IAS 31
Superseded
Interests in Joint Ventures
Accounting for interests in joint ventures, including jointly controlled operations/assets/entities, proportionate consolidation and the equity method. Withdrawn and replaced by IFRS 11 Joint Arrangements.
Superseded Standard
IAS 31 was withdrawn and replaced by IFRS 11 Joint Arrangements (together with IFRS 10 and the revised IAS 28), effective for periods beginning on or after 1 January 2013.
It is retained here for historical reference and because its proportionate consolidation vs equity method distinction remains a useful conceptual bridge to IFRS 11's joint operation/joint venture split. For current joint arrangement accounting, always apply IFRS 11.
Current Standard
IFRS 11 Joint Arrangements 1
Conceptual Framework Linkage
Why joint control needed its own recognition logic
The Conceptual Framework's control-based consolidation logic works cleanly when ONE party controls an investee. Joint control – where NO single party controls, but a defined group of parties together do, requiring unanimous consent – needed a DIFFERENT mechanism to faithfully represent each venturer's genuine share of the arrangement's resources and obligations.
HOW IAS 31 MAPPED TO THE FRAMEWORK
Substance over form – IAS 31 classified joint ventures by their ECONOMIC STRUCTURE (operations, assets, or entities) rather than by legal form alone, since the appropriate accounting genuinely differed based on what was actually being jointly controlled Faithful representation – proportionate consolidation (Section 6) aimed to show each venturer's OWN SHARE of the joint venture's assets, liabilities, income, and expenses, directly on its own financial statements – a more granular representation than the single "net investment" line the equity method provides Choice as an information trade-off – offering proportionate consolidation AND the equity method as free alternatives reflected differing views on which better served users, a debate IFRS 11 later resolved by choice restriction
IAS 31's genuine POLICY CHOICE between proportionate consolidation and the equity method for jointly controlled entities was itself controversial – critics argued it reduced comparability between entities making different (equally valid) elections for economically similar arrangements, a key driver behind IFRS 11's reform.
Measurement principles applied by IAS 31
IAS 31's THREE-way structural classification drove fundamentally different measurement treatments, unlike the single equity-method approach IFRS 11 later adopted for joint ventures.
StructureMeasurement approach
Jointly controlled operationsVenturer recognises its OWN assets, liabilities, expenses, and share of income directly – no separate entity exists
Jointly controlled assetsVenturer recognises its SHARE of the jointly controlled assets and any liabilities it incurs directly
Jointly controlled entitiesVenturer's CHOICE: proportionate consolidation OR equity method
Qualitative characteristics in action: allowing a genuine choice for jointly controlled entities traded off comparability (different entities could report the SAME economic arrangement differently) for greater PREPARER flexibility – ultimately judged by IFRS 11 to tilt too far away from comparability.
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Scope & Applicability (Historical)
What IAS 31 covered
IAS 31 applied to accounting for interests in joint ventures, and the reporting of joint venture assets, liabilities, income, and expenses in the financial statements of venturers and investors, REGARDLESS of the structures or forms under which the joint venture activities took place.
This general applicability, and the underlying "joint control" concept itself, was carried forward into IFRS 11 – the core CONTROL threshold definition did not fundamentally change; only the accounting CONSEQUENCE of that classification did.
Key definitions you must know
Joint venture
A contractual arrangement whereby two or more parties undertake an economic activity that is subject to JOINT CONTROL.
Joint control
The contractually agreed sharing of control over an economic activity, existing only when the strategic financial and operating decisions relating to the activity require the UNANIMOUS consent of the parties sharing control.
Venturer
A party to a joint venture that has joint control over that joint venture.
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The Three Forms of Joint Venture
Classification by economic structure, not just legal form
IAS 31 identified THREE distinct structural forms a joint venture could take, each with its own accounting treatment – a critical distinction from IFRS 11's later binary classification (joint operation vs joint venture).
1. Jointly controlled operations
Involves the use of the venturers' OWN assets rather than establishing a separate entity – e.g. combining manufacturing/marketing resources under a contractual arrangement to share output/revenue/costs.
2. Jointly controlled assets
Involves JOINT CONTROL, and often joint OWNERSHIP, of one or more assets contributed to/acquired for the joint venture – e.g. a jointly owned oil pipeline, with each venturer taking a share of output.
3. Jointly controlled entities
Involves the establishment of a CORPORATION, PARTNERSHIP, or other entity in which each venturer has an interest – the entity itself owns the assets, incurs liabilities, and controls the economic activity.
