What is Joint Arrangement?
A joint arrangement is a contractual agreement that gives two or more parties joint control of an entity or activity. Under IFRS 11, it is classified as either a joint operation (where parties have rights to assets and obligations for liabilities) or a joint venture (where parties have rights to the net assets).
How It Works
- Determine whether joint control exists.
- Classify the arrangement as a joint operation or joint venture based on its structure and terms.
- For joint operations, recognize the entity’s share of assets, liabilities, revenues and expenses.
- For joint ventures, apply the equity method.
Saudi Context
Saudi listed conglomerates often hold joint arrangements with foreign partners in petrochemical, infrastructure and technology ventures, requiring careful IFRS 11 classification.
Example
Two companies form a 50/50 joint venture entity to operate a refinery. Each applies the equity method, recognizing its share of net profit each period.