How Joint Operations Are Reported Under IFRS 11 Compared to ASC 323 and ASC 810

Joint operations represent a form of joint arrangement where parties have joint control and rights to the assets and obligations for the liabilities of the arrangement. Under IFRS 11 – Joint Arrangements, joint operations are fundamentally different from joint ventures because they require direct recognition of the operator’s share of assets, liabilities, revenues, and expenses.

US GAAP does not use the same classification system as IFRS 11. Instead, similar structures fall under a mixture of ASC 323 – Investments – Equity Method and Joint Ventures, ASC 810 – Consolidation, and industry-specific guidance. The lack of a single unified framework makes cross-standard comparison technically complex.

Reporting joint operations impacts asset composition, revenue recognition, liability exposure, tax structuring, and consolidation outcomes, especially for industries such as oil & gas, construction, infrastructure, and natural resources.

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Joint operations arise when parties share control and have direct rights to assets and obligations for liabilities rather than equity interests in a separate vehicle.

Under IFRS 11, joint arrangements are classified into:

• Joint operations – direct rights to assets, obligations for liabilities

• Joint ventures – rights to net assets of the arrangement

A joint operation typically exists when:

• The arrangement is structured without a separate legal entity

• The parties use their own assets, staff, inventory, or equipment

• Each operator takes a share of output rather than profit distribution

• The contractual framework specifies direct obligations

• The arrangement resembles a co-working project rather than an entity-driven venture

Examples include:

• Shared oil extraction sites

• Joint construction of roads, tunnels, or transmission lines

• Co-development of mines

• Shared manufacturing facilities

• Collaborative R&D where each party owns its results

These structures require each operator to reflect their proportionate interest directly in their financial statements.

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IFRS 11 requires operators in joint operations to recognize their share of assets, liabilities, revenues, and expenses directly in their primary financial statements.

Key IFRS 11 requirements include:

• Recognize assets controlled jointly (property, equipment, inventory, exploration assets)

• Recognize liabilities incurred jointly (trade payables, decommissioning)

• Recognize revenues from sale of the operator’s share of output

• Recognize expenses incurred in joint activity

This results in line-by-line recognition rather than the equity method.

The operator must:

1. Identify its share of each asset and liability

2. Measure revenue based on its share of production output

3. Allocate joint expenses based on the agreed ratio

4. Apply consistent accounting policies across operators

This model provides greater transparency into the economic reality of shared activities.

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IFRS 11 vs US GAAP Treatment of Joint Operations

Area	IFRS 11 Requirements	US GAAP Treatment (ASC 323 / ASC 810 / Industry Guidance)
Classification	Joint operation vs joint venture	No equivalent; mix of equity method, consolidation, and proportionate consolidation in certain sectors
Recognition	Direct recognition of share of assets/liabilities	Often equity method unless operator has control under ASC 810
Revenue & Expenses	Recognized proportionally	Equity method recognizes net income only
Legal Structure	Not determinative	Legal form heavily influences model
Output Sharing	Key indicator of joint operation	May still fall under equity method
Industry Use	Mining, energy, construction	Oil & gas proportional consolidation allowed in some industry guidance

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Journal entries follow the operator’s direct share of assets, liabilities, revenue, and costs, reflecting the economic co-ownership structure.

Acquisition or contribution of assets

• Debit: Joint Operation Assets

• Credit: Cash / Equipment / Inventory Contributed

Recognizing joint liabilities

• Debit: Operating Expense / Asset

• Credit: Joint Operation Payable

Recognizing revenue from share of output

• Debit: Receivables / Cash

• Credit: Revenue – Joint Operation Output

Allocating joint expenses

• Debit: Cost of Sales / Operating Expense

• Credit: Cash / Payables

These entries show how IFRS requires substance-over-form recognition, aligning accounting with the underlying shared activity.

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Joint operation reporting affects balance sheet composition, margin analysis, leverage metrics, and comparability with US GAAP filers.

Consequences include:

• Higher reported assets and liabilities relative to equity-method accounting

• Direct recognition of operating costs, affecting EBITDA and gross margin

• More granular insight into project-level economics

• Greater exposure to operational risks reflected on balance sheet

• Differences in gearing, ROA, and CAPEX ratios compared to US GAAP peers

Investors must adjust analysis when comparing IFRS and US GAAP entities operating in identical collaborative structures.

IFRS 12 requires extensive disclosures, including:

• Nature, purpose, and activities of the arrangement

• Rights and obligations of each party

• Commitments, guarantees, and contingent liabilities

• Summaries of financial information where material

This ensures transparency around shared asset exposure.

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Operational challenges arise in cost allocation, asset tracking, internal control consistency, and aligning policies across joint operators.

Practical implementation issues include:

• Determining proportionate interest when contributions differ over time

• Aligning depreciation policies for jointly used assets

• Tracking shared inventories and spare parts

• Managing joint bank accounts or operator advances

• Handling disputes over cost-sharing

• Reconciling joint operation records with each party’s internal systems

• Harmonizing IFRS policies when operators use different GAAP frameworks

• Handling multi-currency contributions and project financing

Joint operations require rigorous governance structures to maintain accurate accounting, ensure fair allocation, and support audit readiness.

Correct application under IFRS 11 provides a transparent and faithful representation of shared economic activity, enabling stakeholders to understand the financial impact of collaborative operations.

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