant activity.

Step 1 Determine the arrangement’s relevant activity or activities

Step 2 Determine which entity controls the relevant activity or (if there is more than one relevant
activity) which entity controls the most significant relevant activities.

A major concern is Joint arrangement classifications.

The new model under IFRS 11

IFRS 11 has only two classifications of joint arrangements:

– Joint operation

– Joint venture.

IAS 31 Interests in Joint Ventures had three classifications of joint ventures:

– Jointly controlled assets

– Jointly controlled operations

– Jointly controlled entities.

As you can see here diagram from slide.

The smaller arrow between jointly controlled entities and joint operations represents a potential
change in classification as a result of assessing the substance rather than the form of a joint
arrangement (refer below).

There is a subtle, but important, change to the terminology which is used under IFRS 11 in
comparison with IAS 31. The reference in the title of IAS 31 to ‘joint ventures’ is reflected in many
arrangements being described as joint ventures in contractual agreements. However, IFRS 11 is
more precise, with the term ‘joint venture’ applying to only a subset of the overall population which
is now referred to as ‘joint arrangements’.

This may give rise to some confusion (and potential errors) on the initial application of IFRS 11,
because common business practice is to use the term ‘joint venture’ widely. However, simply
because an arrangement is referred to as a ‘joint venture’ does not mean that it will be accounted
for under that heading in accordance with IFRS 11. This is a critical distinction, because the new
categories set out in IFRS 11 give rise to very different accounting. If a jointly controlled entity under
IAS 31 is determined to be a joint venture under IFRS 11, the venturer is required to apply equity
accounting. If a jointly controlled entity under IAS 31 is determined to be a joint operation under
IFRS 11, the joint operator accounts for its share of assets, liabilities income and expenses. Equity
accounting is prohibited. In addition, even if a joint operator previously applied proportionate
consolidation to an IAS 31 jointly controlled entity which becomes an incorporated IFRS 11 joint
operation, the IFRS 11 accounting may still be different from the previous IAS 31 approach.

Next Slide is describe joint operations and joint ventures as:

Joint operation – A joint arrangement whereby the parties that have joint control of the
arrangement (termed joint operators) have rights to the assets, and obligations for the liabilities,
relating to the arrangement.

Joint venture – A joint arrangement whereby the parties that have joint control of the arrangement
(termed joint venturers) have rights to the net assets of the arrangement.

It is the substance (i.e. the contractual and other rights) of the arrangement that determine the
classification in accordance with IFRS 11. Under IAS 31, a jointly controlled entity arose whenever a
separate entity had been established. In contrast, under IFRS 11 if a joint arrangement is not
structured through a separate legal entity, it is always accounted for as a joint operation. However, if
a joint arrangement is structured through a separate legal entity, then depending on the rights and
obligations of the parties to the joint arrangement, each party will either: – Apply equity accounting,
or – Recognise their share of assets, liabilities, income and expenses. Consequently, when assessing
the IFRS 11 classification of a joint arrangement structured through a separate legal entity, the
assessment of the rights and obligations of the parties in the joint arrangement is key.

After what we know about the joint venture and joint operation, it's time to know
Classification – assessing each party’s rights.
To determine the correct classification of a joint arrangement structured through a separate legal
entity (and therefore the correct initial and subsequent accounting) an entity needs to assess the
rights and the obligations of the parties arising from the arrangement in the normal course of
business, specifically considering (IFRS 11.17):

– The structure

– The legal form

– The contractual arrangement

– Other facts and circumstances.

This assessment must be performed on a continuous basis (i.e. an entity must reassess the joint
arrangements classification as facts and circumstances change). Ultimately, the assessment needs to
consider and conclude whether:

– A right to specific assets and obligations for specific liabilities exists (in which case the joint
arrangement is classified as a joint operation)

– A right or exposure to only the net assets exists (in which case the joint arrangement is classified as
a joint venture).
My next point is first (i) The Structure.
In the discussion of the structure there are 2 types that will be discussed :

(a) Joint arrangement not structured through a separate vehicle

A joint arrangement that is not structured through a separate vehicle is a joint operation. In such
cases, it is the arrangement’s contractual terms that will establish the parties’ rights to the assets,
and obligations for the liabilities, relating to the arrangement, and their rights to the corresponding
revenues and obligations for the corresponding expenses. Therefore for unincorporated joint
arrangements (previously classified as jointly controlled assets or jointly controlled operations under
IAS 31) there is no change and investors in these types of arrangements must continue to account
for their share of assets, liabilities, income and expenses.