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Jointly Controlled Operations (with worked example)
No separate accounting records for the joint venture itself
A venturer recognises, in respect of its interest in a jointly controlled operation, in its OWN financial statements: the ASSETS it controls, the LIABILITIES it incurs, the EXPENSES it incurs, and its SHARE of the income earned from the sale of goods/services by the joint venture – no separate accounting records for the joint venture itself are needed.
Example 1: Two manufacturers jointly marketing a product
Two companies agree to jointly manufacture and market a product, each contributing their own manufacturing facilities and bearing their own respective costs, sharing REVENUE from combined sales 50/50 per the contractual arrangement. Company A's own manufacturing costs for the period: $400,000. Total combined sales revenue: $1,200,000.
Company A recognises its OWN assets (its manufacturing facility) and its OWN expenses ($400,000) directly in its own financial statements, PLUS its contractual share of revenue = 1,200,000 × 50% = $600,000 – no separate joint venture entity or set of books exists at all.
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Jointly Controlled Assets
Recognising a proportionate share directly
In respect of its interest in a jointly controlled asset, a venturer recognises, in its own financial statements: its SHARE of the jointly controlled assets, classified according to the asset's nature; any LIABILITIES it has incurred; its SHARE of any liabilities incurred JOINTLY with the other venturers; any INCOME from the sale/use of its share of the joint venture's output, together with its share of any expenses incurred by the joint venture; and any EXPENSES it has incurred in respect of its interest.
This treatment is essentially "look through" the joint arrangement structure entirely – each venturer accounts for its OWN proportionate slice of assets, liabilities, income, and expenses, without any consolidation mechanics whatsoever.
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Jointly Controlled Entities – Proportionate Consolidation (with worked example)
The benchmark treatment IFRS 11 abolished
Under PROPORTIONATE CONSOLIDATION, a venturer's SOFP included its share of the assets it JOINTLY controlled and its share of the liabilities for which it was jointly responsible; its SOPL included its share of the income and expenses of the jointly controlled entity – LINE BY LINE, combined with similar items in the venturer's own financial statements, or reported as separate line items.
Example 2: Proportionate consolidation of a 40%-owned jointly controlled entity
A venturer holds a 40% interest in a jointly controlled entity. The entity's own financial statements show: total assets $5,000,000, total liabilities $2,000,000, revenue $3,000,000, and expenses $2,400,000.
Venturer's share, brought into its own SOFP/SOPL LINE BY LINE:
Assets: 5,000,000 × 40% = $2,000,000
Liabilities: 2,000,000 × 40% = $800,000
Revenue: 3,000,000 × 40% = $1,200,000
Expenses: 2,400,000 × 40% = $960,000
Assets: 5,000,000 × 40% = $2,000,000
Liabilities: 2,000,000 × 40% = $800,000
Revenue: 3,000,000 × 40% = $1,200,000
Expenses: 2,400,000 × 40% = $960,000
This LINE-BY-LINE proportionate combination is the single feature IFRS 11 completely eliminated for joint ventures (as opposed to joint operations) – joint ventures under IFRS 11 are now accounted for ONLY via the equity method, a single net investment line, never proportionate consolidation.
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The Equity Method Alternative
The permitted alternative treatment for jointly controlled entities
IAS 31 permitted the EQUITY METHOD (per IAS 28's mechanics) as an ALTERNATIVE to proportionate consolidation for interests in jointly controlled entities – a genuine, unrestricted policy choice available to ALL venturers, applied consistently to all jointly controlled entity interests.
This equity-method ALTERNATIVE, once optional under IAS 31, became the ONLY permitted treatment for joint ventures under IFRS 11 – effectively, IFRS 11 removed the proportionate consolidation choice entirely rather than removing the equity method.
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Transactions Between a Venturer and a Joint Venture
Unrealised profit elimination – to the extent of the venturer's own interest
When a venturer contributed or sold assets to a joint venture, recognition of any portion of a gain/loss resulting from the transaction reflected the SUBSTANCE of the transaction – the venturer recognised only the portion of the gain/loss ATTRIBUTABLE to the interests of the OTHER venturers, similar in spirit to the IAS 28 equity method's upstream/downstream unrealised profit elimination logic.
