Joint operations, joint ventures and the equity method

What is joint control?

The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A 50:50 company where both parties must agree on budgets and major decisions is jointly controlled; a company in which one investor holds 60% and decides alone is a subsidiary of that investor. A party that participates without joint control accounts for its interest according to its rights: its share of assets and liabilities in a joint operation, or IAS 28 or IFRS 9 otherwise. See control under IFRS 10.

Is it a joint operation, a joint venture or an associate?

An arrangement not structured through a separate vehicle is a joint operation. One structured through a separate vehicle, such as a company, is a joint venture unless its legal form, the contractual terms or other facts and circumstances give the parties rights to the assets and obligations for the liabilities, for example when the parties take all its output and fund its liabilities. See joint operating agreements, mining joint arrangements and real estate joint ventures.

What is an associate?

An entity over which the investor has significant influence, the power to participate in financial and operating policy decisions without control or joint control. Holding 20% or more of the voting power is presumed to give significant influence, and less than 20% is presumed not to, unless shown otherwise. Representation on the board, participation in policy-making, material transactions, interchange of managers and provision of essential technical information are evidence of it. Associates and joint ventures are also related parties of the investor; see IAS 24 related party disclosures.

The equity method in practice: a joint venture's first year

On 1 January a company pays CU 400 million for 40% of a joint venture. The joint venture makes a profit of CU 150 million in the year and pays a dividend of CU 50 million. The company has also sold inventory to the joint venture at a profit of CU 30 million, all still unsold by the joint venture at the year end. All figures are in CU million.

Profit or loss includes a share of the joint venture's results of 48, after removing the company's share of the profit on goods still inside the joint venture. The dividend is a return of part of the investment, not income. If the joint venture made losses, the company would stop recognising its share once the investment reached zero, unless it had obligations or had made payments on the joint venture's behalf. The investment as a whole is tested for impairment under IAS 36 when there is objective evidence it may be impaired. See IAS 36 impairment.

Who can use fair value instead of the equity method?

Venture capital organisations, mutual funds, unit trusts and similar entities may elect to measure investments in associates and joint ventures at fair value through profit or loss under IFRS 9, investment by investment. Amendments issued by the IASB on 26 June 2026, applied together with IFRS 18 from 1 January 2027, clarify that similar entities include those whose main business activity is investing in particular types of assets, and that eligibility is assessed for the entity that directly holds the investment. See IFRS 13 fair value.

What is changing in the equity method?

The IASB has finished its technical discussions on a revised IAS 28, which answers common questions about applying the equity method, such as buying further interests and recognising losses, and restyles the standard. It expects to issue the revised standard in the first half of 2027, effective for periods beginning on or after 1 January 2029, with early application permitted. The long-deferred amendments on sales or contributions of assets between an investor and its associate or joint venture remain on hold.

How does US GAAP treat joint arrangements?

US GAAP has no joint operation category. Investments in joint ventures and entities over which the investor has significant influence are accounted for using the equity method under ASC 323, with proportionate consolidation allowed only in limited industries such as construction and extractive activities. US GAAP also allows a broader fair value option, and since ASU 2023-05 a newly formed joint venture measures its net assets at fair value on formation. See IFRS 10 vs ASC 810.

This guide is general information. It is not tax or legal advice for your situation.