ASBE No. 40
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Joint Venture Arrangements (Joint Arrangements)
Joint Venture Arrangements (Joint Arrangements) is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Two genuinely different accounting outcomes based on the arrangement's rights and obligations
ASBE No. 40 governs ARRANGEMENTS in WHICH TWO or MORE parties HAVE JOINT control – CLASSIFYING each ARRANGEMENT as EITHER a "JOINT OPERATION" or a "JOINT VENTURE," EACH requiring a GENUINELY different accounting TREATMENT. THE Standard is CLOSELY converged with IFRS 11 internationally.
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Scope
Arrangements subject to joint control
This Standard applies to ARRANGEMENTS where TWO or MORE parties HAVE joint CONTROL – DECISIONS about RELEVANT activities REQUIRING the UNANIMOUS consent of the PARTIES sharing CONTROL.
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Joint Control – the Threshold Requirement
Unanimous consent required for relevant decisions
JOINT control EXISTS ONLY where DECISIONS about the ARRANGEMENT'S RELEVANT activities REQUIRE the UNANIMOUS consent of the PARTIES sharing CONTROL – a HIGHER threshold than MERE significant INFLUENCE (see the COMPANION ASBE No. 2 poster), since NO single PARTY can UNILATERALLY direct the ARRANGEMENT'S key DECISIONS.
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Two Types of Joint Arrangement
Joint operations vs joint ventures
TypeDescription
Joint operationParties have RIGHTS to the ASSETS and OBLIGATIONS for the LIABILITIES of the ARRANGEMENT DIRECTLY
Joint ventureParties have RIGHTS to the NET assets of the ARRANGEMENT (TYPICALLY through a SEPARATE legal VEHICLE)
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Joint Operations – Recognising Your Own Share Directly
Line-by-line recognition of the operator's own interest
A JOINT OPERATOR recognises ITS OWN share of the ASSETS, LIABILITIES, revenue, and EXPENSES of the JOINT operation DIRECTLY, LINE-by-line – CONSISTENT with ITS OWN direct RIGHTS and OBLIGATIONS UNDER the arrangement, RATHER than APPLYING the equity METHOD.
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Joint Ventures – the Equity Method
The same treatment as an associate
A JOINT VENTURER accounts FOR its INTEREST in a JOINT venture USING the EQUITY method – the SAME approach APPLIED to associates UNDER ASBE No. 2 (see the COMPANION poster), adjusting the INVESTMENT for the VENTURER'S share of the JOINT venture'S profit OR loss and OTHER equity changes.
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Classifying an Arrangement – Structure, Terms, and Other Facts
Legal form is a starting point, not the final answer
CLASSIFYING an ARRANGEMENT as a JOINT operation OR joint VENTURE requires CONSIDERING the ARRANGEMENT'S STRUCTURE (WHETHER a SEPARATE legal VEHICLE exists), its LEGAL form, the CONTRACTUAL terms AGREED by the PARTIES, and ANY other RELEVANT facts and CIRCUMSTANCES – a SEPARATE legal VEHICLE is a NECESSARY, but NOT sufficient, CONDITION for JOINT venture CLASSIFICATION.
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Worked Example – a Joint Operation
Recognising a direct share of assets and liabilities
Example: A jointly operated pipeline
Two companies jointly operate a pipeline under an unincorporated contractual arrangement, each entitled to 50% of the pipeline's capacity and directly liable for 50% of its operating costs, with no separate legal entity established.
EACH company recognises ITS OWN 50% share of the PIPELINE'S assets, LIABILITIES, revenue, and EXPENSES DIRECTLY WITHIN its OWN financial STATEMENTS – a JOINT OPERATION, GIVEN the DIRECT rights and OBLIGATIONS involved.
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Worked Example – a Joint Venture
Applying the equity method to a jointly controlled entity
Example: A jointly owned incorporated venture
Two companies establish a separate incorporated joint venture company, each holding 50% of its shares, with joint control over its relevant activities requiring unanimous consent.
EACH company accounts FOR its 50% interest USING the EQUITY method – recognising ITS SHARE of the JOINT venture'S profit or LOSS as INVESTMENT income, RATHER than recognising a DIRECT share of the UNDERLYING assets and LIABILITIES.
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Disclosure Requirements
What ASBE No. 40 requires
Classification of the arrangement as a joint operation or joint venture, and the basis for that judgementNature, extent, and financial effects of interests in joint arrangements
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether an arrangement is genuinely subject to joint controlClassifying an arrangement as a joint operation or joint venture
SIGNIFICANT ESTIMATES
Fair value of a joint venture investee's identifiable net assets, where relevant to impairment assessment
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Relationship to IFRS 11
Comparison – ASBE 40 vs IFRS 11
FeatureASBE 40IFRS 11
Joint operation vs joint venture splitYESYES – converged
Joint venture measurementEquity methodEquity method – converged
A GENUINELY thoroughly CONVERGED standard, MIRRORING IFRS 11'S own TWO-category classification CLOSELY.
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Statement Mapping
Where every joint arrangement event lands
EventStatement(s) affectedNotes
Joint operation shareBS ISLine-by-line recognition of own share
Joint venture interestBS ISEquity method – single-line investment
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 2Long-term Equity Investments – supplies the equity method mechanics this Standard applies to joint ventures
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Quick-Reference Glossary
Joint operation
A joint arrangement in which the parties have direct rights to the assets and obligations for the liabilities, recognised line-by-line.
Joint venture
A joint arrangement in which the parties have rights only to the net assets, typically through a separate legal vehicle, accounted for using the equity method.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 40 Joint Venture Arrangements (Joint Arrangements) issued
Operative for periods beginning on or after 1 February 2007