Whether in real estate, architecture, engineering and design or other industries, your project may fall under the accounting definition of a Joint Arrangement. Certain of these arrangements were previously referred to as joint ventures. Examples of joint arrangements can include co-tenancies, partnerships or joint projects that have a less formal structure. Many other types of shared strategic initiatives also fall under this category.

If an Audit or Review Engagement is required for the financial statements of your privately owned enterprise, changes to the accounting for these arrangements is required for years beginning on or after January 1, 2016. These requirements are included in the Canadian Accounting Standards for Private Enterprises (ASPE) Section 3056 – Interests in Joint Arrangements.

This ASPE section specifies the accounting for an interest in a joint arrangement according to whether it is an interest in jointly controlled operations, jointly controlled assets, or a jointly controlled enterprise.

Under the old accounting standard, there was the option to account for all types of joint arrangements using the proportionate consolidation method, cost method or equity method.

Under the new accounting standard, this option has been eliminated and replaced with the following requirements:

1. An investor in jointly controlled operations or jointly controlled assets must account for its interest in the joint arrangement by recognizing its share of assets controlled, liabilities incurred, revenues and expenses. This is similar to the old proportionate consolidation method, and
2. an investor in a jointly controlled enterprise has a choice to:

• account for all interests using the equity method,
• account for all interests using the cost method; or
• perform an analysis of each interest to determine whether it is an interest in the individual assets and liabilities rather than an interest in the net assets and, if so, account as described in (1) above.

An understanding of the business operations and agreement as to how investors benefit from the arrangement is required to establish if your organization has an interest in a joint arrangement.

The Financial Reporting and Assurance Standards Board of Canada has published resources to provide guidance on this subject. A great starting point is their FYI Article – Joint Arrangements and Investments: Embrace the Changes which can be accessed here.

And, of course, our Assurance team is always here to help your organization navigate these changes. Please give us a call so that we can provide assistance.