Applying IFRS

Final joint arrangements and consolidation standards Mining and metals

Impact of the new joint arrangements and consolidation standards

August 2011

2011 Europe, Middle East, India and Africa tax policy outlook

Introduction
What you need to know
IFRS 10 `Yk Y f]o \]falagf g^ [gfljgd Yf\ `Yk additional requirements that could impact any previous Ykk]kke]fl g^ [gfljgd Yf\ bgafl [gfljgd IFRS 11 \]k[jaZ]k l`] Y[[gmflaf_ ^gj YjjYf_]e]flk af which there is joint control; proportionate consolidation ak fgl h]jeall]\ ^gj bgafl n]flmj]k Yk f]odq \]f]\! IFRS 12 j]imaj]k f]o Yf\ ]phYf\]\ \ak[dgkmj]k ^gj bgafl YjjYf_]e]flk$ Yk o]dd Yk ^gj kmZka\aYja]k$ Ykkg[aYl]k and structured entities, which will impact processes and systems L`] k]Yj[` ^gj _jgol` ak d]Y\af_ eafaf_ Yf\ e]lYdk ]flala]k lg af[j]Yk] l`]aj Yhh]lal] ^gj jakc& L`ak ak eYfa^]klaf_ alk]d^ Zq bringing in partners to source new projects, improve mladakYlagf g^ ]ph]fkan] af^jYkljm[lmj]$ `]dh eYfY_] l][`fa[Yd gj hgdala[Yd jakc$ gj [gehdq oal` dg[Yd j]_mdYlagfk& Lg l`ak ]f\$ joint arrangements have always been, and continue to be, a common structure in the mining and metals sector. The eYbgjalq g^ eafaf_ Yf\ e]lYdk ]flala]k Yj] hYjlq lg Yl d]Ykl gf] bgafl YjjYf_]e]fl& Af ^Y[l$ af l`] n]%egfl` h]jag\ ]f\af_ EYq *())$ ,1 g^ Ydd E9 ljYfkY[lagfk oal`af l`] sector involved projects with multiple parties. @go]n]j$ ^gj kge] bgafl YjjYf_]e]flk$ l`] Y[[gmflaf_ ak YZgml lg [`Yf_] ka_fa[Yfldq$ Yf\ fgl Ydd YjjYf_]e]flk commonly described as joint ventures or bgafl YjjYf_]e]flk oadd [gflafm] lg Z] Y[[gmfl]\ ^gj Yk af l`] hYkl$ kg [Yj]^md Ykk]kke]fl oadd Z] j]imaj]\&

Whats happened?
The International Accounting Standards Boar\ A9K:! j][]fldq issued a new standard IFRS 11 Joint Arrangements. They also issued two other new standards IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities. L`]k] f]o klYf\Yj\k Yj] ]^^][lan] ^gj YffmYd h]jag\k Z]_affaf_ gf gj Y^l]j ) BYfmYjq *()+$ Yf\ emkl Z] Yhhda]\ j]ljgkh][lan]dq& Af l`ak hmZda[Ylagf$ o] [gf[]fljYl] gf kge] g^ l`] aehda[Ylagfk g^ A>JK )( Yf\ A>JK )) l`Yl Yj] kh][a[ lg l`] eafaf_ Yf\ e]lYdk k][lgj& >gj Y egj] [gehd]l] kmeeYjq g^ l`]k] f]o klYf\Yj\k Yf\ l`] aehY[lk gf qgmj Zmkaf]kk$ j]^]j lg gmj hmZda[Ylagf$ IFRS Developments IASB issues three new standards: Consolidated Financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities$ Akkm] ) EYq *())! Yf\ our publication IFRS Practical matters What do the new consolidation, joint arrangements and disclosures accounting standards mean to you? EYq *())!& L`]k] hmZda[Ylagfk Yj] YnYadYZd] Yl ooo&]q&[ge'A>JK&

Whats the impact?

9 [gf^mkaf_ hYjl g^ l`] [`Yf_]k ak l`] mk] g^ l]jeafgdg_q l`Yl ak common in practice versus that within the new accounting klYf\Yj\k& L`] oYq af o`a[` Y fmeZ]j g^ [geegf l]jek Yj] fgo Z]af_ \]f]\ eYq fgl Z] gZnagmk Kge] hjghgjlagfYl]dq [gfkgda\Yl]\ bgafldq [gfljgdd]\ ]flala]k B;=k! eYq fgo Z] [dYkka]\ Yk bgafl n]flmj]k Yf\ oadd `Yn] lg Z] Y[[gmfl]\ ^gj mkaf_ l`] ]imalq e]l`g\ ;gfn]jk]dq$ kge] ]imalq Y[[gmfl]\ B;=k eYq fgo Z] [dYkka]\ as joint operations and an entity will need to recognise its assets, daYZadala]k$ j]n]fm]k Yf\ ]ph]fk]k Yf\'gj alk j]dYlan] k`Yj] l`]j]g^ L`]k] [`Yf_]k oadd aehY[l l`] hj]k]flYlagf g^ fYf[aYd statements, and in some instances, there may also be e]Ykmj]e]fl \a^^]j]f[]k o`a[` oadd Y^^][l hjgl gj dgkk Yf\'gj net assets 9[[gmflaf_ Yf\ [gfkgda\Ylagf kqkl]ek$ Zmkaf]kk hjg[]kk]k Yf\ controls may need to be updated, and there may be impacts on gl`]j Yj]Yk g^ l`] Zmkaf]kk$ km[` Yk [gn]fYflk$ j]emf]jYlagf structures, etc.

Contents
1. 2. +& Overview Clarifying the confusion ... new terms, new concepts F]o \]falagf g^ bgafl [gfljgd +&) +&* +&+ 4. <]l]jeafYlagf g^ [gfljgd aehY[l g^ [`Yf_]k lg l`] [gfkgda\Ylagf klYf\Yj\ O`Yl Yj] j]d]nYfl Y[lanala]k7 MfYfaegmk [gfk]fl o`Yl \g]k l`ak e]Yf7 04 04 05 05 07 08 09 (1 (1 10 10 11 11 11 12 12 12 13 13

Differences between joint ventures and joint operations ,&) ,&* ,&+ ,&, Bgafl gh]jYlagfk Bgafl n]flmj]k ;dYja^qaf_ l`] Y[[gmflaf_ o`Yl ak hjghgjlagfYl] [gfkgda\Ylagf7 L`] aehY[l g^ Y [`Yf_] af [dYkka[Ylagf mhgf ljYfkalagf

5.

Gross vs net what should I recognise? -&) -&* -&+ Gh]jYlgjk g^ bgafl YjjYf_]e]flk Fgf%gh]jYlgjk Bgafl Yf\ k]n]jYd daYZadalq

6.

So what if I dont have joint control or control? .&) A\]fla^qaf_ Yf\ Ykk]kkaf_ l`] ja_`lk Yf\ gZda_Ylagfk

7. 8.

New disclosures more information; impact on processes and systems Final thoughts

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

Many read the headline Proportionate consolidation is no longer permitted for joint ventures and interpret this to mean that all interests in joint arrangements must now be accounted for using the equity method this is not correct.

1. Overview
A>JK )) hj]k[jaZ]k l`] Y[[gmflaf_ ^gj Y bgafl YjjYf_]e]fl$ o`a[` ak \]f]\ Yk Y [gfljY[lmYd YjjYf_]e]fl gn]j o`a[` log gj egj] parties have joint control, as illustrated in diagram 1. It is important l`Yl ]flala]k mf\]jklYf\ l`] aehda[Ylagfk Yf\ afl]jhdYq g^ Zgl` A>JK )( Yf\ A>JK )) lg ]fkmj] l`] hjgh]j Ykk]kke]fl g^$ Yf\ Y[[gmflaf_ ^gj$ [mjj]fl Yf\ ^mlmj] bgafl YjjYf_]e]flk&
Diagram 1 Is it a joint arrangement? <g]k l`] [gfljY[lmYd YjjYf_]e]fl _an] Ydd l`] hYjla]k gj Y _jgmh g^ l`] hYjla]k!" [gfljgd g^ l`] bgafl YjjYf_]e]fl [gdd][lan]dq7 Yes <g l`] \][akagfk YZgml l`] j]d]nYfl activities require the unanimous [gfk]fl g^ Ydd l`] hYjla]k l`Yl [gdd][lan]dq [gfljgd l`] YjjYf_]e]fl7 Yes Bgafl YjjYf_]e]fl
*The reference to a group of the parties refers to a situation in which there is joint control between two or more parties, but other parties to the joint arrangement are passive investors (i.e., there are other parties in the arrangement who do not have joint control). While such investors are technically within the scope of IFRS 11, they account for their investment in accordance with the relevant standards.

