How does the elimination of the proportionate consolidation method for joint venture investments influence European companies?

Susanne Leitner-Hanetseder, Markus Stockinger

Research output: Contribution to journalArticlepeer-review

Abstract

Following the adoption of IFRS 11 “Joint Arrangements”on 1January 2014,IFRS-reporting entities are facing new challenges regarding the classification and accounting of joint ventures. As a consequence of the short-term convergence project between the IASB and the FASB, the accounting option for joint ventures has been eliminated in the new standard in order to reduce the differences between these two major accounting principles. However, the abolition of the accounting option for joint ventures will affectfinancial statement figures and key financial ratios, as some European companies have to change from the proportionate consolidation method to the equity method. This paper examines how the transition from the proportionate consolidation method to the equity method will affectEuropean companies. It describes the relevance and preferred accounting methods for joint venture investments and explores whether the effects on several financial statement figures and key financial ratios are material for European companies. Thus, this paper provides European companies as well as the users of financial statements –auditors, financial analysts, banks and investors –first evidence of these expected effects.
Translated title of the contributionHow does the elimination of the proportionate consolidation method for joint venture investments influence European companies?
Original languageGerman
Pages (from-to)1-18
JournalACRN Oxford Journal of Finance and Risk Perspectives
Volume3
Issue number1
Publication statusPublished - Feb 2014

Keywords

  • IFRS 11
  • joint arrangements
  • joint ventures
  • proportionate consolidation method
  • equity method
  • materiality
  • effect analysis

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