(b) Joint arrangement structured through a separate legal entity

A joint arrangement in which the assets and liabilities relating to the arrangement are held in a
separate legal entity can be either a joint venture or a joint operation. That is, a separate legal entity
is a necessary (but not a sufficient) condition for a joint venture. If there is a separate legal entity,
then the remaining tests are applied. This is in contrast to IAS 31, where the establishment of a
separate legal entity resulted in automatic classification as a jointly controlled entity. When the
arrangement is structured through a separate legal entity, the structure itself is not determinative,
although in many cases the contractual arrangements are consistent with the legal form. However, it
is still a significant factor as, in order for an arrangement structured through a separate legal entity
to be classified as a joint operation, the effect of other arrangements must be to ‘strip away’ the
(often protective) effect of the legal structure.

NEXT SLIDE IS (ii) The Legal Form

In the discussion of the legal form there are 2 types that will be discussed :

The legal form of the separate vehicle can be relevant when assessing the type of joint arrangement.
For example, the parties might conduct the joint arrangement through a separate vehicle, whose
legal form causes the separate vehicle to be considered in its own right (i.e. the assets and liabilities
held in the separate vehicle are the assets and liabilities of the separate vehicle and not the assets
and liabilities of each of the parties to the joint arrangement).

In such a case, the assessment of the rights and obligations conferred upon the parties by the legal
form of the separate vehicle indicates that the arrangement is a joint venture. However, the terms
agreed by the parties in their contractual arrangements and, when relevant, other facts and
circumstances can override the legal form of the separate vehicle and result in it being accounted for
as a joint operation. This is particularly the case when parties have obligations to purchase part or all
of the output from a joint arrangement.

Careful assessment of the rights and obligations conferred upon the parties by the legal form of the
separate vehicle is therefore required. In order for it to be concluded that the arrangement is a joint
operation, there must not be separation of rights and obligations between the parties and the
separate vehicle (that is, as noted above, the effect of the overall arrangements must be to ‘strip
away’ the legal structure). However, this might also be achieved through the terms of a contractual
arrangement.
Partnertships

Under IFRS 11, such partnerships would be classified as a joint operation. This is because the parties
have rights to specific assets, and obligations for specific liabilities, rather than rights solely to the
net assets of the arrangement.

For parties to a partnership that previously applied proportionate consolidation to their interests in
the partnership, the accounting will often be the same as previously recognised in their
consolidated/individual financial statements. However, a significant change is that the accounting
for assets, liabilities, income and expenses will now be required in their separate financial
statements.

For parties to a partnership that previously applied equity accounting to their interests in the
partnership, the accounting will be significantly different, and will affect their
consolidated/individual and separate financial statements on a line-by-line basis (the extent of this
will depend on the nature of each joint operation’s activities).

Unlimited liability vehicles

It is possible for a vehicle to have a separate legal personality, but for the parties to have ultimate
unlimited liability for any amounts owing that the vehicle cannot cover on its own. These are termed
unlimited companies in some jurisdictions. Such vehicles do not automatically result in a joint
operation, even though at first glance it appears that the parties have obligations for the vehicles
liabilities.

The rationale for this is as follows:

1. The primary responsibility for the unlimited liability vehicle’s liabilities in the first instance is the
unlimited liability vehicle itself. The parties would only cover the liabilities of the unlimited liability
vehicle if it was not capable of settling its liabilities on its own. In essence and from an economical
perspective this amounts to a guarantee, rather than a direct contractual obligation to settle the
obligations, which on its own does not result in classification as a joint operation.

2. The unlimited liability vehicle does not give the parties rights to assets – which is a requirement to
qualify as a joint operation (IFRS 11.15).