2. Clarifying the confusion ... new terms, new concepts

A>JK )) `Yk lYc]f kge] [geegfdq mk]\ l]jek Yf\ _an]f l`]e \a^^]j]fl e]Yfaf_k& L`ak ak Ydj]Y\q [Ymkaf_ [gfka\]jYZd] [gf^mkagf& >gj ]pYehd]$ o`Yl eYfq af l`] k][lgj ogmd\ j]^]j lg Yk bgafl n]flmj]k Yj] fgo [gdd][lan]dq j]^]jj]\ lg Yk bgafl YjjYf_]e]flk3 l`] l]je bgafl n]flmj] ak fgo fYjjgodq \]f]\ af A>JK ))& Dac]oak]$ l`] l]je hjghgjlagfYl] [gfkgda\Ylagf `Yk Z]]f Yf\ kladd ak! mk]\ lg [YkmYddq \]k[jaZ] Ydd e]l`g\k g^ bgafl n]flmj] Y[[gmflaf_ o`]j] Yf ]flalq j][g_fak]k alk k`Yj] g^ l`] Ykk]lk Yf\ daYZadala]k g^ l`] bgafl n]flmj]& @go]n]j$ ^jge Yf Y[[gmflaf_ h]jkh][lan]$ l`ak l]je e]Yfk kge]l`af_ imal] kh][a[ Yf\ ak fgl j]][lan] g^ l`] accounting treatment that currently applies to jointly controlled Ykk]lk B;9k! Yf\ bgafldq [gfljgdd]\ gh]jYlagfk B;Gk! mf\]j A9K +)$ Yf\ l`Yl o`a[` oadd Yhhdq lg bgafl gh]jYlagfk mf\]j A>JK ))& <m] lg l`] [`Yf_] af \]falagfk Yf\ l`] eakmf\]jklYf\af_ g^ o`Yl hjghgjlagfYl] [gfkgda\Ylagf Yf\ B;9'B;G Y[[gmflaf_ ak$ al eYq fgl Z] [d]Yj o`Yl l`] aehY[l g^ l`ak f]o klYf\Yj\ ak&

No Outside the k[gh] g^ A>JK )) fgl Y bgafl YjjYf_]e]fl! No

9dl`gm_` l`] lald] g^ l`] klYf\Yj\ `Yk [`Yf_]\ a&]&$ ^jge bgafl n]flmj]k lg bgafl YjjYf_]e]flk! Yf\ ea_`l af\a[Yl] gl`]joak]$ A>JK )) \g]k fgl ZjgY\]f l`] k[gh] g^ l`] klYf\Yj\ o`]f [gehYj]\ oal` A9K +)& Al kladd gfdq Yhhda]k lg bgafl arrangements where there is joint control. However, the changes afljg\m[]\ Zq A>JK )( Yf\ A>JK )) eYq d]Y\ lg Y \a^^]j]fl conclusion as to which arrangements are considered to be under joint control and those which are not.

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

3. New definition of joint control

Bgafl [gfljgd ak \]f]\ Yk l`] [gfljY[lmYddq Y_j]]\ k`Yjaf_ g^ [gfljgd g^ Yf YjjYf_]e]fl o`a[` ]paklk gfdq o`]f l`] \][akagfk YZgml l`] j]d]nYfl Y[lanala]k j]imaj] l`] mfYfaegmk [gfk]fl g^ l`] hYjla]k k`Yjaf_ [gfljgd& A>JK )) \]k[jaZ]k l`] c]q Ykh][lk g^ bgafl [gfljgd Yk ^gddgok2 Contractually agreed contractual arrangements are usually, but fgl YdoYqk$ ojall]f$ Yf\ k]l gml l`] l]jek g^ l`] YjjYf_]e]flk Control and relevant activities IFRS 10 describes how to assess o`]l`]j Y hYjlq `Yk [gfljgd$ Yf\ `go lg a\]fla^q l`] j]d]nYfl activities Unanimous consent exists when the parties to an arrangement have collective control over the arrangement, but no single party has control L`] f]o j]imaj]e]flk oal`af l`ak \]falagf j]dYl] lg l`] Ykk]kke]fl g^ [gfljgd Yf\ j]d]nYfl Y[lanala]k& MfYfaegmk [gfk]fl ak fgl f]o$ `go]n]j$ Y\\alagfYd _ma\Yf[] `Yk Z]]f Y\\]\ lg [dYja^q when it exists.

L`] ^Y[lgjk lg Z] [gfka\]j]\ af eYcaf_ l`ak Ykk]kke]fl af[dm\]2 K[gh] g^ l`] gh]jYlgjk \][akagf%eYcaf_ Yml`gjalq Ja_`lk `]d\ Zq gl`]jk ]&_&$ hjgl][lan]$ j]egnYd ja_`lk! =phgkmj] lg nYjaYZadalq af j]lmjfk l`jgm_` l`] j]emf]jYlagf g^ the operator NYjaYZd] j]lmjfk `]d\ l`jgm_` gl`]j afl]j]klk ]&_&$ \aj][l afn]kle]flk Zq l`] gh]jYlgj af l`] bgafl YjjYf_]e]fl! :]dgo$ o] [gfka\]j ]Y[` g^ l`]k] ^Y[lgjk& Al ak aehgjlYfl lg fgl] that assessing whether an entity is a principal or an agent will j]imaj] [gfka\]jYlagf g^ Ydd ^Y[lgjk [gdd][lan]dq& a) Scope of decision-making authority L`] k[gh] g^ Yf gh]jYlgjk \][akagf%eYcaf_ Yml`gjalq ak ]nYdmYl]\ Zq [gfka\]jaf_ l`] jYf_] g^ Y[lanala]k al ak h]jeall]\ lg \aj][l Yf\ l`] \ak[j]lagf al `Yk o`]f eYcaf_ \][akagfk YZgml l`gk] Y[lanala]k& 9f gh]jYlgj \g]k fgl mkmYddq `Yn] \ak[j]lagf lg eYc] [`Yf_]k either to the activities it is permitted to direct, or to the decisions it ak h]jeall]\ lg eYc] oal`gml l`] hjagj YhhjgnYd g^ l`] fgf%gh]jYlgj parties. However, consideration must be given as to how broad or fYjjgo alk \ak[j]lagf ak oal`af l`] \][akagf%eYcaf_ ja_`lk l`Yl `Yn] been delegated. In addition, consideration must also be given to the d]n]d g^ afngdn]e]fl l`] gh]jYlgj `Y\ af \]l]jeafaf_ l`] k[gh] g^ its authority. That involvement may indicate the operator had the opportunity and incentive to obtain the ability to direct the relevant activities, which could indicate the operator is acting as a principal. >gj ]pYehd]$ a^ l`] gh]jYlgj oYk l`] eYaf hYjlq afngdn]\ af k]llaf_ up the joint arrangement and also the primary party in determining o`Yl \][akagf%eYcaf_ ja_`lk al ogmd\ `Yn] Yk gh]jYlgj$ Yf\ l`]k] were designed to be quite broad, it may indicate that the operator is a principal.

3.1

Determination of control impact of changes to the consolidation standard

Al ak [geegf af l`] eafaf_ Yf\ e]lYdk k][lgj ^gj gf] g^ l`] hYjla]k lg Z] Yhhgafl]\ Yk l`] gh]jYlgj gj eYfY_]j g^ l`] bgafl YjjYf_]e]fl l`] gh]jYlgj!$ lg o`ge kge] g^ l`] \][akagf%eYcaf_ hgo]jk ea_`l Z] \]d]_Yl]\& ;mjj]fldq$ eYfq [gfka\]j l`Yl l`] operator does not control a joint arrangement, but simply carries gml l`] \][akagfk g^ l`] hYjla]k mf\]j l`] bgafl n]flmj] gj gh]jYlaf_! Y_j]]e]fl BG9!$ a&]&$ Y[lk Yk Yf Y_]fl& Mf\]j l`] f]o standards, it may be concluded that the operator actually controls l`] YjjYf_]e]fl& L`ak ak Z][Ymk] o`]f \][akagf%eYcaf_ ja_`lk `Yn] been delegated, IFRS 10 now provides new requirements on how to assess whether an entity is acting as principal or agent, which is then used to determine which party has control. ;Yj]^md [gfka\]jYlagf oadd Z] j]imaj]\ lg Ykk]kk o`]l`]j Yf gh]jYlgj Y[lk Yk Y hjaf[ahYd Yf\$ l`]j]^gj]$ eYq hgl]flaYddq [gfljgd l`] YjjYf_]e]fl! gj Yk Yf Y_]fl& Af l`] dYll]j kalmYlagf$ l`] gh]jYlgj gfdq j][g_fak]k alk afl]j]klk af l`] bgafl YjjYf_]e]fl l`] Y[[gmflaf_ ^gj o`a[` oadd \]h]f\ mhgf o`]l`]j al ak Y bgafl gh]jYlagf gj bgafl n]flmj]! Yf\ alk gh]jYlgj'eYfY_]e]fl ^]]&

