FESA CONSOL

FlexSystem

IFRS 11: Joint Arrangements

Issues

Proportional consolidation becomes history when IFRS 11 becomes effective in 2013. The accounting for joint venture or joint operations becomes more sophisticated as proportional consolidation will no longer be an acceptable accounting practice under IFRS 11. According to BC32 of IFRS 11, there are two key differences between recognizing assets relating to the activity of the joint operation compared with proportional consolidation.

These differences are:

  The IFRS requires an entity with an interest in a joint operation to recognize assets, liabilities, revenues and expenses according to the entity’s shares of the joint operation as determined and specified in the contractual arrangement, rather than basing calculations on the ownership interest that the entity has in that joint operation.

  The parties’ interests in a joint operation are recognized in their separate financial statements rather than in the consolidated financial statements despite relevant information being captured from the legal entity which is operating the joint operations.

  

Expectations

Increase in complexity to deal with accounting for joint ventures is expected as proportional consolidation is no longer an acceptable accounting practice upon implementation of IFRS 11. There will be high demand for automation of accounting for joint ventures when the same group of joint ventures are classified as joint operations rather than joint ventures under the requirement of IFRS 11 so, both proportional consolidation and equity method will not allowed under this situation.

  

Solutions

The strength of FESA Consol is not limited to group consolidation as defined by IFRS as FESA Consol has a built-in account allocation engine to deal with complex account allocations for joint operations. User can opt to create a separate ledger to collect and store all relevant allocated account balance for each joint operation or absorb the same set of data into the ledger of the holding company.

  

Benefits

Benefits The incremental return on investment of FESA Consol is accelerated when the decision maker opts to maximize the usage of FESA Consol for different areas of computerization as the functionality of FESA Consol will help in the collection of all or sub sets of financial and non-financial information.