An essay about AASB 11 leads to useful information for users of financial reporting information.

The Australian Accounting Standard Board has issued a new amended to the accounting
standard for joint a
angement AASB 11 that will be effective from period ending in
December 2012 or 1
st
January 2013 financial statement. This new standard has been derived
from International Financial standard (IFRS) as Australian accounting standard could have a
lower impact as the standard mainly clarify and focuses on the existing requirements. AASB
11 supersedes the existing methods of AASB 131 interest in joint ventures. Three categories
were present earlier that are mainly jointly controlled entities, jointly controlled operation and
jointly controlled assets which are now changed to joint operation and joint ventures. The
difference is that the joint venture eliminated the option of use proportionate consolidation
and instead of now using the equity method of accounting which is prefe
ed by Australian
companies (Reilly nd).
Under this new AASB 11, joint ventures must be equity accounted. Majority of the
Australian companies used equity accounting in practice except for extractive industry; hence
this issue should have a minor effect locally. In the mining industry, usually the entities are
classified into joint a
angement. There is significant impact of AASB 11 for all entities from
new stage exploration companies to large mining companies as they can change the
accounting for joint a
angement entities enter into for companies who have existing and are
considering to enter into joint a
angements. (BDOnd).
Horwarth (2011) added the option to not to use proportional consolation for joint venture
laying significance impact on certain sectors that are using joint venture such as extractive
industry. Therefore, company used proportional consolidation that could result in lower
evenue reporting for businesses such as mining, oil & gas and the lower lending to value
atio and the rental income for construction and the property sector.
Identifying whether an a
angement is a joint operation or joint ventures could be complex
due to some reason. The classification will depend on the legal structure of the venture entity
(that is separate vehicle), the term of agreement of joint venture, term of contractual
a
angement and other facts and circumstance (Horwarth 2011). An entity shall determine the
type of joint a
angement in which it is engaged. The classification of a joint a
angement as
a joint operation or a joint venture depends upon the rights and obligations of the parties to
the a
angement (AASB).
Under AASB 11, there is a guideline for parties that enter in joint a
angement but don’t have
joint share control. For example, investment group in joint partnership will be categorized as
a joint venture. As the group has already used the equity method accounting for this
investment, which would have no impact on the financial statements for the amount
ecognised. (Otto Energy p 53 2012).
AASB 11 addresses a principle standard approach to accounting for joint a
angement. It
focuses on how parties share their obligation with the joint a
angement rather than joint
a
angement’s legal structure. Joint a
angement is classified as either a joint operation or
joint ventures. AASB 11 describes “joint a
angement as one where two or more parties are
in a contractual agreement which binds them and gives them joint control over the
a
angement”.
The major part of AASB 11 is...