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Disclosure Requirements (Historical)
Required disclosures
GENERAL DISCLOSURES
A list and description of interests in significant joint ventures, and the proportion of ownership interest held The method used to recognise interests in jointly controlled entities (proportionate consolidation or equity method)
AGGREGATE AMOUNTS DISCLOSURES
The aggregate amount of current/non-current assets, liabilities, income, and expenses related to interests in jointly controlled entities Contingent liabilities and capital commitments in respect of interests in joint ventures
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Critical Judgments & Estimates (Historical)
Where management judgement mattered most
SIGNIFICANT JUDGEMENTS
Whether genuine JOINT control (requiring unanimous consent) existed, versus control by a single party or mere significant influence Classifying the arrangement as a jointly controlled operation, asset, or entity, based on its actual economic structure Which measurement policy (proportionate consolidation or equity method) to elect for jointly controlled entities
SIGNIFICANT ESTIMATES
Fair value of assets contributed to a jointly controlled entity, for determining gain/loss recognition on contribution Allocation of jointly incurred liabilities between venturers under jointly controlled asset arrangements
The free CHOICE between proportionate consolidation and the equity method for economically IDENTICAL jointly controlled entities was itself a significant comparability weakness – different venturers in the SAME joint venture could report completely different SOFP/SOPL presentations of the same underlying economic interest.
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IAS 31 vs IFRS 11 – What Changed
Comparison – the transition from IAS 31 to IFRS 11
FeatureIAS 31 (superseded)IFRS 11 (current)
Classification structureTHREE forms: jointly controlled operations, assets, and entitiesTWO categories: joint operations and joint ventures, classified by RIGHTS AND OBLIGATIONS rather than legal structure alone
Jointly controlled entity accountingCHOICE: proportionate consolidation OR equity methodNO choice – joint ventures MUST use the equity method only; proportionate consolidation is entirely ELIMINATED
Joint operationsBroadly equivalent to "jointly controlled operations/assets"Each party recognises its own share of assets, liabilities, revenue, and expenses directly – very similar in substance to IAS 31's treatment of jointly controlled assets/operations
Classification driverLegal/structural form of the arrangement (operation, asset, or entity)The PARTIES' rights and obligations arising from the arrangement (substance-focused, even for a separate vehicle)
The single most important change was the ELIMINATION of proportionate consolidation as an option for joint ventures – IFRS 11 concluded that a single equity-method line better represented a venturer's genuine (non-controlling) interest than gross proportionate line items, resolving IAS 31's comparability weakness by removing the choice entirely.
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Statement Mapping – Where Every Joint Venture Event Landed (Historical, Under IAS 31)
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
Jointly controlled operation – own assets/expensesSOFP SOPLRecognised directly, as the venturer's own items
Jointly controlled operation – share of joint incomeSOPLVenturer's contractual share recognised directly
Jointly controlled asset – share recognisedSOFPClassified by the asset's nature, alongside similar owned assets
Jointly controlled entity – proportionate consolidationSOFP SOPLShare of EVERY line item combined proportionately
Jointly controlled entity – equity method electedSOFP SOPLSingle net investment line, per IAS 28 mechanics
Contribution of assets to a joint ventureSOPL SOFPGain recognised only to the extent attributable to OTHER venturers' interests
Cash flows from the jointly controlled arrangementCash Flow StatementProportionate share included if proportionate consolidation was elected
List of significant joint ventures, method electedNotesMandatory disclosure
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Related Standards – Cross-Reference Map
How IAS 31's legacy connects across the IFRS body of literature
StandardNature of the connection
IFRS 11The DIRECT successor standard – eliminated proportionate consolidation, mandating the equity method for all joint ventures
IAS 28Supplied the equity method mechanics that were an OPTIONAL alternative under IAS 31, and are now the MANDATORY treatment for joint ventures under IFRS 11
IFRS 10Supplied the "control" concept distinguishing subsidiaries (full consolidation) from joint ventures (joint control, no single controller)
IFRS 12Now supplies the extensive disclosure requirements about interests in joint arrangements, replacing IAS 31's own disclosure section
IAS 24Joint ventures are explicitly identified as related parties of the venturer, requiring transaction and balance disclosures
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Quick-Reference Glossary
Proportionate consolidation
A method of accounting whereby a venturer's share of each of the assets, liabilities, income, and expenses of a jointly controlled entity is combined LINE BY LINE with similar items in the venturer's own financial statements, or reported as separate line items – now abolished under IFRS 11.
Jointly controlled entity
A joint venture involving the establishment of a corporation, partnership, or other entity in which each venturer has an interest.
Jointly controlled operations
A joint venture involving the use of the venturers' own assets and resources, rather than the establishment of a separate entity.
Jointly controlled assets
A joint venture involving joint control, and often joint ownership, of one or more assets contributed to, or acquired for, the purposes of the joint venture.
Investor in a joint venture
A party to a joint venture that does NOT have joint control over that joint venture – distinct from a 'venturer,' which does have joint control.
Contractual arrangement
The agreement (often in writing) establishing joint control, distinguishing a joint venture from mere significant influence over an associate.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows