1. International Financial Reporting Standards The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org Quiz: Associates and joint arrangements Joint World Bank and IFRS Foundation ‘train the trainers’ workshop hosted by the ECCB, 30 April to 4 May 2012

2. 2 Case 1 Joint Operation or Joint Venture? A and B (the parties) are two companies in the construction industry. Contractual arrangement to work together for the purpose of fulfilling a contract with a government for the design and construction of a road between two cities. The contractual arrangement establishes joint control. A and B set up a separate vehicle (Z) through which to conduct the arrangement. The main feature of entity Z’s legal form is that the parties, not entity Z, have rights to the assets, and obligations for the liabilities, of the entity. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

3. 3 The contractual arrangement between A and B additionally establishes that: the rights to all the assets needed to undertake the activities of the arrangement are shared by the parties on the basis of their participation in the arrangement; the parties have several responsibility for all operating and financial obligations relating to the activities of the arrangement on the basis of their participation shares in the arrangement; and the profit or loss resulting from the activities of the arrangement is shared by A and B on the basis of their participation shares in the arrangement. Case 1 continued Joint Operation or Joint Venture? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

4. Separate vehicles Contractual terms Other Legal form Yes No Yes Joint Venture Joint Operation 4 Do the parties have rights to the assets and obligations for the liabilities? Do the parties have contractual rights to the assets, and obligations for the liabilities? Is the arrangement designed so: a)Its activities primarily aim to provide parties with an output, and (b) It depends on the parties for settling liabilities? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

5. 5 Separate vehicle – JV? Legal form of the separate vehicle? Parties have the rights to assets and liabilities of the separate vehicle Likely to be a joint operation Case 1 continued Joint Operation or Joint Venture? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

6. 6 Case 2 Joint Operation or Joint Venture? A and B (the parties) set up a separate vehicle (entity H) and a Joint Operating Agreement (JOA) to undertake oil and gas exploration, development and production activities. The main feature of entity H’s legal form is that it causes the separate vehicle to be considered in its own right. The JOA specifies that the rights and obligations arising from the exploration, development and production activities shall be shared (ie the permits, the production obtained, all costs associated with the activities, taxes payable, etc). © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

7. Separate vehicles Contractual terms Other Legal form Yes No Yes Joint Venture Joint Operation 7 Do the parties have rights to the assets and obligations for the liabilities? Do the parties have contractual rights to the assets, and obligations for the liabilities? Is the arrangement designed so: a)Its activities primarily aim to provide parties with an output, and (b) It depends on the parties for settling liabilities? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

8. 8 Case 2 continued Joint Operation or Joint Venture? Separate vehicle Has rights to own assets and liabilties Contractual rights? Specifies that rights and obligations shall be shared by the parties Link to the objective of a joint operation—assets and liabilities that rightly belong on the entity’s statement of financial position must be recognised Likely to be a joint operation © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

9. 9 Case 3 Joint Operation or Joint Venture? Banks A and B (the parties) agreed to combine their corporate, investment banking, asset management and services activities by establishing a separate vehicle (bank C). The main feature of bank C’s legal form is that it causes the separate vehicle to be considered in its own right. Banks A and B each have a 40 per cent ownership interest in bank C, with the remaining 20 per cent being listed and widely held. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

10. 10 Band A and bank B entered into an irrevocable agreement under which, even in the event of a dispute, both banks agree to provide the necessary funds in equal amounts and, if required, jointly and severally, to ensure that bank C complies with the applicable legislation and banking regulations, and honours any commitments made to the banking authorities. This commitment represents the assumption by each party of 50 per cent of any funds needed to ensure that bank C complies with legislation and banking regulations. The terms of the contractual arrangement do not specify that the parties have rights to the assets, or obligations for the liabilities, of bank C. Case 3 continued Joint Operation or Joint Venture? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

11. Separate vehicles Contractual terms Other Legal form Yes No Yes Joint Venture Joint Operation 11 Do the parties have rights to the assets and obligations for the liabilities? Do the parties have contractual rights to the assets, and obligations for the liabilities? Is the arrangement designed so: a)Its activities primarily aim to provide parties with an output, and (b) It depends on the parties for settling liabilities? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

12. 12 Separate vehicle Vehicle’s assets and liabilities considered in own right Specific facts and circumstances Agreement exposes the entities to risk Extent and probability of exposure? Likely to be a JV BUT, if not probable—similar to a financial guarantee contract (is fee paid by Bank C?) Case 3 continued Joint Operation or Joint Venture? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

13. 13 Case 4 Joint Operation or Joint Venture? Two parties structure a joint arrangement in an incorporated entity (entity C) in which each party has a 50 per cent ownership interest. The purpose of the arrangement is to manufacture materials required by the parties for their own individual manufacturing processes. The legal form of entity C (an incorporated entity) through which the activities are conducted initially indicates that the assets and liabilities held in entity C are the assets and liabilities of entity C. The contractual arrangement between the parties does not specify that the parties have rights to the assets or obligations for the liabilities of entity C. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

14. 14 Case 4 continued Joint Operation or Joint Venture? The parties agreed to purchase all the output produced by entity C in a ratio of 50:50. Entity C cannot sell any of the output to third parties, unless this is approved by the two parties to the arrangement. Because the purpose of the arrangement is to provide the parties with output they require, such sales to third parties are expected to be uncommon and not material. The price of the output sold to the parties is set by both parties at a level that is designed to cover the costs of production and administrative expenses incurred by entity C. On the basis of this operating model, the arrangement is intended to operate at a break-even level. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

15. Separate vehicles Contractual terms Other Legal form Yes No Yes Joint Venture Joint Operation 15 Do the parties have rights to the assets and obligations for the liabilities? Do the parties have contractual rights to the assets, and obligations for the liabilities? Is the arrangement designed so: a)Its activities primarily aim to provide parties with an output, and (b) It depends on the parties for settling liabilities? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

16. 16 Case 4 continued Joint Operation or Joint Venture? Separate legal entity Agreement provides rights to underlying assets and obligation for underlying liabilities Agreement requires entities to buy production at cost: Risk is carried by parties—have to pay production cost Therefore, vehicle won’t be profitable If losses—risk borne by entities Likely to be a joint operation © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

17. 17 Quiz: Associates, joint ventures and joint arrangements Question 1: Which of the following provide evidence to support the existence of significant influence by an investor? a.representation on board of directors? b.material transactions between the investor and the investee? c.interchange of managerial personnel? d.provision of essential technical info? e.all of the above? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

18. 18 Quiz: Associates, joint ventures and joint arrangements Question 1: Which of the following provide evidence to support the existence of significant influence by an investor? a.representation on board of directors? b.material transactions between the investor and the investee? c.interchange of managerial personnel? d.provision of essential technical info? e.all of the above? © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

19. 19 Quiz: Associates, joint ventures and joint arrangements Question 2: An investor (that uses full IFRSs) in a joint venture has joint control accounts for that investment using the equity method unless: a.Investor is a parent and the scope exemption in paragraph 4(a) of IFRS 10 b.A venture capital organisation or similar entity can elect to measure its investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9. c.Both a. and b. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

20. 20 Quiz: Associates, joint ventures and joint arrangements Question 2: An investor (that uses full IFRSs) in a joint venture has joint control accounts for that investment using the equity method unless: a.Investor is a parent and the scope exemption in paragraph 4(a) of IFRS 10 b.A venture capital organisation or similar entity can elect to measure its investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9. c.Both a. and b. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

21. 21 Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

22. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 22 The requirements are set out in International Financial Reporting Standards (IFRSs), as issued by the IASB at 1 January 2012 with an effective date after 1 January 2012 but not the IFRSs they will replace. The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise. 22 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org