NEXT SLIDE IS more to understand about Contractual arrangement

The contractual arrangement often describes the nature of the activities that are the subject of the
arrangement and how the parties intend to undertake those activities together. For example, the
parties to a joint arrangement could agree to manufacture a product together, with each party being
responsible for a specific task and each using its own assets and incurring its own liabilities. The
contractual arrangement could also specify how the revenues and expenses that are common to the
parties are to be shared among them. In such a case, each joint operator recognises in its financial
statements the assets and liabilities used for the specific task, and recognises its share of the
revenues and expenses in accordance with the contractual arrangement.

In other cases, the parties to a joint arrangement might agree to share and operate an asset
together. In such a case, the contractual arrangement establishes the party’s rights to the asset that
is operated jointly, and how output or revenue from the asset and operating costs are shared among
the parties. Each of the parties accounts for its share of the joint asset and its agreed share of any
liabilities, and recognises its share of the output, revenues and expenses in accordance with the
contractual arrangement. In many cases, the rights and obligations agreed in the contractual
arrangements are consistent, or do not conflict, with the rights and obligations conferred on the
parties by the legal form of the separate vehicle in which the arrangement has been structured.
However, parties might use the contractual arrangement to reverse or modify the rights and
obligations conferred by the legal form of the separate vehicle in which the arrangement has been
structured.

It should be noted that the following contractual arrangements, on their own, do not result in the
arrangement being classified as a joint operation:

– Guarantees provided to third parties provide. Guarantees do not provide the parties with primary
rights to assets and obligations for liabilities

– Obligations for unpaid or additional capital.

And last for Classification – assessing each party’s rights, is Other facts and circumstances.
When the terms of the contractual arrangement do not specify that the parties have rights to the
assets and obligations for the liabilities relating to the arrangement, it is still necessary to consider
other facts and circumstances in order to determine the appropriate classification of the joint
arrangement, such as those that:

– Give the parties rights to substantially all of the economic benefits relating to the arrangement

– Cause the arrangement to depend on the parties on a continuous basis for settling its liabilities.

It is particularly important to analyse all terms and conditions to an arrangement that is designed
primarily to provide its output to the parties to a joint arrangement. The effect of these may indicate
that:

– The parties have substantially all the benefits of the joint arrangement’s assets

– The liabilities of the joint arrangement are only satisfied by the cash flows received from the
parties for the purchase of the output, and therefore the parties in-turn are considered to have an
obligation for these liabilities.

The analysis of these other facts and circumstances may result in a joint operation classification.
However, the legal form of contractual arrangements can be critical to the analysis.

Next, point is Financial statements of parties to a joint arrangement.

For Joint operations

A joint operator is required to recognize in relation to its interest in a joint operation:

 Its assets, including its share of any assets held jointly;

 Its liabilities, including its share of any liabilities incurred jointly;

 Its revenue from the sale of its share of the output arising from the joint operation;

 Its share of the revenue from the sale of the output by the joint operation; and

 Its expenses, including its share of any expenses incurred jointly.

A joint operator shall account for the above relating to its interest in the joint operation in
accordance with the relevant IFRSs.
If a party that participates in, but does not have joint control of a joint operation, and rights to the
assets and obligations relating to that joint operation:

 Are present, it is required to account for these as above.

 Are not present, it is required to account for its interest in the joint operation in accordance with
the applicable IFRSs to that interest.

For Joint ventures

A joint venturer is required to recognize its interest in a joint venture as an investment and shall
account for that investment using the equity method in accordance with IAS 28 Investments in
Associates and Joint Ventures unless the entity is exempted from applying the equity method. A
party that participates in, but does not have joint control of a joint venture is required to account for
its interest in the arrangement in accordance with IFRS 9 Financial Instruments, unless it has
significant influence over the joint venture, then it shall account for it in accordance with IAS 28.

And the last point Separate financial statements

Joint operations

The same accounting treatment is required as set out above for a joint operator under the heading
Financial statements of parties to a joint arrangement.

Joint ventures

A joint venture shall account for its interest in accordance with IAS 27 Separate financial statements.
A party that participates in, but does not have joint control of a joint arrangement shall account for
its interest in a joint venture in accordance with IFRS 9. However, if the party has significant
influence over the joint venture it shall apply IAS 27.

After knowing about IFRS 11, it can be concluded

As the classification of a joint arrangement requires assessment of the substance of an investor’s
interest including consideration of related contractual arrangements and other facts and
circumstances, this is expected to be an area of judgement requiring careful consideration.

That's all from my presentation, hope audience can understand the content of the presentation

Thank You for attention.

Does anyone have any questions?

1. What Industries are most likely to be affected for the turn of ifrs 11?
Answer :
There are a wide variety of industries where joint arrangements are common, either through
strategic alliances, or having separate vehicles: – Business services – Software – Wholesale
trade – durable and non-durable goods – Investment and commodity firms – Electronics –
Telecommunications – Extractives – mining, oil & gas – Real estate

2. What impacts of change in classification when applying IFRS 11?

Answer :
The biggest impact will be for entities with investees previously accounted for in accordance
with IAS 31 that:
 – Fail the definition of joint control as derived from the new definition of control in IFRS 10 –
Must move from an equity-accounted jointly controlled entity under IAS 31 to a joint
operation under IFRS 11 (line-by-line share of assets, liabilities, expenses, and revenues), or
– Currently use proportionate consolidation for a jointly controlled entity under IAS 31 that
is required to be equitya ccounted for as it is classified as a joint venture under IFRS 11.

Let me illustrate for unlimited liability vehicles this by Parties A and B provide many types of
construction services, and jointly enter into a contractual arrangement to design/ build a road. The
parties set up a separate vehicle (entity Z) to facilitate this arrangement.

Entity Z enters into a contract with the government for the road, and holds the assets and liabilities
relating to the road contract, as well as invoicing the government for the construction services.

The main feature of entity Z’s legal form is that the parties (not entity Z in its own right) have rights
to the assets, and obligations for the liabilities, of the entity.

Entities A and B appoint an operator, who will be an employee of one of the parties.

Assessment

Entity Z is a separate vehicle with its own legal form. However, the legal form does not confer
separation between the parties and the separate vehicle, as consequently it is entities A and B that
have the rights to entity Z’s assets and obligations for entity Z’s liabilities. Therefore, the
arrangement is classified as a joint operation. Entities A and B subsequently recognise their share of
revenue, expenses, assets and liabilities (i.e. line-by-line accounting).

Note: Under IAS 31, because Entity Z is a separate entity, the arrangement would have been
classified by default as a jointly controlled entity, and would have been accounted for by
proportionate consolidation or equity accounting.

An example of this is

Scenario 1

Two parties enter into a joint arrangement which is structured through an incorporated entity in
which each party has a 50% ownership interest. There are no other contractual arrangements in
place between the parties.

Scenario 2

Two parties enter into a joint arrangement which is structured through an incorporated entity in
which each party has a 50% ownership interest. The parties have also modified the features of the
corporation through a separate contractual arrangement so that each has an interest in the assets of
the incorporated entity and each is responsible for settling its liabilities in a specified proportion.

Assessment

Scenario 1

The incorporation of a separate entity results in the legal separation of the entity from its owners
and, in consequence, the assets and liabilities held in the incorporated entity are that separate
entity’s own assets and liabilities. The assessment of the rights and obligations conferred upon the
parties by the legal form of the separate vehicle indicates that the parties have rights to the net
assets of the arrangement. Therefore, in the absence of any other contractual arrangement between
the parties, the joint arrangement would be classified as a joint venture.

Scenario 2

The incorporation of a separate entity results in the legal separation of the entity from its owners
and, in consequence, the assets and liabilities held in the incorporated entity are the separate
entity’s own assets and liabilities. However, the parties have also modified the features of the
corporation through a separate contractual arrangement so that each has an interest in the assets of
the incorporated entity and each is liable for its liabilities in a specified proportion. Consequently,
the parties do not have rights to the net assets of the arrangement, and instead have rights to assets
and obligations for liabilities. Therefore the joint arrangement would be classified as a joint
operation.

That is to say when a contractual arrangement specifies that the parties have rights to the assets and
obligations for the liabilities relating to the arrangement, they are considered to be parties to a joint
operation and do not need to consider other facts and circumstances for the purposes of classifying
the joint arrangement.