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

b) Rights held by others The operator also has to consider whether other parties hold rights l`Yl ogmd\ Y^^][l Yfq hgo]jk \]d]_Yl]\ lg al& >gj ]pYehd]$ Y j]egnYd ja_`l `]d\ Zq fgf%gh]jYlgj hYjla]k ea_`l Y^^][l l`] gh]jYlgjk \][akagf%eYcaf_ YZadalq& A^ Y fgf%gh]jYlgj hYjlq `gd\k Y j]egnYd ja_`l l`Yl ak$ Y kaf_d] fgf%gh]jYlgj hYjlq [Yf \][a\] lg j]egn] l`] gh]jYlgj!$ Yf\ l`Yl ja_`l ak kmZklYflan] ]&_&$ oal`gml [Ymk]!$ l`]f l`] gh]jYlgj ogmd\ Z] Yf Y_]fl& @go]n]j$ a^ l`] ]p]j[ak] g^ l`Yl j]egnYd ja_`l j]imaj]k Y_j]]e]fl Zq egj] l`Yf gf] g^ l`] fgf%gh]jYlgj hYjla]k$ l`]f al ak not conclusive as to whether the operator is a principal or an agent. The more parties that would have to agree to remove the operator Yf\ l`] egj] j]klja[lan] l`] [gf\alagfk ^gj j]egnYd!$ l`] d]kk aehgjlYfl l`Yl j]egnYd ja_`l ak o`]f \]l]jeafaf_ a^ l`] gh]jYlgj ak a principal. c) Remuneration of the operator IFRS 10 describes how to evaluate remuneration arrangements af[dm\af_ addmkljYlan] ]pYehd]k!$ Zml \g]k fgl af[dm\] Yfq Zja_`l daf] af\a[Ylgjk& L`] ^]] j][]an]\ Zq l`] gh]jYlgj emkl Z] [gee]fkmjYl] oal` l`] k]jna[]k hjgna\]\$ Yf\ af[dm\] gfdq eYjc]l l]jek$ ^gj l`] operator to be considered an agent. However, the magnitude and nYjaYZadalq g^ j]emf]jYlagf [gmd\ kladd j]kmdl af l`] gh]jYlgj Z]af_ Y hjaf[ahYd$ ]n]f a^ l`]k] log [jal]jaY Yj] e]l& L`] _j]Yl]j l`] ^]]$ Yf\ ]phgkmj] lg nYjaYZadalq$ j]dYlan] lg l`] ]ph][l]\ j]lmjfk ^jge the joint arrangement, the more indicative it is that the operator is a principal. @go]n]j$ l`] hj]k]f[] g^ Y nYjaYZd] j]lmjf \g]k fgl YmlgeYla[Yddq d]Y\ lg Y [gf[dmkagf g^ Yf gh]jYlgj Z]af_ Y hjaf[ahYd& 9f gh]jYlgj [Yf j][]an] Y nYjaYZd] ^]] ^gj hjgna\af_ k]jna[]k Yf\ kladd Z] [gfka\]j]\ Yf Y_]fl$ kg al eYq Z] \a^[mdl lg \aklaf_mak` Yf Y_]f[q j]dYlagfk`ah ^jge l`Yl g^ Y hjaf[ahYd& >gj ]pYehd]$ Yf gh]jYlgj f]]\k lg ]nYdmYl] o`]l`]j alk ]phgkmj] lg nYjaYZadalq g^ j]lmjfk ak \a^^]j]fl ^jge l`Yl g^ l`] gl`]j afn]klgjk$ Yf\ a^ kg$ o`]l`]j l`ak ea_`l afm]f[] alk Y[lagfk&

d) Variable returns held through other interests O`]f Yf gh]jYlgj `gd\k gl`]j afl]j]klk af Y bgafl YjjYf_]e]fl gn]j Yf\ YZgn] l`] j]emf]jYlagf al j][]an]k ^gj Z]af_ l`] gh]jYlgj$ l`ak may indicate it is not an agent. It is common in the mining and e]lYdk k][lgj ^gj gh]jYlgjk lg Ydkg `Yn] Y \aj][l fYf[aYd afl]j]kl af l`] bgafl YjjYf_]e]fl& :q najlm] g^ `gd\af_ l`ak gl`]j afl]j]kl$ l`] klYf\Yj\ af\a[Yl]k l`Yl \][akagfk eY\] Zq l`] gh]jYlgj eYq \a^^]j ^jge l`gk] al ogmd\ `Yn] eY\] a^ al \a\ fgl `gd\ l`] gl`]j afl]j]kl& Af ]nYdmYlaf_ alk ]phgkmj] lg nYjaYZadalq g^ j]lmjfk ^jge gl`]j afl]j]klk$ A>JK )( j]imaj]k Yf gh]jYlgj lg [gfka\]j l`] ^gddgoaf_2 Y! L`] _j]Yl]j l`] eY_falm\] g^$ Yf\ nYjaYZadalq Ykkg[aYl]\ oal`$ alk ][gfgea[ afl]j]klk$ [gfka\]jaf_ alk j]emf]jYlagf Yk \ak[mkk]\ YZgn]! Yf\ gl`]j afl]j]klk$ af Y__j]_Yl]$ l`] egj] dac]dq l`] operator is a principal Z!L`] egj] l`Yl l`] gh]jYlgjk ]phgkmj] lg nYjaYZadalq g^ j]lmjfk \a^^]jk ^jge l`Yl g^ l`] gl`]j afn]klgjk$ l`] egj] dac]dq l`Yl l`ak ea_`l afm]f[] alk Y[lagfk$ Yf\ l`] egj] dac]dq l`Yl l`] gh]jYlgj is a principal O`ad] l`ak ]nYdmYlagf ak eY\] hjaeYjadq gf l`] ZYkak g^ j]lmjfk ]ph][l]\ ^jge l`] Y[lanala]k g^ l`] bgafl YjjYf_]e]fl$ l`] gh]jYlgj emkl Ydkg [gfka\]j alk eYpaeme ]phgkmj] lg nYjaYZadalq g^ j]lmjfk$ lYcaf_ aflg Y[[gmfl j]emf]jYlagf Yf\ gl`]j afl]j]klk l`Yl al `gd\k&

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

3.1.1 So what happens if you have control? L`] aehY[l g^ [gfljgddaf_ Yf YjjYf_]e]fl \]h]f\k gf Y fmeZ]j g^ ^Y[lgjk& L`] egkl aehgjlYfl g^ l`]k] oadd Z] a\]fla^qaf_ Yf\ Ykk]kkaf_ the rights and obligations the contractual arrangement provides the parties, as well as assessing whether the arrangement is a business. a) Identifying and assessing rights and obligations Rights to the underlying assets and obligations for the underlying liabilities of the arrangement: O`ad] l`] hjaf[ahYd'Y_]fl assessment may lead to a conclusion that an operator has [gfljgd$ l`] ^Y[l l`Yl ]Y[` hYjlq `Yk kh][a[ ja_`lk lg$ Yf\ gZda_Ylagfk ^gj$ l`] mf\]jdqaf_ Ykk]lk Yf\ daYZadala]k$ e]Yfk l`] operator does not control anything over and above its own direct afl]j]kl af l`gk] Ykk]lk Yf\ daYZadala]k& L`]j]^gj]$ al kladd gfdq recognises its interest in those assets and liabilities. This Y[[gmflaf_ Yhhda]k j]_Yj\d]kk g^ o`]l`]j l`] YjjYf_]e]fl ak af Y separate vehicle1 or not, as the contractual terms are the primary \]l]jeafYfl g^ l`] Y[[gmflaf_& Rights to the net assets of the arrangement: This only occurs where, at a minimum, the arrangement is structured through a separate vehicle. In this instance, the operator consolidates the ]flalq Yf\ j][g_fak]k Yfq fgf%[gfljgddaf_ afl]j]kl& b) Is the arrangement a business? L`] gl`]j j]d]nYfl ^Y[lgj ak o`]l`]j l`] YjjYf_]e]fl ak Y Zmkaf]kk$ as this determines whether, upon obtaining control, the j]imaj]e]flk g^ A>JK + Business Combinations Yhhdq& 9dd g^ l`] j]imaj]e]flk g^ A>JK + Yhhdq a^ l`] ]flalq [gfljgdk l`] YjjYf_]e]fl where it has rights to the net assets, and that arrangement is a Zmkaf]kk& @go]n]j$ a^ l`Yl [gfljgdd]\ YjjYf_]e]fl ak fgl Y Zmkaf]kk$ l`] ]flalq a\]fla]k Yf\ j][g_fak]k l`] af\ana\mYd Ykk]lk Y[imaj]\ Yf\ daYZadala]k Ykkme]\ ZYk]\ gf l`]aj j]dYlan] ^Yaj nYdm]$ Yf\ \g]k not recognise any goodwill. For arrangements where there are rights to the assets and gZda_Ylagfk ^gj l`] daYZadala]k$ al ak fgl [d]Yj o`]l`]j A>JK + Yhhda]k Yf\ o`]l`]j _gg\oadd [gmd\ Z] j][g_fak]\ ]n]f a^ gmlka\] l`] k[gh] g^ A>JK +!& L`ak akkm] `Yk j][]fldq Z]]f j]^]jj]\ lg l`] A>JK Afl]jhj]lYlagfk ;geeall]]& O] \ak[mkk l`ak ^mjl`]j af k][lagf ,&)&) g^ l`ak hmZda[Ylagf&

