IFRS 11 joint operations and joint ventures

IFRS 11 applies when two or more parties have joint control, meaning decisions about the activities that drive returns need the unanimous consent of the parties that control the arrangement together. It then classifies the arrangement by the parties’ rights and obligations, not its legal form: a party with rights to the assets and obligations for the liabilities has a joint operation and accounts for its share line by line, while a party with rights only to the net assets has a joint venture and uses the equity method.

When does a joint arrangement exist?

IFRS 11 paragraph 4 defines a joint arrangement as an arrangement of which two or more parties have joint control. Paragraph 5 adds that the parties must be bound by a contractual arrangement, which paragraph B2 says can be evidenced in several ways, often but not always in writing, and can include statutory mechanisms.

Joint control is the contractually agreed sharing of control, existing only when decisions about the relevant activities require the unanimous consent of the parties sharing control (paragraph 7). The test runs in two steps. First, do all the parties, or a group of them, control the arrangement collectively, using the IFRS 10 definition of control (paragraphs 8 and B5)? Second, do decisions require the unanimous consent of that group (paragraphs 9 and B6)? For the control test itself, see control under IFRS 10.

The application examples in paragraph B8 show why the wording of the voting rules is decisive. Where A holds 50%, B 30% and C 20%, and decisions need 75% of the votes, A and B have joint control because no decision can be made without both. Where A holds 50% and B and C hold 25% each with the same 75% threshold, there is no joint arrangement, because A can carry decisions with either B or C, unless the contract specifies which parties must agree. Paragraph 11 also confirms that an arrangement can be joint even though some parties to it do not share control.

How does IFRS 11 decide between a joint operation and a joint venture?

Paragraph 14 says the classification depends on the rights and obligations of the parties. A joint operation gives the parties with joint control rights to the assets and obligations for the liabilities relating to the arrangement (paragraph 15). A joint venture gives them rights to the net assets of the arrangement (paragraph 16). Paragraph B15 sets out the order of assessment:

1. Structure. An arrangement not structured through a separate vehicle is a joint operation (paragraph B16).
2. Legal form of any separate vehicle. If the legal form does not separate the parties from the vehicle, that alone shows a joint operation (paragraph B24). If it does, for example a limited company holding the assets and liabilities in its own right, the initial indication is a joint venture (paragraph B23).
3. Contractual terms. The parties’ agreement can override the legal form, for example by giving them direct rights to assets or making them liable for the vehicle’s debts (paragraphs B23, B25 and B27).
4. Other facts and circumstances. Where the contract is silent, paragraph B29 requires the parties to consider other facts. Paragraphs B31 and B32 say that when an arrangement is designed mainly to provide output to the parties, and the parties are substantially the only source of cash flows that keep it running, they in substance have rights to the assets and obligations for the liabilities.

Classification is a matter of judgement (paragraph 17) and must be reassessed when facts and circumstances change (paragraph 19).

Why is a joint operation accounted for line by line?

Because the joint operator actually has rights to the underlying assets and obligations for the liabilities, IFRS 11 requires it to report them directly. Under paragraph 20 the joint operator recognises its own assets and its share of jointly held assets, its own liabilities and its share of joint liabilities, its revenue from selling its share of the output, its share of revenue from output sold by the joint operation, and its own expenses and its share of joint expenses. Each item is then accounted for under the IFRS that applies to it (paragraph 21).

Two further rules often come up. Acquiring an interest in a joint operation whose activity is a business brings in the IFRS 3 business combination principles to the extent of the share acquired (paragraph 21A; see IFRS 3 business combinations). And when a joint operator sells or contributes assets to the joint operation, it recognises gains and losses only to the extent of the other parties’ interests (paragraph B34). On a purchase from the joint operation it recognises its share of the gain or loss only when it resells the assets to a third party (paragraph B36).

Why does a joint venture use the equity method?

A joint venturer has no direct claim on individual assets or responsibility for individual liabilities, only an interest in what is left after the vehicle settles its own obligations. IFRS 11 paragraph 24 therefore requires the interest to be recognised as an investment and accounted for using the equity method under IAS 28, unless an IAS 28 exemption applies. Under IAS 28 paragraph 10 the investment starts at cost and is adjusted for the investor’s share of post acquisition profit or loss, with distributions reducing the carrying amount.

The exemptions in IAS 28 paragraph 17 cover a parent exempt from consolidation under IFRS 10 and certain unlisted subsidiaries whose other owners do not object. Gains on asset sales between the investor and the joint venture that do not involve a business are recognised only to the extent of unrelated investors’ interests (IAS 28 paragraph 28).

A party to a joint venture without joint control applies IFRS 9, or IAS 28 if it has significant influence (paragraph 25). A party to a joint operation without joint control follows the joint operator rules if it has rights to the assets and obligations for the liabilities, and otherwise the IFRS that applies to its interest (paragraph 23).

What does the difference look like in the numbers?

Illustration only. Two manufacturers each own 50% of a UK limited company that runs a shared processing plant. The company has assets of £10 million and liabilities of £6 million.

• If the company sells all its output to the two owners at prices that cover its costs and has no other customers, the facts in paragraphs B31 and B32 point to a joint operation despite the limited company form. Each owner shows £5 million of assets and £3 million of liabilities within the relevant balance sheet lines, plus its share of income and expenses.
• If the company sells to third parties and the owners have no rights to its assets or liability for its debts, it is a joint venture. Each owner shows a single investment line, here £2 million if cost equalled its share of net assets, and a single share of profit line.

Under the equity method none of the vehicle’s turnover or borrowings appear in the owner’s own lines, so the classification can change reported revenue and gearing considerably.

What about separate financial statements?

In its separate financial statements a joint operator still accounts for a joint operation under paragraphs 20 to 22. A joint venturer accounts for its joint venture under paragraph 10 of IAS 27 (paragraph 26), which allows cost, IFRS 9 or the equity method, applied consistently to each category of investment. A party without joint control follows paragraph 27.

How does IFRS 11 compare with FRS 102?

FRS 102 Section 15 uses older categories based largely on structure. Paragraph 15.3 says joint ventures take the form of jointly controlled operations, jointly controlled assets or jointly controlled entities, and paragraph 15.8 treats any joint venture set up as a corporation, partnership or other entity as a jointly controlled entity. A parent equity accounts jointly controlled entities in its consolidated accounts (paragraph 15.9A), while a venturer that is not a parent chooses between cost and fair value models in its individual accounts (paragraph 15.9).

So the output company in the illustration above would normally be a jointly controlled entity under FRS 102 but could be a joint operation under IFRS 11. Groups moving between frameworks should revisit every incorporated arrangement. See FRS 102 Section 15: joint ventures and joint venture structures.

What else should preparers watch?

• Treating a 50:50 shareholding as joint control without reading the decision rules and any casting vote.
• Stopping at legal form when the vehicle exists only to supply its owners.
• Forgetting the IFRS 12 disclosure of significant judgements about joint control and classification where a separate vehicle is used (IFRS 12 paragraph 7); see IFRS 12 disclosure of interests in other entities.

IFRS 11 was issued in May 2011 to replace IAS 31 and applies for annual periods beginning on or after 1 January 2013 (paragraph C1).

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Related Accountapedia entries

• FRS 102 Section 15: joint ventures
• Discontinued operations in the accounts
• When family members together count as a PSC
• Company voluntary arrangements
• The associated operations rule for inheritance tax

Sources

• IFRS Foundation: Ifrs11
• IFRS Foundation: Ias28
• IFRS Foundation: Ias27
• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• IFRS Foundation: Ifrs12
• IFRS Foundation: Ifrs 11 joint arrangements

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.