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LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA
MALAYSIAN ACCOUNTING STANDARDS BOARD Financial Reporting of Interests in Joint Ventures The standards, which have been set in the bold type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the Foreword to Financial Reporting Standards. Financial Reporting Standards are not intended to apply to immaterial items. Objective The objective of this Standard is to prescribe the appropriate accounting treatments for interests in joint ventures and the reporting of interests in joint ventures in the financial statements of venturers and investors. The Standard also provides guidance on the proper accounting treatment for transactions between a venturer and a joint venture and the fees paid by a joint venture to one or more venturers who may act as the operator or manager. Scope This Standard should be applied in accounting for interests in joint ventures in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place. This Standard supersedes MASB Approved Accounting Standard IAS 31, Financial Reporting of Interests in Joint Ventures.
Definitions The following terms are used in this Standard with the meanings specified:
Control (for the purpose of this Standard) is the power to govern the financial and operating policies of an economic activity/ enterprise so as to obtain benefits from it. Equity method is a method of accounting and reporting 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 of the jointly controlled entity. The income statement reflects the venturer's share of the results of operations of the jointly controlled entity.
Investor in a joint venture is a party to the joint venture and does not have joint control over that joint venture. Joint control is the contractually agreed sharing of control over an economic activity. Joint control over an economic activity exists when two or more parties (venturers) must consent to all major strategic decisions. Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control. Significant influence is the power to participate in the financial and operating policy decisions of an economic activity/enterprise but is not control or joint control over those policies. Venturer is a party to a joint venture and has joint control over that joint venture.
The existence and form of control is important in the determination of the appropriate treatment of joint venture investments. Control involves the presence of a non-shared decision-making ability that enables the holder/investor to guide the on-going activities of its investment. Further, control gives the holder the power to increase the benefits that it derives and limit the losses it suffers from the activities of that investment. Joint control exists when no party in a venture is in a position to control unilaterally the economic activity, that is, no single party has the capacity to dominate the financing and operating decisions. Joint control will in fact exist where two or more parties together have the capacity to dominate the major decisions. The right of joint control gives the investor much more than a non-controlling interest, however, it does not give the investor the ability to control the individual assets or activities, nor does it make the investor primarily responsible for any liabilities of the venture. The underlying principles of the above discussion are considered to be consistent with those of FRS 1272004, Consolidated Financial Statements and Investments in Subsidiaries.
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