How we see it
O`ad] []jlYaf Ykh][lk g^ bgafl [gfljgd Yj] mf[`Yf_]\ ^jge A9K +)$ care is required in determining whether the arrangement is still considered to be under joint control under IFRS 11. This is Z][Ymk] l`] j]^]j]f[] lg [gfljgd af l`] f]o \]falagf g^ bgafl [gfljgd ak ZYk]\ gf l`] f]o \]falagf g^ [gfljgd af A>JK )(& Mf\]j A9K +)$ eYfq [gfka\]j Yf gh]jYlgj lg Z] Y[laf_ Yk Yf agent, a view which is based on the way these roles are generally h]j[]an]\$ Yf\ j]^]jj]\ lg$ af l`] k][lgj& @go]n]j$ ]flala]k oadd f]]\ lg [Yj]^mddq Ykk]kk l`] fYlmj] g^ l`]aj YjjYf_]e]flk Yf\ determine whether this conclusion remains true, based on how guidance in IFRS 10 helps to delineate principal versus agent.

3.2

What are relevant activities?

J]d]nYfl Y[lanala]k Yj] l`gk] Y[lanala]k g^ l`] YjjYf_]e]fl o`a[` ka_fa[Yfldq Y^^][l l`] j]lmjfk g^ l`] YjjYf_]e]fl& <]l]jeafaf_ o`Yl l`]k] Yj] ^gj ]Y[` YjjYf_]e]fl oadd j]imaj] ka_fa[Yfl judgement. =pYehd]k g^ \][akagfk YZgml j]d]nYfl Y[lanala]k af[dm\]$ Zml Yj] fgl daeal]\ lg2 =klYZdak`af_ gh]jYlaf_ Yf\ [YhalYd \][akagfk g^ l`] YjjYf_]e]fl af[dm\af_ Zm\_]lk ^gj ]pYehd]$ ^gj Y eafaf_ Yf\ e]lYdk YjjYf_]e]fl$ Yhhjgnaf_ l`] [YhalYd ]ph]f\almj] hjg_jYee] ^gj the next year And 9hhgaflaf_ Yf\ j]emf]jYlaf_ Y bgafl YjjYf_]e]flk c]q management personnel or service providers and terminating l`]aj k]jna[]k gj ]ehdgqe]fl ^gj ]pYehd]$ Yhhgaflaf_ Y [gfljY[l eaf]j lg mf\]jlYc] eafaf_ gh]jYlagfk&

A>JK )) \]f]k Y k]hYjYl] n]`a[d] Yk 9 k]hYjYl]dq a\]flaYZd] fYf[aYd kljm[lmj]$ af[dm\af_ k]hYjYl] d]_Yd ]flala]k gj ]flala]k j][g_fak]\ Zq klYlml]$ j]_Yj\d]kk g^ o`]l`]j l`gk] ]flala]k `Yn] Y d]_Yd h]jkgfYdalq&

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

3.3

Unanimous consent what does this mean?

3.3.1 Unanimous consent over which decisions? Lg `Yn] bgafl [gfljgd$ mfYfaegmk [gfk]fl ak j]imaj]\ ^gj \][akagfk about the relevant activities& A^ mfYfaegmk [gfk]fl j]dYl]k gfdq lg 2 decisions that give a party protective rights , or over administrative matters only, and not to decisions about the relevant activities, that party does not have joint control. For example, a veto right that hj]n]flk Y bgafl YjjYf_]e]fl ^jge []Ykaf_ Zmkaf]kk ogmd\ dac]dq Z] a protective right, and not a right that creates joint control. @go]n]j$ a^ l`] n]lg ja_`lk j]dYl] lg j]d]nYfl Y[lanala]k km[` Yk approving the capital expenditure budget, then those rights may create joint control. >gj kge] eafaf_ Yf\ e]lYdk gh]jYlagfk$ \][akagf%eYcaf_ eYq nYjq gn]j l`] da^] g^ l`] hjgb][l ]&_&$ \mjaf_ l`] ]phdgjYlagf Yf\ ]nYdmYlagf h`Yk]$ l`] \]n]dghe]fl h`Yk] Yf\'gj l`] hjg\m[lagf phase. For example, during the exploration and evaluation phase, gf] hYjlq lg l`] YjjYf_]e]fl eYq Z] YZd] lg eYc] Ydd g^ l`] decisions, whereas once the project enters the development phase, decisions may then require unanimous consent. To determine whether the arrangement is jointly controlled, it will be necessary lg \][a\] o`a[` g^ l`]k] Y[lanala]k ]&_&$ ]phdgjYlagf Yf\ ]nYdmYlagf Yf\'gj \]n]dghe]fl$ egkl ka_fa[Yfldq Y^^][l l`] j]lmjfk g^ l`] arrangement. This is because the arrangement will only be [gfka\]j]\ lg Z] Y bgafl YjjYf_]e]fl a^ l`gk] Y[lanala]k o`a[` j]imaj] mfYfaegmk [gfk]fl Yj] l`] gf]k l`Yl egkl ka_fa[Yfldq Y^^][l l`] j]lmjfk& L`ak oadd Z] Y `a_`dq bm\_]e]flYd Ykk]kke]fl&

O`ad] l`] j]imaj]e]fl ^gj mfYfaegmk [gfk]fl ak fgl f]o$ A>JK )) \g]k hjgna\] Y\\alagfYd _ma\Yf[] l`Yl [dYja]k o`]f mfYfaegmk [gfk]fl ]paklk$ Yf\ gn]j o`a[` Y[lanala]k al ak j]imaj]\& MfYfaegmk [gfk]fl e]Yfk l`Yl Yfq hYjlq oal` bgafl [gfljgd [Yf hj]n]fl Yfq g^ l`] gl`]j hYjla]k$ gj Y _jgmh g^ hYjla]k$ ^jge eYcaf_ mfadYl]jYd decisions about relevant activities. Kge]lae]k l`] \][akagf%eYcaf_ hjg[]kk Y_j]]\ Z]lo]]f l`] hYjla]k af l`] BG9 aehda[aldq d]Y\k lg bgafl [gfljgd& >gj ]pYehd]$ af Y -( ' -( bgafl YjjYf_]e]fl$ l`] BG9 kh][a]k l`Yl Yl d]Ykl -) g^ l`] nglaf_ ja_`lk Yj] j]imaj]\ lg eYc] Y \][akagf YZgml j]d]nYfl Y[lanala]k& L`]j]^gj]$ l`] hYjla]k `Yn] aehda[aldq Y_j]]\ l`Yl l`]q have joint control because decisions about relevant activities cannot be made without both parties agreeing. @go]n]j$ af gl`]j afklYf[]k$ l`] BG9 eYq j]imaj] Y eafaeme hjghgjlagf g^ l`] nglaf_ ja_`lk lg eYc] \][akagfk& Mfd]kk al ak gZnagmk `go l`ak eafaeme emkl Z] Y[`a]n]\$ gj l`] BG9 kh][a]k which parties are required to unanimously agree, then there would not be joint control. A>JK )) hjgna\]k kge] ]pYehd]k lg addmkljYl] l`ak hgafl2
Example A Example B Example C EYbgjalq ngl] lg direct relevant activities +- +- f'Y Oa\]dq \akh]jk]\ No control (or joint control) because multiple combinations could be used to reach agreement

Requirement /- ngl] lg \aj][l /- ngl] lg \aj][l relevant activities relevant activities Party A Party B Party C Other Conclusion -( +( *( f'Y =n]f l`gm_` 9 [Yf Zdg[c Yfq decision, A does not control the arrangement, because A needs B to agree l`]j]^gj] joint control between A and B. -( *- *- f'Y No control (or joint control) because multiple combinations could be used to reach agreement

How we see it
L`] f]o Yf\ [dYja]\! j]imaj]e]flk ^gj Ykk]kkaf_ o`]l`]j unanimous consent is required over relevant activities may mean some arrangements that have previously been assessed as `Ynaf_ bgafl [gfljgd fgo fg dgf_]j kYlak^q l`] j]imaj]e]flk$ Yf\ hence, will not be considered joint arrangements.

2 A>JK )( \]f]k hjgl][lan] ja_`lk Yk l`gk] \]ka_f]\ lg hjgl][l l`] afl]j]klk g^ l`] hYjlq `gd\af_ l`gk] rights without giving that party power over the entity to which those rights relate and that relate to ^mf\Ye]flYd [`Yf_]k lg l`] Y[lanala]k g^ Yf afn]kl]] gj Yhhdq af ]p[]hlagfYd [aj[meklYf[]k&

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

It is important to note that not all current JCEs will automatically be considered joint ventures under IFRS 11 detailed analysis will be required.

4. Differences between joint ventures and joint operations

Once it has been established there is joint control, joint YjjYf_]e]flk Yj] l`]f [dYkka]\ Yk ]al`]j2 bgafl gh]jYlagfk gj joint ventures.
Diagram 2

4.1.1 Does IFRS 3 apply to joint operations? Gf] Yj]Y o`]j] l`]j] ak [mjj]fldq Y dY[c g^ [dYjalq o`]f Y[[gmflaf_ ^gj Y[imakalagfk g^ afl]j]klk af B;9k Yf\ B;Gk$ Yf\ mfd]kk j]kgdn]\$ oadd hj]k]fl kaeadYj akkm]k ^gj bgafl gh]jYlagfk$ ak o`]l`]j l`] hjaf[ahd]k g^ A>JK + Yhhdq& Gf] na]o ak l`Yl A>JK + \g]k fgl Yhhdq& L`ak ak gf l`] ZYkak l`Yl ]n]f l`gm_` l`] Y[lanalq g^ l`] B;9'B;G gj bgafl gh]jYlagf eYq [gfklalml] Y Zmkaf]kk$ l`] n]flmj]j'bgafl gh]jYlgj \g]k fgl control that business they only have joint control. L`] gl`]j na]o ak l`Yl A>JK + ak Yhhda[YZd]& L`ak ak gf l`] ZYkak l`Yl l`] mfal g^ Y[[gmfl ^gj Ykk]kkaf_ [gfljgd ak l`] n]flmj]jk' bgafl gh]jYlgjk gof afl]j]kl af l`] Zmkaf]kk g^ l`] B;9'B;G gj joint operation, and the entity controls this. L`ak dY[c g^ [dYjalq `Yk d]Y\ lg \an]jkalq af hjY[la[]& L`ak akkm] oYk j][]fldq j]^]jj]\ lg l`] A>JK Afl]jhj]lYlagfk ;geeall]] l`] ;geeall]]! Yf\ [gfka\]j]\ Yl l`]aj Bmdq *()) e]]laf_ Y_]f\Y hYh]j 1!& 9l l`] \Yl] g^ l`ak hmZda[Ylagf$ l`ak akkm] oYk kladd Z]af_ [gfka\]j]\ Zq l`] ;geeall]]&

IAS 31

Jointly controlled operations

Recognise its assets, liabilities, expenses, and alk k`Yj] g^ af[ge]

Jointly controlled assets

Recognise its assets, liabilities, revenue, and ]ph]fk]k$ Yf\'gj alk j]dYlan] k`Yj]k l`]j]g^

Jointly controlled entities

=imalq e]l`g\ gj proportionate consolidation

Joint operations IFRS 11

The parties with joint control have rights to the assets and gZda_Ylagfk ^gj l`] daYZadala]k g^ the arrangement Recognise its assets, liabilities, j]n]fm]$ Yf\ ]ph]fk]k$ Yf\'gj alk j]dYlan] k`Yj]k l`]j]g^

Joint ventures
Parties with joint control have ja_`lk lg l`] f]l Ykk]lk g^ l`] arrangement

=imalq e]l`g\

Joint Arrangements

Joint Ventures

How we see it
Our experience shows that practice in this area is indeed diverse Yf\ l`]j] Yj] nYjqaf_ na]ok Yk lg o`]l`]j A>JK + k`gmd\ gj should not apply. It will not be a simple exercise to resolve and ka_fa[Yfl j]k]Yj[` Yf\ gmlj]Y[` oadd Z] j]imaj]\&

4.1

Joint operations

JCAs and JCOs2 L`]k] Yj] fgo [Ydd]\ bgafl gh]jYlagfk mf\]j A>JK ))& L`] Y[[gmflaf_ ^gj l`]k] YjjYf_]e]flk oadd _]f]jYddq Z] l`] kYe] Yk mf\]j A9K +)& L`Yl ak$ l`] bgafl gh]jYlgj fgo \]f]\ Yk Y hYjlq l`Yl `Yk bgafl [gfljgd g^ Y bgafl gh]jYlagf Yf\ fgl lg Z] [gf^mk]\ oal` l`] gh]jYlgj g^ l`] bgafl YjjYf_]e]fl! [gflafm]k lg j][g_fak] alk Ykk]lk$ daYZadala]k$ j]n]fm]k Yf\ ]ph]fk]k$ Yf\'gj alk j]dYlan] k`Yj]k l`]j]g^$ a^ Yfq& 9k e]flagf]\ hj]nagmkdq$ h]ghd] g^l]f af[gjj][ldq j]^]j lg l`ak Y[[gmflaf_ Yk hjghgjlagfYl] [gfkgda\Ylagf$ o`]f af ^Y[l al ak fgl& O] [gfka\]j l`ak akkm] dYl]j af this publication. JCEs rights to assets and obligations for liabilities2 Al ak Ydkg hgkkaZd] l`Yl [mjj]fl B;=k eYq Z] [dYkka]\ Yk bgafl gh]jYlagfk mf\]j A>JK ))& J]_Yj\d]kk g^ d]_Yd kljm[lmj]$ o`]j] l`] hYjlq `Yk ja_`lk lg l`] Ykk]lk Yf\ gZda_Ylagfk ^gj l`] daYZadala]k g^ l`] mf\]jdqaf_ bgafl YjjYf_]e]fl$ al oadd Z] [dYkka]\ Yf\ Y[[gmfl]\ ^gj Yk Y bgafl gh]jYlagf$ Yf\ Y[[gmfl]\ ^gj Yk YZgn]&

4.2

Joint ventures

JCEs rights to net assets2 Af l`ak afklYf[]$ l`] YjjYf_]e]fl oadd Z] [dYkka]\ Yf\ Y[[gmfl]\ ^gj Yk Y bgafl n]flmj]& L`] bgafl n]flmj]j fgo \]f]\ Yk Y hYjlq o`g `Yk bgafl [gfljgd g^ Y bgafl n]flmj]! oadd l`]f Z] j]imaj]\ lg Yhhdq ]imalq Y[[gmflaf_ lg Y[[gmfl ^gj l`ak investment. This is because proportionate consolidation is no dgf_]j h]jeall]\ ^gj bgafl n]flmj]k&

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

The removal of proportionate consolidation will not affect the accounting currently applied to JCAs/JCOs.

4.3

Clarifying the accounting what is proportionate consolidation?

4.4

The impact of a change in classification upon transition

As mentioned earlier, there is some misunderstanding as to what proportionate consolidation is under IFRS, and how this compares lg B;9'B;G Y[[gmflaf_ mf\]j A9K +)$ Yf\ l`] Y[[gmflaf_ ^gj bgafl gh]jYlagfk mf\]j A>JK ))& L`ak [gf^mkagf ak hYjldq \m] lg l`] log YhhjgY[`]k Z]af_ l][`fa[Yddq \a^^]j]fl$ ^jge Yf Y[[gmflaf_ perspective, and also partly due to the way the term proportionate [gfkgda\Ylagf ak mk]\ mf\]j MK ?99H& Mf\]j MK ?99H$ hjghgjlagfYl] [gfkgda\Ylagf ak mk]\ lg \]k[jaZ] Y e]l`g\ g^ Y[[gmflaf_ l`Yl ogmd\ Z] l`] ]imanYd]fl g^ A>JKk B;9'B;G Yf\ fgo bgafl gh]jYlagf! Y[[gmflaf_& As a consequence, there is some unwarranted concern that all interests in joint arrangements will require equity accounting o`a[` ak fgl l`] [Yk]& 9f\ ^gj B;=k l`Yl Yj] [dYkka]\ Yk bgafl operations under IFRS 11, it may not be clear whether the adoption g^ A>JK )) oadd aehY[l l`] fYf[aYd klYl]e]flk& Lg addmkljYl] l`ak2 O`]j] Y bgafl gh]jYlgj `Yk ja_`lk lg Y kh][a]\ h]j[]flY_] g^ Ydd Ykk]lk ]&_& -(! Yf\ gZda_Ylagfk ^gj l`] kYe] kh][a]\ h]j[]flY_] -(! g^ Ydd daYZadala]k$ l`]j] ogmd\ dac]dq Z] fg \a^^]j]f[] Z]lo]]f l`] Y[[gmflaf_ ^gj Y bgafl gh]jYlagf Yf\ proportionate consolidation. @go]n]j$ o`]j] l`] bgafl gh]jYlgj `Yk ja_`lk lg Y kh][a]\ h]j[]flY_] g^ []jlYaf Ykk]lk Yf\ \a^^]jaf_ ja_`lk Yf\ h]j[]flY_]k! lg gl`]j Ykk]lk$ Yf\'gj \a^^]j]fl gZda_Ylagfk ^gj nYjagmk daYZadala]k$ l`] fYf[aYd klYl]e]flk ogmd\ dggc \a^^]j]fl o`]f Y[[gmflaf_ ^gj l`gk] af\ana\mYd ja_`lk Yf\ gZda_Ylagfk$ Yk compared with proportionately consolidating the same h]j[]flY_] g^ Ydd Ykk]lk Yf\ daYZadala]k&
Example 1: 50% / 50% joint arrangement Proportionate consolidation Item Ljm[c" ==< <]Zl"" Other liabilities 100% amount 200 1,000 )((! 0(! Party A 100 500 -(! ,(! Party B 100 500 -(! ,(! IAS 31 JCA/JCO accounting | IFRS 11 JO accounting Party A 200 500 % ,(! Party B % 500 )((! ,(!

JCE (proportionate consolidation) to joint venture: O`]j] hjghgjlagfYl] [gfkgda\Ylagf oYk hj]nagmkdq mk]\ ^gj B;=k mf\]j A9K +)$ Yf\ km[` YjjYf_]e]flk Yj] fgo [dYkka]\ Yk bgafl n]flmj]k$ the transition to equity accounting under IFRS 11 will result in kmZklYflaYd [`Yf_]k lg l`] fYf[aYd klYl]e]flk g^ l`] bgafl venturer. JCE (proportionate consolidation) to joint operation: As explained YZgn] Yf\ addmkljYl]\ af ]pYehd] )!$ al ak Ydkg hgkkaZd] l`Yl ^gj hjghgjlagfYl]dq [gfkgda\Yl]\ B;=k o`a[` Yj] fgo [dYkka]\ Yk bgafl operations, the accounting may not be identical particularly o`]j] Yf ]flalq \g]k fgl `Yn] Y mfa^gje h]j[]flY_] afl]j]kl af Ydd assets and liabilities. 4.4.1 Presentation impacts L`]k] [`Yf_]k oadd aehY[l l`] hj]k]flYlagf g^ l`] fYf[aYd klYl]e]flk g^ Y^^][l]\ ]flala]k& >gj ]pYehd]$ _gaf_ ^jge proportionate consolidation to equity accounting will cause the afn]kle]fl af l`] bgafl YjjYf_]e]fl lg _g ^jge Z]af_ hj]k]fl]\ Yk emdlahd] daf] al]ek l`jgm_`gml l`] KlYl]e]flk g^ >afYf[aYd Hgkalagf Yf\ H]j^gjeYf[]$ lg kaf_d] ]imalq Y[[gmfl]\ daf] al]ek& L`]j] oadd Ydkg Z] aehY[lk gf c]q e]lja[k km[` Yk =:AL<9& L`ak ak Z][Ymk]$ mf\]j hjghgjlagfYl] [gfkgda\Ylagf$ Y bgafl n]flmj]jk k`Yj] g^ Yfq afl]j]kl gj lYp g^ l`] bgafl YjjYf_]e]fl ogmd\ `Yn] Z]]f hj]k]fl]\ gmlka\] g^ =:AL<9$ o`]j]Yk mf\]j ]imalq Y[[gmflaf_$ km[` Yegmflk oadd fgo Z] af[dm\]\ af l`] kaf_d] daf] al]e o`a[` ^gjek hYjl g^ =:AL<9&

* Party A has rights to 100% of the truck ** Party B has obligations for 100% of the debt

10

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

4.4.2 Measurement impacts Af kge] [Yk]k$ l`]j] eYq Ydkg Z] e]Ykmj]e]fl \a^^]j]f[]k o`a[` oadd Y^^][l hjgl gj dgkk Yf\'gj f]l Ykk]lk& >gj ]pYehd]$ mf\]j hjghgjlagfYl] [gfkgda\Ylagf$ Yfq dgkk]k ^jge Y bgafl YjjYf_]e]fl would have been recognised as incurred. However under equity Y[[gmflaf_$ l`] [gf[]hl g^ oYl]j daf] Y[[gmflaf_ ogmd\ gfdq k]] such losses continue to be recognised up until the point at which the investment in the joint arrangement is reduced to nil. >gj egj] af^gjeYlagf gf l`] hjY[la[Yd aehda[Ylagfk g^ l`]k] [`Yf_]k ^gj qgmj Zmkaf]kk ]&_&$ gf Y[[gmflaf_ kqkl]ek Yf\ hjg[]kk]k$ eYfY_]e]fl af^gjeYlagf Yf\ c]q h]j^gjeYf[] af\a[Ylgjk$ ]l[&$ j]^]j lg gmj IFRS Practical matters hYh]j j]^]j]f[]\ Yl l`] klYjl g^ this publication.

5. Gross versus net what should I recognise?

It is clear that a participant in a joint operation is required to j][g_fak] alk ja_`lk lg l`] Ykk]lk$ Yf\ alk gZda_Ylagfk ^gj l`] daYZadala]k gj k`Yj] l`]j]g^! a^ Yfq$ g^ l`] bgafl YjjYf_]e]fl& L`]j]^gj] al ak aehgjlYfl l`Yl Yf ]flalq ^mddq mf\]jklYf\k o`Yl l`]k] ja_`lk Yf\ gZda_Ylagfk Yj] Yf\ `go l`]k] eYq \a^^]j Z]lo]]f the parties.

5.1

Operators of joint arrangements

How we see it
O`]j] afn]kle]flk af B;=k l`Yl o]j] hjghgjlagfYl]dq consolidated are material, and such arrangements are now [dYkka]\ Yk bgafl n]flmj]k$ l`]j] oadd Z] Y ka_fa[Yfl aehY[l gf l`] hj]k]flYlagf g^ l`] fYf[aYd klYl]e]flk g^ Y^^][l]\ ]flala]k& Af kge] [Yk]k$ l`]j] eYq Ydkg Z] e]Ykmj]e]fl \a^^]j]f[]k o`a[` oadd Y^^][l hjgl gj dgkk Yf\'gj f]l Ykk]lk& Ka_fa[Yfl [`Yf_]k oadd Ydkg g[[mj o`]j] Yf ]imalq Y[[gmfl]\ B;= ak fgo considered to be a joint operation as the joint operator would now recognise its assets, liabilities, revenues and expenses, Yf\'gj alk j]dYlan] k`Yj]k g^ l`gk] al]ek$ a^ Yfq& 9k Y j]kmdl g^ l`] [`Yf_]k afljg\m[]\ Zq A>JK )) lg [dYkka^q Y joint arrangement, we would caution entities against voluntarily [`Yf_af_ ^jge hjghgjlagfYl] [gfkgda\Ylagf lg l`] ]imalq e]l`g\$ o`ad] kladd mf\]j A9K +)$ mflad l`]q `Yn] ^mddq YfYdqk]\ l`] [dYkka[Ylagf mf\]j l`] f]o klYf\Yj\&

Gh]jYlgjk g^ bgafl YjjYf_]e]flk eYq `Yn] Y \aj][l d]_Yd daYZadalq af j]kh][l g^ l`] ]flaj] ZYdYf[] g^ []jlYaf gZda_Ylagfk Yjakaf_ ^jge transactions related to the joint arrangement. These may include, but are not limited to, third party creditors, leases, employee daYZadala]k$ ]l[& L`]q eYq Ydkg `Yn] Y ja_`l g^ j]aeZmjk]e]fl Zq najlm] g^ l`] BG9! ^jge l`] fgf%gh]jYlgj hYjla]k& L`] gh]jYlgj ogmd\ Z] j]imaj]\ lg j][g_fak] )(( g^ km[` daYZadala]k Yf\ ogmd\ j][g_fak] Y j][]anYZd] ^jge l`] fgf%gh]jYlgj hYjla]k ^gj l`]aj k`Yj] g^ km[` daYZadala]k& A>JK hjg`aZalk l`] g^^k]llaf_ g^ l`]k] daYZadala]k Y_Yafkl l`]k] j][]anYZd]k af l`] KlYl]e]fl g^ >afYf[aYd Hgkalagf& Af l`] hjgl gj dgkk$ `go]n]j$ o`]j] l`]k] [gklk Yj] Z]af_ af[mjj]\ gf Z]`Yd^ g^ l`] fgf%gh]jYlgj hYjla]k$ a&]&$ l`] gh]jYlgj ak Y[laf_ Yk agent, and such costs are directly recharged, this is considered a j]aeZmjk]e]fl& L`]j]^gj]$ l`]j] ak fg ]^^][l gf hjgl gj dgkk Yk l`] j][`Yj_] ak g^^k]l Y_Yafkl l`] j]dYl]\ ]ph]fk]& O`ad]$ af egkl [aj[meklYf[]k$ l`] YZadalq g^ l`] fgf%gh]jYlgj hYjla]k lg hYq l`]aj k`Yj] g^ l`] [gklk af[mjj]\ Zq l`] gh]jYlgj oadd fgl Z] af doubt, particularly where cash calls are paid in advance, there may be instances where they are unable to pay. Here the operator might not be able to recognise a corresponding receivable and reimbursement, and consequently, this would negatively impact its fYf[aYd klYl]e]flk&

5.2

Non-operators

Fgf%gh]jYlgjk ogmd\ j][g_fak] Y hYqYZd] lg l`] gh]jYlgj$ o`a[` ogmd\ Z] Y[[gmfl]\ ^gj Yk Y fYf[aYd afkljme]fl mf\]j A9K +* Financial Instruments: Presentation/IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments and fgl mf\]j l`] klYf\Yj\ o`a[` j]dYl]k lg l`] lqh] g^ [gkl Z]af_ j]aeZmjk]\& L`ak ogmd\ e]Yf \a^^]j]fl e]Ykmj]e]fl Yf\'gj \ak[dgkmj] j]imaj]e]flk ogmd\ Yhhdq& >gj ]pYehd]$ l`] fgf% gh]jYlgjk k`Yj] g^ ]ehdgq]] ]flald]e]flk j]dYlaf_ lg l`] gh]jYlgjk ]ehdgq]]k o`g ogjc gf l`] bgafl hjgb][l ogmd\ fgl Z] Y[[gmfl]\ ^gj mf\]j A9K )1 =ehdgq]] :]f]lk&

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

11

5.3

Joint and several liability

It is also possible that there may be liabilities in the arrangement where the obligation is joint and several. That is, an entity is not gfdq j]khgfkaZd] ^gj alk hjghgjlagfYl] k`Yj]$ Zml al ak Ydkg daYZd] ^gj the other partys share should they be unable to pay. A common ]pYehd] g^ l`ak af l`] eafaf_ Yf\ e]lYdk k][lgj ak j]`YZadalYlagf obligations. Af l`]k] afklYf[]k$ ]Y[` hYjlq fgl gfdq lYc]k mh alk hjghgjlagfYl] k`Yj] g^ l`] j]`YZadalYlagf gZda_Ylagf$ al ak Ydkg j]imaj]\ lg Ykk]kk l`] dac]da`gg\ l`Yl l`] gl`]j hYjlq oadd fgl Z] YZd] lg e]]l l`]aj k`Yj]& O`]j] al ak gfdq hgkkaZd] gj j]egl]! l`Yl l`] gl`]j hYjlq oadd not be able to pay, the entity is not required to do anything in Y\\alagf& O`]j] l`]j] ak Y hgkkaZd] gZda_Ylagf l`Yl l`] ]flalq oadd `Yn] lg [gn]j l`] gZda_Ylagfk g^ l`] gl`]j hYjlq$ gj l`]j] ak kge] indication that they may not be able to pay, but it is not probable a&]&$ egj] dac]dq l`Yf fgl! l`Yl l`]q [Yffgl hYq$ l`]f l`] ]flalq would have to disclose this possible obligation as a contingent liability. However, where it is probable that the other party cannot e]]l kge] g^$ gj l`] ]flaj]$ gZda_Ylagf$ l`] ]flalq ogmd\ f]]\ lg assess what additional amount they would have to recognise.

6. So what if I dont have joint control or control?

L`] Y[[gmflaf_ aehY[l g^ \]l]jeafaf_ l`Yl Yf afl]j]kl af Yf arrangement does not provide the party with joint control or control \]h]f\k gf Y fmeZ]j g^ ^Y[lgjk& 9_Yaf$ l`] egkl aehgjlYfl g^ l`]k] ^Y[lgjk oadd Z] l`] ja_`lk Yf\ gZda_Ylagfk l`] [gfljY[lmYd arrangement provides the parties.

6.1 Identifying and assessing the rights and obligations

Rights to the underlying assets and obligations for the underlying liabilities of the arrangement: <]khal] fgl `Ynaf_ bgafl [gfljgd gj [gfljgd! l`] hYjlq kladd `Yk ja_`lk lg$ Yf\ gZda_Ylagfk ^gj$ l`] mf\]jdqaf_ Ykk]lk Yf\ gZda_Ylagfk& L`]j]^gj]$ al ogmd\ [gflafm] lg recognise its interest in those assets and liabilities. This Y[[gmflaf_ ogmd\ Yhhdq j]_Yj\d]kk g^ o`]l`]j l`] YjjYf_]e]fl ak in a separate vehicle or not, as the contractual terms are the hjaeYjq \]l]jeafYfl g^ l`] Y[[gmflaf_& Rights to the net assets of the arrangement2 L`ak gfdq g[[mjk where, at a minimum, the arrangement is structured through a k]hYjYl] n]`a[d]& Af l`ak afklYf[]$ a^ l`] hYjlq ak [gfka\]j]\ lg `Yn] ka_fa[Yfl afm]f[] gn]j l`] YjjYf_]e]fl$ al Y[[gmflk ^gj its interest in accordance with IAS 28 Investments in Associates and Joint Ventures Yk Ye]f\]\ af *())! ]imalq Y[[gmflaf_3 gl`]joak] al Y[[gmflk ^gj alk afl]j]kl mf\]j A9K +*'A9K +1'A>JK 1 ^Yaj nYdm] l`jgm_` hjgl gj dgkk gj gl`]j [gehj]`]fkan] af[ge] mfd]kk l`] afn]kle]fl oYk `]d\ ^gj ljY\af_!&

How we see it
Al oadd Z] [jala[Yd ^gj hYjla]k lg bgafl YjjYf_]e]flk lg mf\]jlYc] Y \]lYad]\ j]na]o g^ l`]aj BG9k$ af[dm\af_ Yfq kmZk]im]fl Ye]f\e]flk gj Y\\]f\mek$ lg ]fkmj] l`]q ^mddq mf\]jklYf\ l`] rights and obligations therein, and how these are shared amongst the parties. Af eYfq afklYf[]k$ l`] j]imaj]e]fl ^gj l`] gh]jYlgj lg j][g_fak] )(( g^ []jlYaf daYZadala]k$ Yf\ l`]f Y k]hYjYl] j][]anYZd] ^jge l`] fgf%gh]jYlgj hYjla]k$ Yf\ kaeadYjdq l`] Y[[gmflaf_ ^gj bgafl Yf\ k]n]jYd daYZadala]k$ oadd fgl f]_Ylan]dq aehY[l l`] gh]jYlgjk gj ]flalqk! f]l Ykk]l hgkalagf gj f]l hjgl gj dgkk& @go]n]j$ j][]fl ]n]flk addmkljYl] l`Yl fgf%gh]jYlgj' gl`]j hYjla]k eYq fgl YdoYqk Z] YZd] lg e]]l l`]aj k`Yj] g^ gZda_Ylagfk g^ l`] bgafl YjjYf_]e]fl&

How we see it
?an]f l`Yl l`] Y[[gmflaf_ ^gj l`]k] [gfljY[lmYd YjjYf_]e]flk depends on the rights and obligations provided to the parties, it ak ]kk]flaYd ^gj Yf ]flalq lg gZlYaf Y l`gjgm_` mf\]jklYf\af_ Yf\ [gehd]l] Y \]lYad]\ YfYdqkak g^ l`]aj ja_`lk Yf\ gZda_Ylagfk&

12

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

7. New disclosures more information; impact on processes and systems

A>JK )* afljg\m[]k Y jYf_] g^ f]o Yf\ ]phYf\]\ \ak[dgkmj]k& L`]k] oadd j]imaj] l`] \ak[dgkmj] g^ ka_fa[Yfl bm\_]e]flk Yf\ Ykkmehlagfk eY\] Zq eYfY_]e]fl af \]l]jeafaf_ o`]l`]j2 l`]j] is joint control; and an arrangement structured through a separate vehicle is a joint venture or a joint operation. For joint ventures, it oadd Ydkg j]imaj] l`] [gehadYlagf Yf\ \ak[dgkmj] g^ Y\\alagfYd af^gjeYlagf$ ]al`]j af\ana\mYddq ^gj eYl]jaYd bgafl n]flmj]k$ gj af Y__j]_Yl] ^gj l`] aeeYl]jaYd bgafl n]flmj]k o`a[` oadd aehY[l Yf entitys processes and systems. >gj egj] af^gjeYlagf gf l`] hjY[la[Yd aehda[Ylagfk g^ l`]k] [`Yf_]k on your business e.g., on accounting systems and processes, data Y[[memdYlagf$ ]l[&$ j]^]j lg gmj IFRS Practical matters paper j]^]j]f[]\ Yl l`] klYjl g^ l`ak hmZda[Ylagf&

8. Final thoughts
The rights and obligations provided to a party under these [gfljY[lmYd YjjYf_]e]flk oadd \jan] l`] Y[[gmflaf_& L`]j]^gj]$ Yf ]flalq oadd `Yn] lg ]fkmj] al `Yk Y \]lYad]\ mf\]jklYf\af_ g^ l`] kh][a[ ja_`lk Yf\ gZda_Ylagfk g^ alk YjjYf_]e]flk lg Z] YZd] lg \]l]jeaf] l`] aehY[l g^ l`]k] f]o klYf\Yj\k& ?an]f l`] mfaim] fYlmj] g^ l`] nYjagmk YjjYf_]e]flk l`Yl [mjj]fldq exist, and are emerging, an entity will need to individually analyse ]Y[` [gfljY[l lg Z] YZd] lg [gehd]l] l`ak Ykk]kke]fl& L`] \a^[mdlq g^ l`ak lYkc oadd Z] aehY[l]\ Zq l`] fmeZ]j Yf\ [gehd]palq g^ l`] arrangements an entity has. Robust systems and processes will need to be developed, not only to complete the initial assessment, Zml Ydkg lg ]fYZd] l`] gf_gaf_ Ykk]kke]fl g^ [mjj]fl YjjYf_]e]flk k`gmd\ ^Y[lk Yf\ [aj[meklYf[]k [`Yf_]! Yf\ l`] Ykk]kke]fl g^ new arrangements.

IFRS contact
Tracey Waring ?dgZYd Eafaf_  E]lYdk A>JK D]Y\]j L2 #,, *( /10( (.,. =2 ljY[]q&oYjaf_8mc&]q&[ge

Mining and metals 9hhdqaf_ A>JK aehY[l g^ f]o bgafl YjjYf_]e]flk Yf\ [gfkgda\Ylagf klYf\Yj\k

13

Ernst & Youngs Global Mining & Metals Center

Oal` Y kljgf_ gmldggc af l`] k][lgj$ l`] _dgZYd eafaf_ Yf\ e]lYdk af\mkljq ak ^g[mk]\ gf ^mlmj] _jgol` l`jgm_` ]phYf\]\ hjg\m[lagf$ oal`gml dgkaf_ ka_`l g^ gh]jYlagfYd ]^[a]f[q Yf\ [gkl ghlaearYlagf& L`] k][lgj ak Ydkg ^Y[]\ oal` l`] af[j]Yk]\ [`Ydd]f_] g^ [`Yf_af_ ]ph][lYlagfk af l`] eYafl]fYf[] g^ alk kg[aYd da[]fk] lg gh]jYl] Yf\ e]]laf_ _gn]jfe]fl revenue expectations. =jfkl  Qgmf_k ?dgZYd Eafaf_  E]lYdk ;]fl]j Zjaf_k lg_]l`]j Y ogjd\oa\] l]Ye g^ hjg^]kkagfYdk lg `]dh qgm Y[`a]n] qgmj hgl]flaYd Y l]Ye oal` \]]h l][`fa[Yd ]ph]ja]f[] in providing assurance, tax, transactions and advisory services to the mining and metals sector. L`] ;]fl]j ak o`]j] h]ghd] Yf\ a\]Yk [ge] lg_]l`]j lg `]dh eafaf_ Yf\ e]lYdk [gehYfa]k e]]l l`] akkm]k g^ lg\Yq Yf\ Yfla[ahYl] l`gk] g^ lgegjjgo& MdlaeYl]dq al ]fYZd]k mk lg `]dh qgm e]]l qgmj _gYdk Yf\ [geh]l] egj] ]^^][lan]dq& Alk `go =jfkl  Qgmf_ eYc]k Y \a^^]j]f[]&

=jfkl  Qgmf_ Assurance | Tax | Transactions | Advisory

About Ernst & Young =jfkl  Qgmf_ ak Y _dgZYd d]Y\]j af assurance, tax, transaction and advisory k]jna[]k& Ogjd\oa\]$ gmj ),)$((( h]ghd] are united by our shared values and an mfoYn]jaf_ [geeale]fl lg imYdalq& O] eYc] Y \a^^]j]f[] Zq `]dhaf_ gmj h]ghd]$ our clients and our wider communities achieve their potential. =jfkl  Qgmf_ j]^]jk lg l`] _dgZYd gj_YfarYlagf g^ e]eZ]j ^ajek g^ =jfkl  Qgmf_ ?dgZYd Daeal]\$ ]Y[` g^ o`a[` ak Y k]hYjYl] d]_Yd ]flalq& =jfkl  Qgmf_ ?dgZYd Daeal]\$ Y MC [gehYfq daeal]\ Zq guarantee, does not provide services to [da]flk& >gj egj] af^gjeYlagf YZgml gmj organization, please visit www.ey.com

Area contacts
Global Mining & Metals Leader Mike Elliott L]d2 #.) * 1*,0 ,-00 ea[`Y]d&]ddagll8Ym&]q&[ge Oceania Scott Grimley L]d2 #.) + 1.-- *-(1 k[gll&_jaed]q8Ym&]q&[ge China Peter Markey L]d2 #0. *) ***0 *.). h]l]j&eYjc]q8[f&]q&[ge Japan Kentaro Nakamichi L]d2 # 0) + -,() .,(/ c]flYjg&fYcYea[`a8bh&]q&[ge Europe, Middle East, India and Africa Leader Mick Bardella L]d2 #,, *( /1- ).,0. eZYj\]ddY8mc&]q&[ge Africa Adrian Macartney L]d2 #*/ )) //* +(-* Y\jaYf&eY[Yjlf]q8rY&]q&[ge Commonwealth of Independent States Evgeni Khrustalev L]d2 #/ ,1- .,0 1.*, ]n_]fa&c`jmklYd]n8jm&]q&[ge France and Luxemburg Christian Mion L]d2 #++ ) ,. 1+ .- ,/ [`jaklaYf&eagf8^j&]q&[ge India Anjani Agrawal L]d2 #1) 10* (.) ,),) YfbYfa&Y_jYoYd8af&]q&[ge

United Kingdom & Ireland Lee Downham L]d2 #,, *( /1-) *)/0 d\gof`Ye8mc&]q&[ge Americas and United States Leader Andy Miller L]d2 #) +), *1( )*(Yf\q&eadd]j8]q&[ge Canada Tom Whelan L]d2 #) .(, 01) 0+0) lge&k&o`]dYf8[Y&]q&[ge South America and Brazil Leader Carlos Assis L]d2 #-- *) *)(1 ).(. [Yjdgk&Ykkak8Zj&]q&[ge

Service line contacts

Global Advisory Leader Paul Mitchell L]d2 #0. *) ***0 *+(( hYmd&eal[`]dd8[f&]q&[ge Global Assurance Leader Tom Whelan L]d2 #) .(, 01) 0+0) lge&k&o`]dYf8[Y&]q&[ge Global IFRS Leader Tracey Waring L]d2 #,, *( /10( (.,. ljY[]q&oYjaf_8mc&]q&[ge Global Tax Leader Andy Miller L]d2 #) +), *1( )*(Yf\q&eadd]j8]q&[ge Global Transactions Leader Lee Downham L]d2 #,, *( /1-) *)/0 d\gof`Ye8mc&]q&[ge
*()) =Q?E Daeal]\& All Rights Reserved. =Q? fg& 9M(1**
L`ak hmZda[Ylagf [gflYafk af^gjeYlagf af kmeeYjq ^gje Yf\ ak l`]j]^gj] afl]f\]\ ^gj _]f]jYd _ma\Yf[] gfdq& Al ak fgl afl]f\]\ lg Z] Y kmZklalml] ^gj \]lYad]\ j]k]Yj[` gj l`] ]p]j[ak] g^ hjg^]kkagfYd bm\_e]fl& F]al`]j =Q?E Daeal]\ fgj Yfq gl`]j e]eZ]j g^ l`] _dgZYd =jfkl  Qgmf_ gj_YfarYlagf [Yf Y[[]hl Yfq j]khgfkaZadalq ^gj dgkk g[[Ykagf]\ lg Yfq h]jkgf Y[laf_ gj j]^jYafaf_ ^jge Y[lagf Yk Y j]kmdl g^ Yfq eYl]jaYd af l`ak hmZda[Ylagf& Gf Yfq kh][a^a[ eYll]j$ j]^]j]f[] k`gmd\ Z] eY\] lg l`] appropriate advisor. ooo&]q&[ge'eafaf_e]lYdk